Health Care Authority outlines FY27 budget as Medicaid shifts from pandemic-era enrollment

Cabinet Secretary Carrie Armijo told the Legislative Finance Committee that the Health Care Authority’s FY27 budget request is anchored to a $2.2 billion general-fund base and is driven by federal policy changes and rising utilization.

Armijo, presenting HCA’s budget for Medicaid, the Developmental Disabilities Supports Division (DDSD) and the Behavioral Health Services Division, said the agency’s total FY27 request is roughly $15 billion, with a $116 million (5.6 percent) increase in general-fund need compared with FY26. "We will talk about the Medicaid program, the developmental disability supports division, and the behavioral health services division," she said in opening remarks.

Why it matters: Armijo said a set of federal changes tied to the reconciliation bill HR 1 — including community engagement requirements, more frequent eligibility checks and a reduction of retroactive coverage from 90 to 30 days — will lower enrollment but not proportionately reduce expenditures because remaining enrollees are higher-acuity and costlier to serve.

Key budget drivers and policy shifts: Armijo listed four big cost drivers for FY27: implementing HR 1 eligibility rules; backfilling SNAP administrative costs; increased DDSD utilization (about $39.1 million); and replacement of opioid-settlement revenue. She added that pharmacy spending is a mounting pressure and announced a Medicaid preferred drug list planned for 2026 to leverage supplemental rebates.

On provider payments and network growth, Armijo said HCA has increased reimbursement — including paying roughly 150 percent of Medicare for primary care, maternal-child health and behavioral health services — and that the Medicaid provider network has grown by 24 percent since the Turquoise Care launch. "We're seeing unlocked access to care," she said, citing increased visits for autism services and physical therapy.

DDSD and behavioral health: The agency’s DDSD base request is $323 million GF with a $39.1 million expansion request to keep pace with enrollment and utilization; HCA expects a statutorily required rate study to be finalized by month’s end. For behavioral health, Armijo requested $12.9 million in new GF, largely to sustain 988 crisis services and replace lost opioid settlement funds, and noted CCBHC expansions and early-access funding created under Senate Bill 3.

Risk corridors and MCO finances: In committee questioning, Armijo described an 18-month risk corridor established for MCO capitation that ends this month. "A risk corridor is essentially a tool that we use…when we have an uncertain time in health care," she said, explaining that it splits some actuarial risk between the state and MCOs to preserve a viable provider network. HCA reported a supplemental GF need of about $23 million for FY26 related to corridor adjustments and said it has made upward capitation adjustments for calendar year 2026.

HCA cautioned that the federal reconciliation bill generates uncertainty and that, even as enrollment falls, acuity and pharmacy costs could keep state expenditures elevated. Armijo answered detailed committee questions about SNAP data requests, payment-error rates and efforts to reduce the state’s federal cost-share risk beginning in FY28.

Next steps: Armijo said HCA will continue to provide technical exhibits on capitation adjustments, share provider profit and underwriting information when available, and finalize the DDSD rate study that will inform any FY27 rate-change requests.