Oregon Warns Medicaid Cuts May Be Inevitable as Costs Explode Beyond the 2026 Budget
Cutting Medicaid benefits could be the only option left for Oregon lawmakers as the spiraling costs of a projected $564 million exceed the 2026 budget.
Lawmakers had earlier projected annual health plan increases of 3.4%, but are now confronting average fee hikes of about 10% for 2026.
Source: Oregon Health Authority press release / OHA works to protect quality health care across Oregon (Oct 17 2025)
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The Growing Demand for Behavioral Health Services is Fueling the Ballooning Budget
Addressing a legislative budget committee hearing on Tuesday, the deputy director of the Oregon Health Authority (OHA), Dave Baden, informed lawmakers that the unexpected higher rate of increase was primarily sparked by growing demands for behavioral health services. Compounding the problem are rising costs at hospitals, clinics, and healthcare providers, statewide.
Last year, lawmakers passed House Bill 2010 to extend taxes on hospitals and health insurers that bolsters federal funding of the Oregon Health Plan – the state’s Medicaid program for low-income individuals and families, as well as for those with disabilities.
The higher payment rates that the OHA agreed to make to regional health plans, which manage the bulk of Oregon’s Medicaid benefits, are driving the huge increase, resulting in a budget shortfall.
There are 16 coordinated care organizations that receive fixed monthly payments to manage the healthcare of 1.4 million residents covered by the Oregon Health Plan (Medicaid).
Cutbacks to Healthcare Providers Meeting Quality Goals Could Shave $210 Million from the Budget Shortfall
OHA is proposing to reduce its payment bonuses paid to healthcare providers who meet quality goals in chronic disease management, preventive care, and maternal health outcomes. This action will shave a $210 million shortfall from the budget.
Here is how large the statewide CCO quality bonus pool has been in recent years.
| Measurement year | Quality Pool amount | Share of total PMPM payments |
|---|---|---|
| 2019 | $166.7M | 3.5% |
| 2020 (Quarter 1 only) | $52.8M | 4.25% (Quarter 1 only) |
| 2021 | $266.2M | 3.75% |
| 2022 | $300.8M | 4.25% |
| 2023 | $325.9M | 4.25% |
| 2024 | $325.0M | 4.25% |
Note: OHA describes this bonus funding as the Quality Pool within the CCO Quality Incentive Program. |
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However, this would still leave a $354 million budget shortfall, leaving lawmakers with no option but to approve the allocation of more cash from the general state coffers to help bridge the gap.
Other Proposed Cutbacks Could End Community Mental Health and Adult Dental Care Services
However, an alternative plan suggested by the OHA is that the state reduce payments to Medicaid services that do not receive any federal funding. This could mean the demise of community mental health and adult dental care services.
Last August, Governor Tina Kotek announced that the Trump administration’s budget reconciliation bill will cut $15 billion in federal funding from the state’s health insurance coverage and food benefits, among other programs.
Calling it a betrayal of American children and families, the governor revealed that the budget will cut $3 billion in federal funding to the state over the 2025-2029 fiscal period.