Making sense of Medicare’s inpatient ‘under observation’ hospital rule

Toni,

I have Original Medicare with a Supplement and in October, I was taken by ambulance to the emergency room for heart issues. I was surprised when I signed a hospital form stating that I was “under observation,” as the doctor decided whether to admit me as an inpatient or send me home. I was lucky that he sent me home.

During this Medicare Annual Enrollment (AEP), my husband, Alan, enrolled in a Medicare Advantage HMO for the first time. Can you please explain how this rule could affect his hospital stay since he is no longer in Medicare with a Supplement. Thank you.

--Sybil from Tampa, Fla.

Hi Sybil:

The Medicare Outpatient Observation Notice (MOON) rule only affects those who are enrolled in “Original Medicare” with or without a Medicare Supplement. The rule does not affect those enrolled in a Medicare Advantage plan. On page 28 of the 2025 Medicare & You handbook, this rule is explained under “Am I an inpatient or outpatient?”

A Medicare Advantage HMO plan, however, has its own process for inpatient and outpatient surgery, or hospital stay with a referral-only system. With a Medicare Advantage PPO plan, there is not a referral process, but the facility or provider must be willing to bill the Medicare Advantage plan.

The Medicare & You handbook explains what a Medicare Advantage plan or what a Medicare Supplement/Medigap “Original/Traditional Medicare” is. But it does not compare the differences between the plans, as listed below:

Medicare Supplement

1. A Medicare Supplement/Medigap Plan works directly with Original/Traditional Medicare. Medicare will pay its share of the Medicare-approved amount for “medically necessary” covered health care costs. Then your Medicare Supplement/Medigap will pay its share.

2. You can choose your doctor, hospital, home health agency, skilled nursing facility, etc., so long as it accepts Medicare assignment. You and your health care provider are in control of your health care.

3. With a Medicare Supplement/Medigap, you have a monthly premium that may increase in the premium rate each year.

4. You may enroll in and will pay separately for a “stand alone” Medicare (Part D) Prescription drug plan.

Medicare Advantage Plan

1. To qualify for the plan:

-- You must be enrolled in both Medicare Parts A & B

-- You must live in the service area 6 months out of a year

2. When you choose a Medicare Advantage Plan, then Medicare pays the insurance company a certain amount every month for your care for the plan you are enrolled in.

3. When you go to the doctor or visit your pharmacist, you must only use your Medicare Advantage insurance card, not your Medicare (red, white, and blue) card.

4. A Medicare Advantage Plan must provide all your Part A and Part B benefits, and most Medicare Advantage Plans have Part D prescription drug plans included. If the drug plan is included, you don’t have an independent choice in drug plans. The carrier who provides your health coverage also provides your drug coverage.

5. With a Medicare Advantage plan, you may have different co-pays, co-insurances, deductibles to pay and have maximum out-of-pocket expenses to meet.

6. Talk to your provider or facility and make sure they accept the Medicare Advantage plan you want to enroll in.

Readers, always make sure to read and understand your Medicare coverage, whether you have a Supplement or Advantage plan. Because with Medicare, what you don’t know WILL hurt you.

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Toni King is an author and columnist on Medicare and health insurance issues. She has spent nearly 30 years as a top sales leader in the field. For a Medicare checkup, call the Toni Says call center at (832) 519-8664 or email info@tonisays.com regarding your Medicare plans and options. Toni Says Medicare Survival Guide Advanced edition is available at www.tonisays.com.