Colorado’s Medicaid growth is colliding with fiscal reality

By Shaina Cole | Contributing Writer

A new report from the Common Sense Institute (CSI) warns that Colorado’s Medicaid program is on an unsustainable path—driven by rapid expansion at the state level and compounded by shrinking federal support. The warning comes as lawmakers prepare for a possible special session to address the state’s growing budget deficit.

State policy has driven major cost growth

Since 2019, Colorado has enacted 182 healthcare-related laws, with 21 of them expanding Medicaid eligibility or benefits. According to CSI’s July 2025 report, these expansions alone add approximately $158 million in recurring annual state costs.

In total, the new legislation contributes around $858 million per year in additional Medicaid-related spending. Only 36% of that new spending is federally matched, CSI reports. The remainder falls on the state budget and private insurers through hospital assessments—raising costs for taxpayers and employers alike.

Source: Common Sense Institute, July 2025 Report

Enrollment swelled during pandemic—and remains high

Much of the cost pressure is tied to enrollment. Medicaid numbers surged during the COVID-19 public health emergency, driven by a federal ban on disenrollments. Enrollment peaked at 1.77 million Coloradans in April 2023. As of April 2025, it had declined to 1.22 million, but remains above pre-pandemic levels.

Expansion laws missed their target

CSI argues that while the intent of the expansion bills was to reduce uncompensated care—the cost of treating uninsured patients—very few achieved that goal. In fact, only two of the 21 expansion laws measurably reduced expenses. The rest of the expansion laws increased Medicaid usage without improving access for the most dependent populations with regards to emergency care. 

As a result, hospitals and providers in rural areas have seen higher patient loads and costs, without adequate financial offset. With fewer dollars coming from Washington, those gaps are widening.

Federal cuts raise pressure on Colorado Medicaid

The federal Big Beautiful Bill (H.R. 1), signed into law in July, phases out enhanced Medicaid reimbursements and imposes new cost-containment measures on the states.

Key provisions of the law include work requirements for able-bodied adults without dependents, more frequent eligibility checks, and reductions in both federal matching rates and provider taxes. The law also imposes new restrictions on Emergency Medicaid for undocumented immigrants and bans federal funds from covering abortion-related services and gender-transition treatments. One of the few additions is a $50 billion rural hospital stabilization fund meant to support struggling providers.

Currently, about 64% of Colorado’s total Medicaid spending is covered by federal funds, according to data from CSI, the Kaiser Family Foundation, and Medicaid.gov. But with federal reimbursements set to decline beginning in 2027, that support may no longer be enough to sustain the current model.

Hospitals face underpayment and new strain

According to the Common Sense Institute, Colorado Medicaid reimburses providers at only 88% of actual costs, leaving hospitals to absorb the difference. That strain is especially severe in rural counties, where Medicaid and Medicare make up the majority of the payer mix. CSI estimates these underpayments create more than $8.7 million in annual losses statewide.

The Big Beautiful Bill (H.R. 1) includes a $50 billion rural hospital stabilization fund over five years, intended to support providers most at risk from federal reimbursement changes. But critics say the relief may not go far enough—and may not even reach all the hospitals that need it most.

Rep. Matt Soper (R-Delta), who chairs the board of Delta Health, says the law could have far-reaching consequences. “Delta Health was listed as one of six rural Colorado hospitals likely to close under H.R. 1,” he wrote in a statement. While Medicaid often underpays, Soper noted that “at least Medicaid pays” and losing expanded population coverage could mean even more uncompensated care.

Soper described how Delta Health receives 75% of its payments from Medicaid and Medicare while Medicaid covers about one-third of Delta County residents. The hospital depends on Medicaid inpatient volumes to stay eligible for the federal 340B discount program which reduces prescription costs and supports local services including oncology and cardiopulmonary care.

Losing Medicaid volume, he said, threatens that $3.2 million benefit and could trigger service cuts.

Even with the federal funding set aside, Soper expressed skepticism: “The ‘rural’ funding set aside will likely not even reach Delta Health as we are not a designated rural hospital. Many, like Delta Health, don’t have the resources for a full grant writing team to lobby and work the halls of the CMS office in Washington, DC.”

He also flagged the burden of Colorado’s Discounted Care Law (HB21-1198), which requires hospitals to screen uninsured patients for Medicaid eligibility. It is an unfunded mandate that becomes more costly when more people roll off public coverage. “If patients are continuously disenrolled, their primary care will suffer, which means our Emergency Room will be overrun with ‘run of the mill’ issues,” he warned. “The ER is the most expensive place to deliver healthcare.”

The implementation of H.R. 1 federal disenrollment mandates together with Colorado’s HB21-1198 creates a dangerous situation where more patients become uninsured while providers face increased administrative and financial burdens. Rural hospitals such as Delta Health face the risk of reduced services, longer travel times for care and intensified economic pressure in areas that already struggle with access to healthcare.

This is another example, the Common Sense Institute argues, of how Colorado’s Medicaid laws passed since 2019 have added layers of cost and complexity without reducing uncompensated care. As rural systems struggle to stay afloat, the impact of these overlapping policies is becoming harder to ignore.

Emergency Medicaid usage raises cost questions

A Colorado Sun investigation, based on data obtained through a Colorado Open Records Act (CORA) request, found that 36,834 noncitizens received emergency medical care in May 2025 alone—many for non-life-threatening conditions. These visits were covered under Emergency Medicaid after being classified as urgent under federal EMTALA rules.

In 2023, the state spent $73 million on Emergency Medicaid. According to the Sun, nearly 5% of all Medicaid beneficiaries that month fell under this limited-use category. With no access to preventive care, many undocumented patients continue to rely on emergency rooms for basic medical needs.

Most recipients work—but the costs remain high

Supporters of Medicaid work requirements believe these requirements help able-bodied recipients make contributions to the system. The majority of Medicaid recipients either work or qualify for exemptions according to opponents.

According to the Kaiser Family Foundation, about 64% of adult Medicaid enrollees work full or part-time. An additional 29% are disabled, caregiving, or in school. That leaves approximately 8% of recipients as non-working, able-bodied adults without exemption. 

In a program serving over a million people, that small percentage translates to tens of thousands of enrollees and hundreds of millions in potential costs.

Will lawmakers confront the cost curve?

With a projected $1.2 billion budget shortfall and federal reimbursements set to shrink, Colorado’s Medicaid system is entering a period of reckoning.

The Common Sense Institute makes a clear case: state lawmakers have expanded benefits faster than they’ve addressed systemic inefficiencies. Uncompensated care remains high. Rural providers remain underpaid. And taxpayers are shouldering more of the burden.

The question now is whether the legislature is willing to realign the state’s healthcare obligations with its fiscal reality—and whether that reckoning comes in the form of reform or deeper deficits.