Colorado Medicaid’s projected federal funding losses remain unsettled

Colorado Medicaid officials are projecting substantial reductions in federal funding as new limits phase down hospital payments and lower the ceiling on the state’s hospital provider-fee assessment. The final impact remains unsettled.

At an Aug. 27 Commission on Medicaid meeting, HCPF Chief Financial Officer Josh Block said Colorado had projected about $450 million in additional federal funds in each of fiscal years 2025-26 and 2026-27 through state-directed payments. He said the amount would then decline substantially as payments move toward the Medicare rate. The funds had not yet been drawn down because HCPF was still working with hospitals and the federal Centers for Medicare and Medicaid Services on approval of the payment model, Block said in the commission recording.

The $450 million estimate differs from an earlier state projection. A Colorado Legislative Council staff briefing dated Dec. 10, 2025, projected $614 million in federal funds from state-directed payments in fiscal 2026-27, as part of $974.6 million in total managed-care supplemental payments.

The available records do not establish whether Block’s figure is a revised estimate, a narrower component of the earlier projection or an estimate of funds not yet drawn down. As of Aug. 29, the discrepancy had not been resolved.

Two separate funding changes

State-directed payments are supplemental Medicaid payments arranged through managed-care plans. Block said Colorado previously could direct payments at the average commercial rate, which is above Medicare. Under changes associated with the Working Families Tax Cut Act and related CMS rules, those payments will be capped and phased down over time.

The CMS guidance says the new limit applies to specified state-directed payments for rating periods beginning on or after July 4, 2025. The Colorado legislative briefing says the phase-down toward Medicare begins Jan. 1, 2028, with a 10-percentage-point reduction each year from the average commercial rate.

The second change affects Colorado’s hospital provider fee, which helps finance Medicaid. The legislative briefing says the federal revenue limit will decline from 6% beginning in October 2027, falling by 0.5 percentage points annually until reaching 3.5% in federal fiscal year 2031-32. The provision does not affect nursing provider fees.

The briefing modeled declining hospital-fee collections of $140.3 million in federal fiscal 2027-28, $294.6 million in 2028-29, $464 million in 2029-30, $649.6 million in 2030-31 and $852.7 million annually by 2031-32. Those are modeled impacts, not final budget losses. The briefing said the eventual loss of federal matching funds will depend on whether Colorado reduces supplemental payments or services for expansion populations.

A commission member separately estimated at the Aug. 27 hearing that the provider-fee change could affect about $500 million in federal funding. HCPF said the two changes operate through different mechanisms and would both reduce federal funds, but it did not present a final combined estimate.

HCPF also did not identify a specific Medicaid program or provider category that would absorb the reductions. The discussion mentioned possible savings involving behavioral-health billing codes, coverage caps and caregiver hours, but officials did not say those measures were intended to offset the federal changes.

Approval and next steps

The hearing included two statements about federal approval that were not fully reconciled. Block said Colorado submitted materials to CMS in July 2025 and believed it received approval in December 2025. He also said HCPF still needed to work with CMS to secure approval of the payment model before drawing down the money, with the amount depending on actual utilization.

The CMS page listing approved state-directed-payment arrangements does not, based on the available record, establish a matching Colorado hospital arrangement or clarify whether the December 2025 approval was preliminary, conditional or related to another part of the payment structure.

The record shows that additional hospital coordination and CMS-related work remained as of Aug. 27. It does not identify a final approval letter, an approved-preprint number or a specific hospital agreement still outstanding. Federal regulations generally require written prior approval for covered state-directed payments, usually tied to a rating period unless a qualifying multiyear approval is granted.

The commission is scheduled to discuss Medicaid funding and financing Sept. 2. HCPF also agreed to provide more information on the federal changes, care-coordination costs, pharmacy spending and access concerns.

The same meeting included stakeholder reports of network closures, credentialing problems, contract cancellations, changing rates and codes, and patients being reassigned between regional accountable entities. The examples were not verified statewide findings, and the meeting did not identify the affected providers, patients or regions in the most specific cases. HCPF says ACC Phase III began new regional accountable-entity contracts July 1, 2025, with behavioral-health providers required to be enrolled with Health First Colorado and directly contracted and credentialed by the regional entities for reimbursement through the capitated behavioral-health benefit.

For now, Colorado has published projections and federal rules have established payment phase-downs, but the final amount of lost federal funding, the timing of any drawdown and the services or payment lines that could be affected remain unresolved.