HEALEY BUDGET CHIEF Matt Gorzkowicz had a split-second answer ready to go Wednesday when, after detailing the governor’s sweeping annual budget bill, a reporter asked what he expects to be the biggest fiscal-management challenge in the year ahead.

Health care costs, he replied almost immediately, a fitting choice as the state stares down the prospect of sharply rising Medicaid needs and an expected decline in federal funding that would otherwise ease the burden.

As is typically the case, the state’s Medicaid program,MassHealth, figures to be the single largest area of spending in the fiscal year 2027 budget proposal Healey unveiled Wednesday, accounting for $22.7 billion of the roughly $63.4 billion bottom line.

After federal reimbursements, budget-writers expect a net cost to the state of $9.3 billion, about 7.4 percent more than last year. That’s roughly twice the rate of overall spending growth in Healey’s annual budget, even after accounting for attempts to rein in the trend with targeted cuts.

Healey’s plan would cap dental benefits for adult MassHealth members at $1,000 per year and reduce funding for care management. She’ll also instruct MassHealth to take administrative steps to end coverage of GLP-1 drugs when used only for weight loss.

Taken together, those three steps would save $311 million in total MassHealth spending, or $110 million after accounting for federal reimbursements, according to Healey’s budget office.

Healey said her team looked for “places we can shave a little because we don’t have a choice.” Without those maneuvers and several other one-time fixes, she said, MassHealth spending would have increased by a double-digit percentage.

“Faced with an array of bad decisions, we tried to make the very best decisions that took care of the people that needed most to be taken care of,” she said.

MassHealth faces many of the same pressures plaguing commercial insurers, such as steep cost growth for prescription drugs. The state’s Medicaid system does not, however, expect increased headcount to play a role this year: Officials estimate MassHealth enrollment will stay flat or drop a bit in fiscal year 2027. Nearly 2 million people are covered by the program, a state-federal partnership that provides health insurance to low-income residents.

Healey’s team stressed that harder times are on the horizon as Massachusetts braces for the impacts of the federal reconciliation package President Trump signed in July. The Massachusetts Taxpayers Foundation projected last year that the law’s suite of health care changes, including new work requirements for Medicaid, will collectively shrink federal funding to Massachusetts by more than $24 billion over the next decade.

The governor kicked off her budget-unveiling press conference by lamenting that Trump “has taken a hatchet to federal funding.”

“We were looking at having to spend so much more money to try to deal with what was happening” to health care funding, Healey said. “But I said to the team, ‘We can’t let that happen. We can’t bankrupt our state while we try to address the federal shortfalls.’”

Altogether, including money from the voter-approved surtax on high earners that can only go toward education and transportation, Healey’s fiscal year 2027 annual budget would increase spending 3.8 percent over the fiscal year 2026 version.

That’s a smaller increase than the 5.4 percent jump from fiscal 2025 to fiscal 2026, but still higher than inflation and the 2.9 percent growth Beacon Hill expects for tax collections.

Healey, who last week made official her reelection campaign with affordability as a central theme, sought to spin the budget proposal as significantly more modest. She compared its bottom line not to the corollary annual budget she signed last summer, but instead to the state’s total spending in fiscal year 2026, a figure that includes the annual budget plus other “supplemental” budgets that collectively add hundreds of millions of dollars to the tab.

Doug Howgate, president of the Massachusetts Taxpayers Foundation think tank, credited the administration for “turning the ship” of spending growth following bigger annual increases in prior years. But he still warned about the long-term impacts of a structural mismatch between what the state brings in and what it appropriates.

“The real question is going to be when we do start to see some of those federal impacts on Medicaid enrollment and things like that,” he said. “If that happens, when the economy turns, it just ratchets up the pressure on the budget, and you want to make sure we’re in a place where we can adapt.”

Healey deputies said her annual budget bill does not seek any new tax or fee increases. (That means no renewed attempt to apply the state’s sales tax to candy sales, something Healey unsuccessfully floated a year ago.)

The governor on Wednesday also filed a separate bill that would carve up about $1.15 billion in revenue collected, but not yet spent, from the voter-approved surtax on wealthy households.

Healey’s spending plans would look dramatically different without the millionaires tax, revenue from which plays a critical role in several long-term goals under the governor’s latest proposals.

Her two spending bills together would direct more than $1.1 billion in surtax revenue toward the MBTA to cover its operations and replenish its reserves. Officials said that infusion would be enough to close the transit agency’s projected deficit in fiscal year 2027 and address most of its expected shortfall the following year.

Healey also called for using $550 million in surtax revenue to pay for increases in Chapter 70 state aid, which helps cities and towns pay for K-12 education, required under the 2019 funding reform law known as the Student Opportunity Act. She said the investment would guarantee a minimum increase in per-pupil aid of $75 for districts.

Her bill would increase Chapter 70 funding by $241 million overall, so all of the increase and more than $300 million of the base level set this year would be, arguably, fueled by the surtax.

That may rankle the unions who led the multi-year political push for the surtax. During the campaign, they argued that the new funding should only be used on top of recurring, operating dollars, not to replace them.

The fiscal year 2026 state budget used $496 million in surtax to pay for the entirety of that year’s annual step-up in school aid required by the Student Opportunity Act, prompting raised eyebrows. Massachusetts Teachers Association president Max Page told State House News Service at the time that he hoped such a significant an amount of surtax dollars going toward the Student Opportunity Act “wouldn’t be a part of next year’s budget.”

Healey’s surtax surplus spending plan is not the only fiscal proposal intertwined with her annual budget.

Earlier this month, she quietly filed legislation that would delay implementation of some of the tax-code changes enacted by the federal reconciliation law, which are projected to cut hundreds of millions of dollars from the state’s tax haul. Healey argued that phasing in those measures would soften the immediate financial impacts on Beacon Hill by $440 million over two years, while still allowing businesses to enjoy the relief down the line.

Officials said Wednesday that her annual budget’s math assumes the Legislature will approve her bill, which is no certainty given that lawmakers have been mostly quiet about whether or how they want to respond to the tax changes.

The governor’s annual budget filing is only a starting point for debate. Lawmakers will hold a series of hearings over the next few months to unpack it. The House typically rolls out and approves its budget rewrite in April, followed by the Senate in May.

Legislators then need to reconcile differences in their approach to get a final bill to Healey — a task they almost never complete before the July 1 start of the fiscal year that the budget covers.