Medicare Advantage Disputes Surge as Providers and Payers Clash Over Costs
Medicare Advantage (MA) plans and healthcare providers are increasingly locked in contentious contract negotiations, with a growing number of health systems choosing to leave MA networks altogether. A “spike” in these disputes has been observed since 2022, fueled by rising costs and a shifting healthcare landscape, according to industry analysts.
Rising Costs Fuel Tensions
For years, providers have sought higher reimbursements to offset challenges including workforce shortages, escalating labor costs, and increasing administrative burdens. These demands have reached a critical point, particularly in the wake of pandemic-induced inflation, prompting some providers to sever ties with specific MA plans.
“Provider challenges in delivering patient care amidst onerous payer coverage barriers or insurer refusal to contract with providers — unless they accept below-cost reimbursement rates or business terms that interfere with efficient care delivery — may lead providers to make the difficult decision to not participate in a particular network,” a spokesperson for the American Hospital Association stated.
Payers, however, are resisting these demands, citing their own rising costs associated with drugs, procedures, and overall care delivery. Insurers argue that some hospital systems employ “unfair and opaque billing practices” that contribute to higher costs for seniors and other Americans.
As one analyst noted, “the same intractable problems continue to be intractable.”
Shifting Demographics and Enrollment Intensify Pressure
Several factors are converging to exacerbate the situation. Growing enrollment in Medicare Advantage, coupled with a gradual decline in employer-sponsored insurance, is intensifying the pressure on both sides. More than half of eligible beneficiaries were enrolled in Medicare Advantage as of 2023, according to research from KFF.
At the same time, the U.S. population is aging rapidly. Between 2020 and 2024, the number of adults aged 65 and older grew by 13%, significantly outpacing the 1.4% growth of working-age adults, while the number of children declined by 1.7%, according to the U.S. Census Bureau. This demographic shift is driving further growth in Medicare Advantage enrollment – and traditional Medicare – while simultaneously reducing the number of commercially insured patients.
This trend is causing concern among providers, who fear that patients with employer-sponsored coverage will eventually transition to Medicare Advantage plans with lower reimbursement rates. “Hospitals realize that Medicare Advantage is a huge part of their payer mix now,” said Paul Ginsburg, a professor of health policy at the Sol Price School of Public Policy and senior fellow at the Schaeffer Center for Health Policy and Economics at the University of Southern California.
The Impact of Inflation and Contract Dynamics
Payers and providers typically negotiate multi-year contracts outlining payment rates. However, the unexpected surge in inflation after 2020 caught both sides off guard, squeezing their financial margins. Health systems are now attempting to recoup losses from recent years, arguing that current reimbursement rates no longer cover their costs. Providers contend that MA plans contribute to shrinking margins, despite some federal research indicating minimal impact on profits.
Insurers, meanwhile, are grappling with profitability concerns, having underestimated the cost of deferred care and other expenses. “Payers are asking themselves really tough questions around whether or not [Medicare Advantage] will continue to be a profitable line of business,” said Citseko Staples Miller, managing director and leader of the healthcare and life sciences public affairs team at FTI Consulting. “We continue to see plans exiting markets.”
To manage expenditures, insurers are increasingly relying on cost management strategies like prior authorization, a practice that has drawn criticism from patients, providers, and policymakers alike.
Provider Pushback and Looming Policy Changes
In response to these pressures, some health systems are taking a firm stance. In October, Mayo Clinic announced it would no longer accept patients covered by certain Medicare Advantage plans, including those offered by Humana and UnitedHealthcare. Other systems, including Johns Hopkins Medicine, Allina Health, and Essentia Health, have also dropped plans.
These negotiations are unfolding against a backdrop of potential policy changes that could further disrupt the healthcare landscape. Providers and payers are attempting to secure favorable payment terms as potential cuts to Medicaid and the expiration of Affordable Care Act (ACA) marketplace subsidies loom. The Congressional Budget Office estimates that the “Big Beautiful Bill” will reduce federal Medicaid spending by almost $1 trillion over a decade and increase the number of uninsured individuals by 10 million.
Furthermore, premiums for ACA marketplace plans could more than double in 2026 if Congress fails to extend the subsidies, potentially leading to further coverage losses and an estimated $30 billion revenue loss for providers.
Ultimately, the escalating tensions between payers and providers reflect a fundamental shift in the dynamics of healthcare financing. As Gretchen Jacobson, a Medicare coverage and access expert at the Commonwealth Fund, explained, “There’s simply more at stake in these negotiations for payers and providers than there used to be.”
