Medicaid and Medicare are commonly confused health programs, and it’s easy to see why: they’re both administered by the government, are relied upon by millions of Americans. They even share the first six letters of their names and sound the same. While Medicaid and Medicare do share some components and aim to provide Americans with healthcare assistance, they are actually very different programs.
In this post, we’ll look at the Medicaid vs Medicare definition, go over their similarities, key differences, eligibility requirements (including if you can qualify for both — you can!), what coverage they provide, as well as the program history and some recent updates.
What is Medicaid?
Medicaid is a federal-state program that varies from state to state. For example, in California, the program is called Medi-Cal. The program is run by state and local governments, operating within federal guidelines.
Medicaid is primarily used as a safety net for those individuals who cannot pay for their healthcare and acts as an assistance program for low-income people of every age. Those who have Medicaid typically pay no part of the costs associated with covered medical expenses, although small out-of-pocket costs such as copayments will sometimes be required.
Seniors can also participate in Medicaid if they are able to pass three tests: a medical necessity test, an asset test, and an income test. The medical necessity test will address whether or not the senior requires skilled nursing care to address their medical needs. The asset tests strictly limit how much property the patient (and patient’s spouse) are able to own while benefiting from Medicaid. And the income test limits how much money the patient and spouse are able to earn while being eligible for Medicaid.
There are actually ways around the tests if an individual or couple isn’t able to pass them but could use Medicaid to help pay for the cost of a nursing home or live-in care. However, you will typically require the assistance of an attorney in this area. This relatively new field, known as elder law, can help you preserve your assets while qualifying for Medicaid.
Expert help may often be required with Medicaid regardless, as it is rather complicated to try and enter the program. If you make even just a small error in the application process, the program may refuse to help pay for the cost of a nursing home or other care.
LISTEN | Your Money, Your Wealth® podcast episode #226:
What Is Medicare?
What is Medicare? Medicare is a health insurance program that is administered by the federal government. It is intended primarily for seniors who are 65 years of age or older that have paid into the Social Security system for at least 40 quarters, or 10 years. It serves seniors of all income and also serves younger people who are disabled as well as dialysis patients. You can also get Medicare through your spouse, as well as those younger than 65 who have received Social Security Disability Insurance payments for at least two years.
Patients on Medicare will have their bills paid for by trust funds that they have paid into and will be responsible for part of their medical costs through deductibles, as well as small monthly premiums for non-hospital coverage. Medicare is the same no matter what state you live in, and is run by the federal government agency, Centers for Medicare & Medicaid Services.
Medicare Is Run Entirely By The Federal Government, While Medicaid Has A State Component
The biggest difference you’ll notice between Medicaid and Medicare is that Medicare is universal no matter what state you live in, while Medicaid can differ from state to state. State governments can dictate a lot of what Medicaid covers, meaning a person might be eligible for Medicaid in one state but not qualify in another.
If they do qualify, the types of medical coverage they would receive under Medicaid may also vary widely from state to state. Because Medicaid is a joint federal and state program, the funding it receives from the federal government comes with strings attached. States are required to provide certain benefits to receive this funding, and can then make their changes to the program as long as they still fulfill these demands.
These changes can still vary greatly, so it’s important for those seeking coverage to look at their state requirements closely and see if they qualify, as well as what the program will cover if they do.
Medicaid & Medicare Target Different Groups Of People
Technically, Medicaid and Medicare are intended for different groups of people. When it comes to Medicare, a person’s income and financial assets don’t have any bearing on who can qualify. Medicare is a health insurance program that is meant for people 65 or older who have a qualifying work history, in addition to younger people who qualify because of certain disabilities or end-stage renal disease. As long as the person worked for 10 years at a job in the United States and paid Medicare taxes, they should generally be able to qualify.
Meanwhile, Medicaid is more designed to assist in covering the medical costs for people who have limited income and financial resources. Medicaid will cover a wide variety of people, not just seniors or those with a disability, but even young families, children, caretakers, and even single adults in some states.
While Medicaid and Medicare differ in how they are operated and who they are intended to serve, there is definitely still some overlap. Some people will only qualify for one or the other, but sometimes, some people can indeed be eligible for both Medicaid and Medicare. Let’s dig into the Medicare and Medicaid eligibility components a bit further to see how.
Who Is Eligible For Medicaid & Medicare?
A person is eligible for Medicare if they are 65 years old or older and who also qualify to receive social security. An individual MUST meet both requirements. To qualify to receive social security, a person must have worked in the United States for a minimum of 10 years and have been a United States citizen or legal resident for 5 years
Other people who qualify for Medicare include those who:
- Are permanently disabled and have received disability benefits for two years or more
- Have end-stage renal disease or Lou Gehrig’s disease (also known as ALS)
- Are at least 65 years old and have a spouse receiving Medicare
If you are under 65 but have retired early you may be wondering how you can continue to still receive health insurance. There are ways to bridge the gap to Medicare including exchange plans, your spouse’s health, or through Medicaid.
Now diving into Medicaid, Federal law requires this program to cover specific groups, but state laws are allowed to add extended coverage on top, which is how the eligibility will differ from state to state.
Generally speaking, Medicaid will provide health care to the following groups of people:
- Pregnant women
- Low-income families
As we mentioned, it is possible for some people to be eligible for both Medicaid and Medicare. Because Medicare is only designed to cover a portion of healthcare costs, those who have financial difficulties can sometimes qualify for Medicaid as well. This can be a real benefit to those who are able to qualify for both, because Medicaid will actually pay for some Medicare fees, such as copayments or even premiums.
What Coverage Does Medicaid & Medicare Provide?
Another area Medicaid and Medicare differ is in the coverage they provide. Medicaid will typically cover some services and procedures that Medicare does not.
While both generally cover healthcare costs such as doctor visits, hospital stays, necessary prescription drugs and medications, there will be some specific coverage areas that are different. This is because, like all health insurance programs, Medicare, isn’t a cut and dry program. Medicare is actually broken into four parts, while Medicaid is typically an all-encompassing program.
First, let’s break down the four parts of Medicare:
- Part A – Hospital services/costs. This includes skilled nursing facility care or home health services as well as hospital care. There isn’t usually a premium associated with Part A — it is paid for by the taxes you had taken out of your paycheck.
- Part B – Medical services such as doctor visits. This can also be referred to as medical insurance. Part B covers necessary medical procedures and preventative services such as doctor’s visits, lab tests, surgeries, clinical research, mental health, ambulance services, and durable medical equipment. You will be required to pay a premium for Part B, which is typically taken from your Social Security, Railroad Retirement Board, or Office of Personnel Management benefits. The premium will depend on your income.
Together, parts A and B make up Original Medicare.
- Part C – The more consolidated Medicare Advantage plan. If you choose part C when you enroll in Medicare, you will receive your coverage through a private insurance company. These plans must cover everything that Original Medicare provides. There is only one exception: hospice care. If your Medicare Advantage plan doesn’t cover hospice care, Original Medicare will step in and cover it. Medicare Advantage is often preferred because it covers items that Parts A and B don’t, including procedures that aren’t deemed “medically necessary,” such as hearing tests or dental work. Payment plans will differ depending on what you choose but could be a monthly premium, co-pay, and/or a deductible.
- Part D – Prescription drug coverage. Medicare participants must pay a late enrollment fee if they don’t sign up for Part D when they are first eligible. The expenses of part D will depend on the drug plan that you choose but typically will be a monthly charge.
There may be some other potential expenses involved with Medicare as well, as it won’t cover all medical costs. For instance, Medicare doesn’t cover annual hearing or vision exams. And while some parts don’t have monthly premiums, you will still encounter copays and deductibles.
As you might expect, Medicaid coverage will vary from state to state. But as we mentioned earlier, states are required to provide certain benefits, including:
- Inpatient hospital services
- Outpatient hospital services
- Nursing facility services
- Early and periodic screening, diagnostic, and treatment services
- Family planning services
- Physician services
- Laboratory and X-Ray services
- Federally qualified health center services
- Nurse-midwife services
- Certified pediatric and family nurse practitioner services (when licensed or otherwise recognized by the state)
- Transportation to medical care
- Tobacco cessation counseling for pregnant women
Medicaid and Medicare do have overlaps, but Medicaid can often provide extra insurance. For instance, Medicaid will pay for nursing homes, assisted living, and other fees when they are required, while Medicare has restricted long-term coverage. States can also provide optional Medicaid benefits like:
- Prescription drugs
- Clinic services
- Physical therapy
- Dental services
- Podiatry services
- Speech, hearing, and language disorder services
- Personal care
- Chiropractic services
- Other diagnostic, screening, preventive, and rehabilitative services
Visit Medicaid.gov to see the full list, as this is just a short list of potential added benefits Medicaid patients may receive.
A Brief History Of Medicare & Medicaid + Recent Changes
Parts A and B of Medicare were signed into law in 1965, which is why those two parts are referred to as “Original Medicare.” The program has gone through changes over the years to provide coverage for more people. The Medicare Advantage plan (Part C) was added in 2003, and Part D was added in 2006.
While Medicare is separate from the Health Insurance Marketplace, Obamacare did force some changes to Medicare. Certain preventive services that don’t charge a copay or deductible were added, as well as mammograms and yearly wellness visits. The Affordable Care Act also added discounts for brand-name drugs.
Medicaid was actually created the same year as Medicare. Originally, it only provided coverage to those who were receiving cash assistance. Now, low-income families and others are eligible. States were given the option to expand Medicaid in 2014, allowing more people to enter the program, but many states opted not to expand. This created a problem known as the Obamacare Gap.
Because states opted out, it conflicted with the Affordable Care Act’s goal of providing health insurance to anyone with an income 133 percent below the poverty line. In those states, people living below the poverty level don’t meet the Medicaid program requirements and had no options for affordable health coverage.
As you can see, there are quite a few differences between Medicare and Medicaid. We hope this guide has answered your questions and given you a better understanding of the differences and the similarities of the two. Although it can be confusing, understanding what is Medicaid vs Medicare is an important piece of planning for retirement. Plan today to help build the retirement you envision.
Investment Advisory and Financial Planning Services are offered through Pure Financial Advisors, Inc., an SEC Registered Investment Advisor.