With safety-net hospitals in financial distress, over $1 trillion in federal cuts to Medicaid looming, and a shortage of healthcare workers, Minnesota’s healthcare system is in crisis, and residents are losing their healthcare—especially in the state’s rural communities.
Medical officials in Minnesota are calling it a “systemwide crisis.” Hospitals are facing cash flow issues on top of mounting losses stemming from the COVID-19 pandemic. Clinics are cutting services and staff to keep their doors open, providing patients with worse care, or having to close completely.
Rahul Koranne, M.D., president, and CEO of the Minnesota Hospital Association (MHA), says the system needs a lifeline in the form of extra funding from the state, “so that we can make it through the earthquake.” Once hospitals are funded, “then we deal with the tsunami that starts in October 2026,” when significant additional changes to Medicaid eligibility and funding start to go into effect.
According to the MHA, 31 hospitals are in financial distress, and the 18 rural hospitals are on the brink of closure. Eight of the state’s labor and delivery units, exclusively in rural Minnesota, have closed since 2020, and 50 rural hospitals have no labor and delivery services now.
And these numbers are just the tip of the iceberg, according to Koranne, who says there are two factors driving the crisis: the structural issues in how healthcare is financed, and federal policy changes starting in October.
Health insurance rates rise while payments to hospitals fall
The Minnesota Department of Health’s (MDH) 2025 overview of rural healthcare states that three out of four rural Minnesotans make less in household income than the statewide median. A little over a quarter of Minnesotans live in rural Minnesota—more than 1.6 million people—but MDH says 54.4% of those residents use a public health insurance plan like Medicaid, compared to the 41.2% in urban areas.
In other words: rural residents disproportionately get insurance through Medicaid and rural hospitals are more reliant on Medicaid for their revenue—especially those with nonprofit status.
Of the 104 nonprofit hospitals in the state, 90 of them are in rural areas. Koranne says 75-85% of patients Minnesota’s nonprofit hospitals see are on Medicaid and Medicare, “and those two payers are not paying up to the cost of providing care,” Koranne said. Because these hospitals serve everybody, regardless of whether they have insurance coverage, the hospitals rely on these government-funded programs for revenue.
But, Koranne says Medicaid is only paying 68 cents per dollar of cost, and Medicare only pays 80 cents on the dollar, so the hospitals aren’t being fully reimbursed for the services they provide.
Koranne notes that commercial insurers aren’t paying what they used to either, despite charging their customers more. Minnesotans saw anywhere from a 6-30% increase in premiums in 2026 compared to last year. While the Affordable Care Act (ACA), or “Obamacare,” became a popular option when it was enacted in March 2010, enrollment numbers are quickly dropping. After Republicans in Washington allowed ACA tax subsidies to expire at the end of 2025, costs went up for over 89,000 Minnesotans, and about 12,000 enrollees lost their coverage altogether.
In October, the state’s healthcare crisis will begin to escalate. New Medicaid eligibility requirements—passed in President Trump’s One Big Beautiful Bill Act—restrict coverage to US citizens, lawful permanent residents, Cuban or Haitian entrants, and the Compacts of Free Association (COFA) migrants, which includes citizens of the Federated States of Micronesia, the Marshall Islands, and Palau. These new requirements discontinue coverage for refugees, asylum recipients, parolees, and victims of trafficking.
Federal matching funds for emergency Medicaid services for uninsured immigrants—such as undocumented immigrants—will be reduced from 90% to as low as 50%, the federal minimum.
Rural hospitals are feeling the brunt of the cuts
Starting in 2027, more Minnesotans will begin to lose their coverage. The “One Big Beautiful Bill Act” slashes Medicaid funding by an estimated $1.1 trillion over 10 years by tightening eligibility requirements for enrollees, making enrollment more complicated, and pushing more costs onto states and Medicaid recipients. As many as 140,000 Minnesotans could lose their health insurance coverage due to the One Big Beautiful Bill Act, according to the Minnesota Department of Human Services.
The law is expected to have a particularly devastating effect on rural hospitals, which disproportionately rely on Medicaid for their revenue. While the law includes funding for rural hospitals—$50 billion for a five-year period—it will not make up for the estimated $137 billion decline in Medicaid spending rural areas are expected to suffer due to the law.
Those cuts are putting rural hospitals at imminent risk of closure.
The loss of funds means a loss of hospitals, specifically in rural areas, which means longer drives to seek emergency care for residents who already struggle to access it. On average, rural Minnesotans travel three to six times farther for hospital care than those in the metro, with some driving as much as two hours.
OBGYN Kellie Stecher, M.D., who serves patients across the Twin Cities’ suburbs at Minnesota Women’s Care (MWC), says she’s seen multiple patients who haven’t had care in years because it isn’t accessible. She sees patients from across the seven-county metro area, which she attributes to suburban hospitals that may only provide internal medicine, but don’t have specialists on staff.
Losing rural clinics severely reduces access to preventative healthcare, like routine checkups and vaccines, leaving people to get sicker. Stecher says this lack of basic care in rural areas was particularly prevalent during the COVID-19 pandemic, and “we haven’t learned the lessons we were meant to learn.”
This predicament puts an extra strain on emergency rooms, who see patients at their most critical moments, and many ER patients have gone too long without care. The Emergency Medical Treatment and Active Labor Act (EMTALA) requires that anyone who presents at an emergency room must be given care, regardless of their ability to pay. This increases hospitals’ debt by creating uncompensated care, and strains the workload of physicians who are already working overtime.
Almost every hospital needs more healthcare workers, but rural hospitals’ shortages are even more severe. Being short-staffed means longer hours, more patients, and quicker burnout for these hospitals’ workers. Stecher says workers are leaving the industry after facing “moral injury” from systemic issues, like lack of quality care and employee retention and wellbeing. The fewer resources and staff a hospital has, the worse care is given to patients who are already struggling to find accessible healthcare.
Nonprofit hospitals are facing immense financial challenges as they struggle to keep their doors open, and fear patients won’t be able to get proper healthcare in the future.
Without legislative action granting immediate funding, these hospitals will have no option but to close their doors. Hennepin County Medical Center, the state’s largest nonprofit hospital, recently received a $205 million lifeline from the state government to keep its doors open.
Republicans were initially opposed to the Democrat-written bill, as it would’ve increased the Hennepin County sales tax from .15% to .25%, with a good portion of the tax revenue going towards funding HCMC. That stipulation was ultimately dropped, and a legislative deal was reached on May 13.
But this infusion doesn’t extend to all of the rural clinics outside of the Twin Cities who can’t pay their physicians and nurses. While an additional $30 million was awarded to rural hospitals statewide, Koranne says this isn’t enough, and that “long-term funding solutions are necessary to keep our nonprofit hospitals afloat in rural areas.”
Koranne says he fields questions every day from patients with “Cadillac” insurance plans, asking if this problem impacts them. “Unfortunately, it doesn’t really matter what insurance card you’ve got,” he says. “If your local hospital was forced to shut down its clinic or just blink out of existence, your access just went away.”
To address the crisis, Koranne is urging Minnesotans to “protect their local nonprofit hospitals and talk to your local lawmakers.”
Stecher echoes Koranne, drawing attention to the midterm elections just ahead. She says voters need to analyze what candidates are making this issue a priority.
“We need to make sure we’re putting people into power that are going to put our community first and not just political theater,” Stecher says.
