What is the difference between Medicare and Medicaid?

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The biggest difference between Medicare and Medicaid is eligibility. Medicaid typically serves low income households. Medicare, on the other hand, typically serves people over the age of 65 years or those with certain health conditions or disabilities.

Since Medicaid does not have the age limits that Medicare does, it also offers benefits that Medicare does not typically cover.

People with Medicare usually pay part of the costs through deductibles, coinsurance, and premiums for medical and drug coverage. People with Medicaid do not usually pay anything for covered medical expenses, though they may pay a small copayment for some services.

Medicaid is a means-tested health and medical services program for low income households with few resources. Individuals must meet certain criteria to qualify. These criteria vary between states.

Federal authorities primarily oversee Medicaid, but each state is responsible for:

• establishing eligibility standards
• deciding service type, amount, duration, and scope
• setting the rate of payment for services
• administering the program

Each state makes the final decisions regarding what their Medicaid plans provide. However, they must meet certain federal requirements to receive federal matching funds.

Not all insurance providers accept Medicaid. Users should check their coverage before receiving healthcare.

People who do not have private health insurance can seek help at a federally qualified health center (FQHC). These centers provide coverage on a sliding scale, depending on the person’s income.

FQHC provisions include:

• prenatal care
• vaccines for children
• doctor services
• nursing services for people of 21 years or more
• family planning services and supplies
• rural health clinic services
• home healthcare for people eligible for skilled nursing services
• laboratory and X-ray services
• pediatric and family nurse practitioner services
• nurse-midwife services
• FQHC services and ambulatory services
• early and periodic screening, diagnostic, and treatment for people under age 21 years

States may also choose to provide additional services and still receive federal matching funds.

The most common approved optional Medicaid services are:

• diagnostic services
• prescribed drugs and prosthetic devices
• optometrist services and eyeglasses
• nursing services for children and adults under age 21 years
• transport services
• rehabilitation and physical therapy services
• dental care

Each state sets its own Medicaid eligibility guidelines. The program aims to support people in low income households. However, other eligibility requirements relate to:

• assets
• age
• pregnancy status
• disability status
• citizenship

For a state to receive federal match funding, it must provide Medicaid services to individuals in certain categories of need.

For example, a state must provide coverage for some individuals who receive federally assisted income maintenance payments and similar groups who do not receive cash payments.

The federal government also considers some other groups to be mandatory populations. People in these groups must also be eligible for Medicaid.

They include:

• children under age 18 years whose household income is at or below 138% of the federal poverty level (FPL)
• people who are pregnant with a household income below 138% of the FPL
• people who receive Supplemental Security Income (SSI)
• parents who earn an income that falls under the state’s eligibility for cash assistance

States may also choose to provide Medicaid coverage to other, less well-defined groups who share some characteristics of the above.

These groups may include:

• pregnant individuals, children, and parents earning income above the mandatory coverage limits
• some adults and older adults with low incomes and limited resources
• people who live in an institution and have low income
• certain adults who are older, have vision loss or another disability, and have an income below the FPL
• individuals without children who have a disability and are near the FPL
• “medically needy” people whose resources are above the eligibility level their state has set

Medicaid does not provide medical assistance to all people with low income and low resources.

The Affordable Care Act (ACA) of 2012 gave states the option to expand their Medicaid coverage. In the states that did not expand their programs, several at-risk groups are not eligible for Medicaid.

These include:

• adults over age 21 years who do not have children and are pregnant or have a disability
• working parents with incomes below 44% of the FPL
• legal immigrants in their first 5 years of living in the United States

Medicaid does not pay money to individuals but sends payments directly to healthcare professionals.

States make these payments according to a fee-for-service agreement or through prepayment arrangements, such as health maintenance organizations (HMOs). The federal government then reimburses each state for a percentage share of their Medicaid expenditures.

This Federal Medical Assistance Percentage (FMAP) changes each year and depends on the state’s average per capita income level.

In 2021, according to data by the KFF, the federal government paid 69% of Medicaid costs, and states covered 31%. Wealthier states receive a smaller share than states with less money.

In the states that chose to expand their coverage under the ACA, more adults and families on low incomes are eligible, with the new provision allowing enrolment at up to 138% of the FPL. In return, the federal government covers all expansion costs for the first 3 years and over 90% of the costs moving forward.

Medicare is a federal health insurance program that funds hospital and medical care for people over the age of 65 years in the United States. Some people with disabilities also benefit from Medicare.

The program consists of different parts. These include parts A and B (together known as Original Medicare) for hospital and medical insurance, as well as parts C and D to provide flexibility and prescription drugs.

Medicare Part A

Medicare Part A, or hospital insurance, helps pay for hospital stays and other services.

In the hospital, this includes:

• meals
• supplies
• testing
• a semiprivate room

It also pays for home healthcare, such as:

• physical therapy
• occupational therapy
• speech therapy

However, these therapies must be on a part-time basis, and a doctor must consider them medically necessary.

Part A also covers care in a skilled nursing facility.

Payroll taxes cover the costs of Part A, so it is not usually mandatory to pay a monthly premium. However, anyone who has not paid Medicare taxes for at least 40 quarters will need to pay the premium.

In 2024, Medicare Part A premiums are either $278 or $505, depending on how long an individual or their spouse has paid Medicare taxes.

Medicare Part B

Medicare Part B, or outpatient medical insurance, helps pay for specific services.

These services include:

• medically necessary doctor’s visits
• outpatient hospital visits
• home healthcare costs
• services for older adults and those with a disability
• preventive care services

For example, Part B covers:

• durable medical equipment, such as canes, walkers, scooters, and wheelchairs
• doctor and nursing services
• vaccinations
• blood transfusions
• some ambulance transportation
• immunosuppressive drugs after organ transplants
• chemotherapy
• certain hormonal treatments
• prosthetic devices
• eyeglasses
• mental health services

For Part B, people must pay a monthly premium, which in 2024 is $174.70 per month. They must also meet an annual deductible of $240 a year before Medicare covers treatment.

Premiums might be higher, depending on the person’s income and current Social Security benefits.

After meeting the deductible, most people on a Medicare plan will need to pay 20% of costs approved by Medicare for many doctor services, outpatient therapist treatment, and durable medical equipment.

Enrollment in Part B is voluntary.

Medicare Part C

Medicare Part C, also known as Medicare Advantage, allows users to design a custom plan that suits their medical situation more closely.

Part C plans provide all the same coverage as Part A and Part B, but they may also offer additional services, such as dental, vision, or hearing treatment.

These plans enlist private insurance companies to provide some of the coverage. However, the details of each plan will depend on the program and the eligibility of the individual.

Some Advantage plans team up with HMOs or preferred provider organizations (PPOs) to deliver preventive healthcare or specialist services. Other plans focus on people with specific needs, such as individuals living with diabetes.

Medicare Part D

This prescription drug plan was a later addition in 2006. Several private insurance companies administer Part D.

These companies offer plans that vary in cost and cover different lists of drugs.

To participate in Part D, a person must pay an additional fee called the Part D income-related monthly adjustment amount. The fee depends on the person’s income.

Many people’s Social Security checks will deduct the premium. Others will get a bill directly from Medicare instead.

Services that Medicare does not provide

If Medicare does not cover a medical expense or service, a person may wish to take out a Medigap plan for supplemental coverage.

Private companies also offer Medigap plans. Depending on the individual plan, Medigap may cover:

• copayments
• coinsurances
• deductibles
• care outside of the United States

If a person has a Medigap policy, Medicare will first pay their eligible portion. Afterward, Medigap will pay the rest.

To have a Medigap policy, a person must have both Medicare parts A and B and pay a monthly premium.

Medigap policies do not cover prescription drugs, which a Part D plan covers.

An individual must be at least one of the following to be eligible for Medicare:

• over age 65 years
• under age 65 years and living with a disability
• any age with end stage renal disease or permanent kidney failure needing dialysis or transplant

They must also be a U.S. citizen or permanent legal resident for 5 years continuously and eligible for Social Security benefits with at least 10 years of contributing payment.

Dual eligibility

Some people may be eligible for both Medicaid and Medicare.

Currently, 12 million people have both types of coverage, including 7.2 million older adults with a low income and 4.8 million people living with a disability. This accounts for over 15% of people with Medicaid enrolment.

Provisions vary, depending on the U.S. state where a person lives.

Most of the funding for Medicare comes from payroll taxes under the Federal Insurance Contributions Act and the Self-Employment Contributions Act.

Typically, the employee pays half of this tax, and the employer pays the other half. This money goes into a trust fund that the government uses to reimburse doctors, hospitals, and private insurance companies.

Additional funding for Medicare services comes from premiums, deductibles, coinsurance, and copayments.

Medicare and Medicaid are both government funded health insurance covers. They differ by eligibility and coverage.

Medicaid is generally for people in low income households. Medicare is health coverage for those over age 65 years or under age 65 years and living with a disability.

Services and costs may vary from state to state. A person should check what their coverage and personal cost will be based on the state they live in.