Rural Hospitals Rethink Medicare Advantage: Financial Strain Forces a Critical Crossroads
Across the American heartland, a growing number of rural hospital leaders are grappling with a difficult question: Can they continue doing business with Medicare Advantage plans without jeopardizing their financial survival—or the health of their patients?
Medicare, the federal health insurance program for people aged 65 and older, offers two paths: traditional, government-run Medicare, and Medicare Advantage—a privatized alternative managed by insurance companies. These private plans often lure enrollees with lower premiums, reduced out-of-pocket costs, and a range of attractive extras like dental and vision care, hearing aids, gym memberships, nutrition services, and even stipends for over-the-counter wellness products.
But behind the perks lies a troubling reality, especially for small, rural hospitals. A recent report from the American Hospital Association reveals that, on average, Medicare Advantage plans reimburse rural hospitals only about 90% of what traditional Medicare pays. And that’s problematic—because traditional Medicare already pays hospitals significantly less than private insurance plans, as highlighted in recent research by the RAND Corporation.
“The vast majority of our rural hospitals are in no position to absorb further cuts in reimbursement,” said Carrie Cochran-McClain, Chief Policy Officer at the National Rural Health Association. “Many are already walking a financial tightrope.”
That tightrope has snapped for nearly 200 rural hospitals since 2005, which have either shut down completely or ended inpatient services.
Jason Merkley, CEO of Brookings Health System in rural South Dakota, saw the writing on the wall. Facing mounting reimbursement losses, he feared the inevitable: staff layoffs, service reductions, and declining patient care. In response, Brookings made a bold move last year—terminating all four of its contracts with major Medicare Advantage insurers.
Other facilities followed suit. Great Plains Health, which serves rural communities across Nebraska, Kansas, and Colorado, has dropped all its Medicare Advantage contracts. Kimball Health Services, located in small towns spanning Nebraska and Wyoming, did the same.
Aside from financial concerns, rural healthcare providers also report frustrating payment delays and frequent denials of care authorizations from Medicare Advantage insurers—delays that can compromise patient outcomes in settings where every second and dollar counts.
Meanwhile, defenders of Medicare Advantage argue that the plans are more affordable for rural residents. Susan Reilly, a spokesperson for the Better Medicare Alliance, pointed to a recent analysis by an independent firm—based on federal data—that claims rural beneficiaries pay less under Medicare Advantage than traditional Medicare.
Still, many rural hospital administrators remain unconvinced. For them, the math—and the mission—no longer add up. Increasingly, these healthcare providers are deciding that to preserve core services, protect staff, and prioritize patients, they must sever ties with the very insurance programs meant to support them.
As the debate continues, one thing is clear: rural America’s healthcare lifelines are fraying, and for many communities, the decision to leave Medicare Advantage may not be a choice—but a necessity for survival.