Enrollment in Medicare Advantage has grown rapidly in recent years, with more than half of all eligible Medicare beneficiaries now receiving their coverage from a private plan. Although the pace of enrollment increases slowed in 2025, the total number of Medicare Advantage enrollees still increased and the share of Medicare beneficiaries who obtain their Medicare benefits from a private plan is expected to continue to grow over the next decade.
For hospitals and beneficiaries, one key distinction is that virtually all Medicare Advantage enrollees are in a plan that requires prior authorization for inpatient hospital stays (96%), post-acute skilled nursing facility stays (99%) and home health care (91%). Prior authorization is intended to reduce unnecessary care and lower costs, but it also imposes administrative burdens on providers, and sometimes leads to delays and barriers to care. Medicare Advantage plans also typically establish provider networks and impose higher out-of-pocket costs for out-of-network care. In light of the reported uptick in utilization among some Medicare Advantage enrollees, insurers looking to protect profits and guard against losses may seek to cut costs in ways that could impact hospitals, such as by tightening networks to direct patients to providers with lower costs. As Medicare Advantage enrollment grows, decisions made by insurers (related to networks, payment rates, prior authorization, and denials) along with decisions made by hospitals (whether to be in a Medicare Advantage network) can be expected to affect a larger share of the Medicare population.
Recently, hospitals and other providers—including in rural areas—have raised concerns about the impact of Medicare Advantage on their finances. Some hospitals have terminated contracts over payment rates, delays in payment, more restrictive coverage determinations, and denials. One issue that has drawn scrutiny from these groups has been plans’ practice of shifting hospitalized patients to “observation status,” which often means lower payments to hospitals and higher costs for patients. Additionally, one study estimated that Medicare Advantage denials of inpatient services reduced provider revenue by approximately 7%.