From August 21 through August 26, the Colorado legislature held a special session to address a new, massive shortfall in the state’s budget. The deficit was a direct result of the federal budget reconciliation bill, H.R. 1, which reduced state revenue by over $1.2 billion for the current fiscal year, largely due to its tax provisions (a subsequent estimate has since reduced the deficit to $783 million). With Colorado’s constitution requiring a balanced budget, lawmakers were compelled to restore fiscal stability.
To close the budget gap, the governor and legislators agreed on a strategy of thirds: one-third of the solution would come from increasing state revenue through tax policy changes; another third would come from drawing down reserve funds; and the final third would involve departmental cuts.
When he called the special session, Governor Polis limited its scope. He tasked the legislature with considering fiscal changes to address the state’s revenue shortfall by modifying certain tax credits . The governor’s priorities included healthcare initiatives to protect Medicaid access to Planned Parenthood and prevent health insurance coverage loss. The administration also addressed the financial impacts of a new AI bill and secured funding for SNAP administrative costs. To save $3 million, the governor announced a hiring freeze for the remainder of the year. Notably, he did not ask legislators to cut departmental budgets. Instead, the governor and legislative leadership agreed that the executive branch would recommend cuts after the special session., while notifying the Joint Budget Committee of those plans.
Accordingly, two days after the special session, the governor announced nearly $300 million in cuts as the final budget balancing measure. This included more than $79 million in cuts to the state’s Medicaid program. The largest of these is the reversal of the state’s plan to increase Medicaid provider reimbursement rates by 1.6%, which is estimated to save the state $38 million. This rate rollback will affect all Medicaid providers, including behavioral health. Because it applies only to fee-for-service reimbursements–not the prospective rates paid to comprehensive providers–it will likely hit smaller independents and other essential safety net providers the hardest (though CBHC’s members will nevertheless be affected). The governor also announced a $3.8 million reduction in incentive payments for primary care and behavioral health providers, which are intended to reward providers for meeting targets that keep Medicaid members out of higher-cost care settings. In addition, he identified other measures to manage Medicaid spending based on HCPF’s previously-announced Medicaid Sustainability Framework. These include pulling back from earlier policy changes that have driven higher utilization, such as the elimination of prior authorization for outpatient psychotherapy. Under HCPF’s new framework, prior auth will now be required after Medicaid members have received 24 such sessions. A summary of all the governor’s cuts can be found here.
The combined efforts of the governor and legislators succeeded in balancing the state budget for the remainder of the 2025-2026 fiscal year. However, ongoing uncertainty about federal fiscal and monetary policy foreshadow challenges for the subsequent years. Indeed, at this writing, state budget experts have just warned of a projected $825 million deficit for the 2026-27 fiscal year. CBHC is committed to working with our partners at HCPF and the BHA, as well as legislators and other stakeholders, to identify sustainable strategies that will enable safety net providers to continue serving their communities within constrained budgets.
