Colorado Medicaid overexpenditure reaches $157.9 million as larger costs are projected

Colorado Medicaid exceeded its fiscal-year 2025-26 general-fund budget by $157.9 million, and state officials project about $700 million in additional spending. They say the combined effect could increase the state budget impact by $1.3 billion to $1.5 billion before reserve requirements.

The overexpenditure covers the fiscal year that ended June 30. Mark Ferrandino of the Office of State Planning and Budgeting told the General Assembly’s Medicaid commission on Sept. 17 that gross overexpenditures totaled about $213 million before offsets from underspending elsewhere. The Colorado Department of Health Care Policy and Financing’s executive director, Hammer, said the $157.9 million net figure was final, according to the commission recording.

The larger projection remains subject to change. Expected Medicaid spending rose from about $5.5 billion to $6.2 billion. Updated figures presented during the Joint Budget Committee’s Sept. 18 forecast discussion included $158 million above forecast for 2025-26, $443 million in additional costs for 2026-27 and about $417 million in projected year-over-year growth for 2027-28.

The spending growth is driven primarily by utilization and costs rather than broad enrollment increases, officials told lawmakers. The main areas are acute care and pharmacy, behavioral health, and community-based long-term care.

Pharmacy costs rose while drug rebates came in below expectations, the department said. Long-term-care growth was concentrated in personal-care and homemaker services. Behavioral-health costs included higher payments to regional accountable entities and increased use and intensity of services. Lower-than-forecast Recovery Audit Contractor collections accounted for about $33.1 million in reduced recoveries. The department also cited an inaccurate estimate of state fund sources and said it is conducting after-action reviews.

The Colorado Department of Health Care Policy and Financing has begun reviewing hiring, compensation, administrative costs, pharmacy practices, operational contracts, and possible fraud, waste and abuse. It has not assigned specific savings amounts to those measures. The department outlined four response areas: administrative efficiencies; getting more value from Medicaid and other administered benefits; stronger program integrity and fiscal accountability; and maximizing federal and other non-general-fund resources.

Ferrandino said the governor’s office and the Office of State Planning and Budgeting intend to submit Medicaid reductions as part of the governor’s Nov. 1 budget request. Community-based long-term care, behavioral health and pharmacy are under consideration, though federal rules constrain pharmacy changes. Officials have not identified specific services, provider rates or recipient groups that would be reduced.