Montana DPHHS: 'all options are on the table' to close budget gap, including service cuts

Funding for the state’s social safety net could be on the chopping block as officials told lawmakers on Tuesday they are looking for ways to address budget shortfalls at the Montana health department.

The 2025 Legislature, which crafts the budget for every executive agency, allocated $7.2 billion over the next two years to the Department of Public Health and Human Services; but only nine months into that cycle, health officials are already ringing the alarm, saying they won’t have enough cash in the bank to fund operations.

Policy decisions made by legislators, coupled with unexpected federal changes, have left the state’s largest agency facing a $34 million budget shortfall this fiscal year and unable to make up the difference next year, according to officials. With no relief in sight, the health department anticipates needing more money to backfill its coffers and possibly cut programs in order to shrink the gap.

“At this time, all options are on the table,” DPHHS director Charlie Brereton told legislators on Tuesday.

This shortage doesn’t come as a huge surprise to the people who pull the purse strings, but it’s been exacerbated by a perfect storm of factors.

The Legislature’s budget assumed a certain tally of Medicaid cases, but those projections low-balled the actual numbers of enrollees, meaning more money is needed than planned.

Rep. Jane Gillette, who chaired the health budget committee during the 2025 legislative session, recalled being given two options: a higher estimate from DPHHS and a lower alternative from the legislative fiscal division, which lawmakers ultimately opted to use.

“That’s on us. We did it,” Gillette, who also chairs the interim budget subcommittee, said on Tuesday. “We had these debates in committee. We knew that was a risk.”

Alone, the higher costs associated with more Medicaid enrollees could likely be addressed with a fairly modest "supplemental," a request from departments to the Legislature for more money if their budget projections didn’t pencil out.

But DPHHS is facing other pressures, too.

Services provided to patients with traditional Medicaid, the joint federal-state health insurance that covers people with disabilities, pregnant women and seniors, is reimbursed at a certain rate by the federal government. That rate depends on a state’s income. Places where residents earn more receive less federal money, whereas those with lower incomes get higher rates.

In 2019, Montana’s federal reimbursement rate was 65.5%. That number dropped to 61.4% in 2026 and will drop again to 60% in 2027.

The Legislature did not anticipate such a steep decrease, which means it will bring in less federal money than it had planned, another source of budgetary pressure.

“We didn’t discuss [FMAP] as much,” Gillette said. “We were wrong on FMAP.”

There was also a last-minute change to House Bill 2, the state’s primary budget bill, axing $35 million that had been set aside to pay for contracted workers at the Montana State Hospital.

Sen. Ellie Boldman, a Missoula Democrat, proposed the amendment on the Senate floor against the recommendation of the department, which says it’s been making progress in hiring full-time staff to the state’s largest inpatient psychiatric facility but remains reliant on travelers.

“Can we call this the 'Boldman Senate Floor amendment' so that we just put a little exclamation point on what caused this?” said Sen. Carl Glimm, a Kila Republican who opposed the measure.

Brereton told lawmakers that the department had warned of this outcome.

“I feel like we’ve warned over and over that this was a possibility and likely a reality,” he said. “Here we are today.”

What nobody necessarily expected, though, was the passage of a federal budget that would also upend state finances. H.R.1, known as President Donald Trump’s “big, beautiful bill,” is projected to cost DPHHS around $160 million next fiscal year, Montana legislative fiscal documents show.

DPHHS explained to lawmakers on Tuesday that it has a plan to mitigate the impact of the looming financial cliff, including transferring dollars from other pots of money into the general fund, where most operations are paid out of.

But that won’t be enough to make up for losses this year, and certainly not next, officials added. And that’s where cuts could come into play, including the potential of forgoing 3% Medicaid provider rate increases that were passed by the 2025 Legislature as part of HB2.

Health care providers have long said that Medicaid rates aren’t high enough to cover the costs of services to Medicaid patients, which means they either have to limit how often they provide care to that population or risk financial distress.

In 2023, lawmakers overhauled Medicaid reimbursement but decided to ratchet up rates again last session to the tune of $147 million in two years.

The conversation worried committee Democrats such as Bozeman’s Sen. Christopher Pope.

“I’m concerned because we got off the path,” he said. “There are so many good things that are trying to happen that getting off the path really makes it difficult to get things done properly the way we have always been planning to.”

It also sparked flashbacks for some to 2017, when the health department was forced to close 19 public assistance offices and hollow out case management programs, among other services. Many people say the system has yet to recover, and the health care system is already at risk because of forthcoming changes to Medicaid required by federal law that the state is rolling out by July 1.

"Loss of health coverage expected with these new requirements will impact providers’ ability to cover cost of care, and at the same time, providers now face additional uncertainty in the rates they could expect in the coming year,” said Heather O’Loughlin, executive director of the Montana Budget and Policy Center.

DPHHS said it will provide more information on proposed next steps in the coming months.