Medicare Hospital Coverage: Inpatient vs Observation Status

Hospital status determines out-of-pocket medical costs

When they’re in the hospital, it’s essential to know your older adult’s hospital status. 

That’s because hospital status affects their out-of-pocket medical costs and eligibility for Medicare coverage of post-hospital nursing home stays.

By law, hospitals are required to notify patients that they might have to pay huge out-of-pocket costs if they stay more than 24 hours without being formally admitted as an inpatient.

But in the bustle and confusion, hospital status isn’t always as clear as it needs to be to help you make informed decisions.

We explain the difference between Medicare inpatient vs. observation status, how Medicare coverage for hospital stays work, how hospital status affects coverage for nursing home stays, and what seniors should expect to pay under each status.

 

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Medicare inpatient vs observation status at the hospital

A hospital classifies a patient’s status as either inpatient or observation. 

Having inpatient status means that the person has been admitted to the hospital under doctor’s orders. 

Being under observation status means that the person is staying in the hospital as an outpatient, under observation. They haven’t been admitted.

Don’t assume that you know your older adult’s status based on what procedures are being done or how long they’ve been in the hospital. 

And remember, staying overnight or for many days doesn’t mean that someone has been admitted.

 

Medicare coverage is based on hospital status

Hospital status determines the Medicare coverage for hospital stays and post-hospital care. 

There are separate coverage rules for inpatient and outpatient hospital stays. Typically, out-of-pocket costs are significantly higher for outpatient stays. 

The difference between an inpatient and outpatient stay could mean thousands of dollars out of your older adult’s pocket.

The timing of when a person is admitted as an inpatient is also very important because Medicare only covers the inpatient portion of a hospital stay.

So, any time spent in the hospital or emergency room before being admitted is considered outpatient time.

That time is covered under outpatient coverage rules and doesn’t count toward the 3 day minimum for covered skilled nursing care.

It’s also important to know that the discharge day doesn’t count as an inpatient day.

 

How hospital status affects coverage for short-term nursing home stays

When an older adult is hospitalized, a common next step is for them to be discharged to a nursing home (skilled nursing facility) for rehab and further recovery.

But Medicare coverage for these short-term nursing home stays is based on their hospital status. 

In order to be eligible for coverage, a person must have 3 hospital inpatient days. Otherwise, they’ll be responsible for the cost of the skilled nursing facility stay.

For a real-life example, imagine that your mom got very ill and has been in the hospital for 5 days.

When the hospital is ready to discharge your mom to a skilled nursing facility, you suddenly find out that Medicare won’t cover any of the cost.

Typically, Medicare covers short-term nursing home stays after a hospitalization. So why wouldn’t Medicare cover the nursing home in this case?

It turns out that your mom was never admitted to the hospital by the doctor, so she didn’t have inpatient status and had zero inpatient hospital days. 

She didn’t have a “qualifying hospital stay” because she was an outpatient under observation status.

Because of this status, your mom’s hospital costs will now be determined under the rules for outpatient coverage and she’ll also be responsible for the cost of the nursing home stay.

 

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Inpatient vs observation status: what seniors should expect to pay

What seniors pay as inpatients:

For the first 60 days of hospital services, pay the Part A deductible.
For doctor’s services (typically), pay the Part B deductible + 20% of the Medicare-approved amount.
For nursing home / rehab care, if the inpatient hospital stay was at least 3 days, only pay after the first 20 days (fully covered) in an approved skilled nursing facility.
Get more detail about inpatient hospital stay coverage at Medicare.gov

What seniors pay as outpatients (observation status):

For hospital services, pay a copayment for each individual outpatient hospital service. This amount may vary by service.
For doctor’s services, pay the Part B deductible + 20% of the Medicare-approved amount.
For prescription and over-the-counter medications in the hospital or emergency room, pay out-of-pocket (and try to submit a claim to the drug plan later) or try to use Part D prescription drug coverage.
For nursing home / skilled nursing rehab care, pay out-of-pocket.
Get more detail about outpatient coverage at Medicare.gov

 

Recommended for you:

What Does Medicare Cover? Find Out Before the Bills Arrive
Medicare vs. Medicaid: What You Need to Know
Get Help with Medicare Questions from State Programs

 

By DailyCaring Editorial Team
Image: Dapper Dude

 

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