What It Means to Be “Under Observation” in the Hospital: What Medicare Enrollees Should Know
Imagine waking up with sudden chest pain. You eat well, stay active, and follow your doctor’s advice—but your father died of a heart attack, and the worry grips you. You drive to the hospital, spend the night being monitored, and by morning, you’re feeling fine. Relieved, you return home and resume your normal life. Everything’s going smoothly until about a week later, when a hospital bill arrives in the mail. The total is just over $7,000…and Medicare won’t cover it!
How is that possible? You’ve paid your premiums faithfully, re-enrolled on time, and assumed your coverage was solid. The catch? You weren’t admitted as an inpatient. Instead, you were placed “under observation.” That single distinction changes everything—what Medicare pays, what you pay, and what benefits you can access afterward.
Knowing the difference isn’t just technical; it could protect you from thousands of dollars in unexpected medical bills.
What “Observation Status” Really Is
Being placed under observation status means that Medicare classifies you as an outpatient, even if you spend the night—or several nights—in a hospital bed. You are only considered an inpatient if your doctor formally admits you and writes an admission order in your chart.
Here’s the catch:
- Inpatient care is billed under Medicare Part A (Hospital Insurance). Part A generally covers most hospital costs after you meet your deductible.
- Observation care is billed under Medicare Part B (Medical Insurance). That means you are responsible for 20% of the costs, with no cap on your out-of-pocket spending.
This difference can hit your wallet hard. For example, under Part B, you may be billed separately for each service—lab tests, X-rays, medications given in the hospital, and even the room itself. Hospital drugs under Part B are often much more expensive than prescriptions filled at your pharmacy.
In short, unless you are officially admitted as an inpatient, your stay could look like a covered hospital stay, feel like a covered hospital stay, but cost you far more out-of-pocket.
The Law That Protects You: The NOTICE Act & MOON
Thankfully, scenarios like the one in our opener are less likely to take you by surprise today. In August 2015, Congress passed the NOTICE Act (Notice of Observation Treatment and Implication for Care Eligibility Act) to protect Medicare beneficiaries from the hidden costs of being placed “under observation.”
Under this law, acute care hospitals and critical access hospitals (CAHs) are required to notify patients—both orally and in writing—if they have been under observation for more than 24 hours.
The written notice comes in the form of the Medicare Outpatient Observation Notice (MOON). By law, hospitals must:
- Deliver the MOON no later than 36 hours after observation services begin.
- Explain, in plain language, that the patient is considered an outpatient, not an inpatient.
- Clarify how this status affects costs and coverage (including hospital bills and eligibility for skilled nursing facility care afterward).
- Obtain a signed acknowledgment from the patient confirming they’ve been informed.
This law doesn’t eliminate the higher costs of observation care, but it does give patients the right to know upfront, so they can make informed decisions about their care and finances.
Why This Matters and What You Should Do
Being placed under observation can carry real financial consequences:
- Higher Costs Under Part B: As aforementioned, instead of being billed under Medicare Part A (which covers inpatient hospital stays with set cost-sharing), your care is billed under Part B. That means you’ll pay coinsurance for each individual service—every test, supply, and medication. Since Part B has no out-of-pocket maximum, costs can escalate quickly.
- No Credit Toward Skilled Nursing Facility (SNF) Care: Medicare requires a 3-day inpatient hospital stay before it will cover SNF care. Time spent under observation doesn’t count, which can leave patients on the hook for thousands in nursing facility bills (a problem highlighted by the Center for Medicare Advocacy).
- Delayed or Confusing Notices: While hospitals are required to give you the Medicare Outpatient Observation Notice (MOON), many patients don’t fully understand what it means until they get the bill.
Because of these risks, it’s critical to advocate for yourself (or have someone with you who can) from the moment you enter the hospital to the moment you leave. If you’re worried about not being able to advocate for yourself or remember what to do, write these steps down and keep them tucked into your wallet next to your driver’s license or as a note in your phone.
What you should do during and after a hospital stay:
- Ask Immediately: At check-in, say: “Am I admitted as an inpatient, or am I under observation?”
- Request the MOON Notice: If you’re under observation, you have the right to see the notice explaining costs and coverage. Be vocal about which services you want and don’t want.
- Review Bills Closely: After your visit, compare which services were billed under Part A vs. Part B. If something looks off, question Medicare directly. An insurance agent can often help you understand and navigate billing with clarity and moxie.
- Reevaluate Your Coverage: Check whether your Medicare Supplement or Advantage plan helped offset the costs. If your bills are still overwhelming, it may be time to adjust your coverage.
By taking these steps, you can protect yourself from surprise bills and make sure your Medicare coverage is working for you, not against you.
The Bottom Line: Stay Informed, Stay Protected
Being under observation isn’t necessarily “worse”—it’s different. But those differences matter in money and access. Medicare laws like the NOTICE Act make sure you get notified, but notification doesn’t erase all confusion or financial risk.
If you want help understanding what observation status could mean for your health care costs, or how your current coverage might protect you, Empower Brokerage is here as your guide. Our agents can help you understand your rights, review your bills, and explore supplemental or alternative insurance to fill the gaps.
Additionally, if you’re interested in learning more about hospital-based healthcare in the U.S., check out our other article: ‘Comparing Public and Private Hospitals.’
Got Medicare Questions?
We hope that this information on being under observation as a Medicare enrollee is useful to you.
Let us help you answer your questions so that you can get back to the activities that you enjoy the most.
Call (888) 446-9157, click here to get an INSTANT QUOTE, or leave a comment below!
See our other websites:
This article was updated on September 19, 2025.
These are actually wonderful ideas in regarding blogging. You have touched some fastidious things here. Any way keep up wrinting.
Thanks very interesting blog!
Howdy! I could have sworn I’ve been to this site before but after checking through some of the post I realized it’s new to me. Anyhow, I’m definitely delighted I found it and I’ll be book-marking and checking back frequently!
This is my first time visit at here and i am really impressed to read everthing at single place.
Hello to all, it’s really a nice for me to visit this web site, it contains precious Information.