Medicare First Principles: With Medicare Part A, the Key Word is "Admitted"

(NOTE: This is part of a continuing series of "Medicare First Principles" posts that began here and continued here. Future posts will look at Parts B, C, D and Medigap and how the costs shake out for all of the above, including out-of-pocket costs for the many health care services most of Medicare does not cover or cover in depth.)

Medicare Part A is hospitalization insurance for a set amount of days during which the beneficiary is actually "admitted" to an acute-care hosptial. Part A also covers a set amount of time in a skilled nursing facility, typically for "occupational" or physical rehabilitation (and never for nursing care related simply to old age), as well as for hospice and limited home health care services under certain conditions.

The word "admitted" is key, as explained in the above fine print from the "Medicare and You: 2013" booklet, because it is possible to stay overnight at a hospital -- even for multiple nights -- and not be "admitted." Medicare beneficiaries who are not actually "admitted" to a hospital face financial consequences two ways: 

• The "observed-status" hospital bill is paid by Medicare Part B (see a future post) instead of Part A, usually at a higher co-pay¹
• If un-admitted hospitalization (typically the word "observed" is used) leads to a recommendation for transfer to a skilled nursing facility (SNF), neither Medicare Part A nor Part B will pay for the SNF (no current Part of Medicare covers long-term care such as nursing homes or assisted living)

As complicated as that sounds, the admitted/observed conflict is not the biggest drawback of Medicare Part A. The really bad news is that Medicare Part A coverage has fixed per-incident deductibles on the low side and lifetime limits on the high side.  It is the worst possible insurance design imaginable (equalled only by Part B, to be discussed on a future post), protecting seniors

• Neither against high costs under the best actual hospitalization scenario assuming you have to be hospitalized (e.g., a one-night stay where no problem is found or a simple procedure is performed costs almost $1200 in 2013 whereas under most non-Medicare insurance plans the cost would be between $100 and $500)
• Nor against total financial catastrophe (see this example of a Medicare beneficiary in Miami that needed a heart pump)

Part A insurance costs about $400 a month in 2013 but it is typically "free," based on years of dedicated payroll taxes.

¹ The term co-pay is used throughout the following related Medicare-First-Principles blog posts, although technically the out of pocket cost to the beneficiary might be a deductible or co-insurance rather than a co-pay according to insurance plan terminology.