Supplemental Insurance Reduces Out-of-Pocket Costs in Medicare Observation Services

Published in: Journal of Hospital Medicine, v. 11, no. 7, July 2016, p. 502-504

Posted on on July 14, 2016

by Brian Doyle, Susan L. Ettner, Teryl K. Nuckols

Research Question

  1. Does the inclusion of supplemental insurance payments in the calculation of out-of-pocket hospital costs change the proportion of beneficiaries incurring excessive out-of-pocket costs?

Including supplemental insurance payments in the calculation of Medicare patients' out-of-pocket costs substantially lowers the proportion that exceed the Part A deductible, in comparison to previous analyses.

Key Findings

  • Prior analyses concluded that 6 to 10 percent of observational hospital stays for Medicare patients resulted in out-of-pocket costs that exceeded the Part A deductible, but these analyses did not include supplemental insurance adjustments or payments in their calculations.
  • About 20 percent of beneficiaries in this study did not have supplemental insurance; their mean out-of-pocket costs were $537.
  • About 80 percent of beneficiaries had supplemental insurance from private or state-based sources; their mean out-of-pocket costs were $45 for private, $168 for state-based supplemental insurance.
  • Factoring in supplemental insurance payments, the percentage of out-of-pocket costs from observational hospital stays exceeding the Part A deductible were 0.3 and 3.5 percent for beneficiaries with private and state-based supplemental insurance, respectively.


Future attempts to estimate Medicare beneficiaries' out-of-pocket costs should include supplemental insurance adjustments or payments.

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