Medicare vs. Medicaid: What’s the difference?

Both Medicare and Medicaid programs provide valuable benefits for millions of Americans. But there’s a lot of questions about them: What they offer and cover, how much they cost, and who is eligible.

Medicare and Medicaid do have some similarities:

• They’re both health insurance programs that are designed to help specific people receive affordable health insurance coverage.
• They’re both government-sponsored programs. The government collects taxes and fees where necessary and is responsible for the way the programs run.
• They’re both run by the Centers for Medicare and Medicaid Services (CMS).

These two programs also sound the same, which can cause some confusion, but they’re actually very different. Let’s review the basics of both programs and explain how it works when you qualify for both Medicare and Medicaid.

Medicare basics

Medicare, developed in 1966, is a government program that was created to help retired Americans get affordable health insurance. The basic program is now known as Original Medicare. Original Medicare is split into two “parts.”

Original Medicare Part A

Part A covers you for inpatient services and procedures, including:

• Hospital stays
• Skilled nursing care
• Hospice coverage
• Inpatient skilled nursing care

You can think of Part A as coverage for when you’re admitted to a facility for care for longer than one day.

How much does Medicare Part A cost?

When you use Medicare Part A, you have to pay for certain costs out of your own pocket. The biggest expense under Part A is the deductible. For 2020, the deductible is $1,408. This means that you have to pay the first $1,408 of your Part A bill before Medicare will start covering your costs.

But the Part A deductible isn’t like the deductible you might have with private insurance. With Original Medicare, you could pay the deductible more than once during a year - which could happen if you go to the hospital more than once in a year, or if you need skilled nursing several times.

If these events are separated by more than 60 days, you’ll pay the deductible more than once.

Original Medicare Part B

Medicare Part B provides covers certain day-to-day medical expenses, including:

• Doctor’s visits
• Therapy (physical, occupational)
• Lab work, x-rays, MRIs, etc.
• Medical equipment like bottled oxygen
• Some cancer treatments like chemotherapy

How much does Medicare Part B cost?

Like Part A, you’ll pay some costs out of pocket for Part B services. The two most common expenses are:

• Part B deductible – For 2020, you pay the first $198 for Part B services, then Medicare begins covering you.
• Part B coinsurance – After you’ve paid the deductible, Medicare will pay 80% of the cost for Part B services. You pay the remaining 20%.

An important fact to keep in mind is that there is no cap on the amount you could pay in a year. If you go to the hospital several times, or have a major illness, you’ll pay out of pocket the whole year. This is not how most other health insurance works. Most private health insurance like Medicare Advantage has an out-of-pocket maximum limit. Once you hit the limit, the plan pays for everything as long as it’s a covered service.

Filling the Medicare coverage gaps

Many people worry about spending too much money on Medicare. The lack of a spending cap and prescription drugs are two reasons people often add additional coverage.

And while Original Medicare doesn’t cover prescriptions, some private options do: Many Medicare recipients join Medicare Advantage plans, enroll in standalone prescription drug plans (Medicare Part D), or buy Medicare Supplement (“Medigap”) insurance policies to fill gaps in coverage.

In addition to annual spending caps, both Medicare Advantage and Medigap plans help pay for the costs you’d normally pay under Original Medicare:

• Part A and B deductibles
• Part B coinsurance
• Emergency coverage outside the United States

Who is eligible for Medicare?

Medicare is health insurance for:

• People who are 65 or over.
• People under 65 years old who are disabled and have been receiving Social Security Disability benefits for at least 24 months.
• People suffering from End Stage Renal Disease (ESRD) or Amyotrophic Lateral Sclerosis, also known as ALS or Lou Gehrig’s disease.

To be eligible for Medicare, you must be a United States citizen, or a permanent legal resident. If you’re a permanent legal resident, you must have lawfully lived in the United States for at least five consecutive years.

If you receive Social Security or disability income for two consecutive years, you’ll enter Medicare automatically, as long as you qualify based on citizenship or residence.

Medicaid basics

Unlike Medicare, Medicaid is based on income and asset levels rather than age.

There are two types of Medicaid coverage: traditional and expansion. But we will only cove the basics of traditional Medicaid since most people with Medicare are not eligible for expansion Medicaid.

Who is eligible for Medicaid?

Eligibility for traditional Medicaid is based on your income, family size, and asset level. Each State can set its own requirements, but the income limit is generally 133% of the Federal Poverty Level.

In addition to having a low income, you must have limited assets. The limit for most individuals is $7,730, but it doesn’t include certain assets like your home or car.

In general, for Americans aged 65 or over, Medicaid is designed for people who are:

• Indigent
• Disabled
• Blind
• Terminally ill and in need of hospice services
• Live in a nursing home
• In need of long term care, but can reside at home with care service support

When you’re on Medicaid, your state will re-verify your eligibility every year. But you may lose your eligibility if your income and asset levels increase.

What does Medicaid cover?

If you qualify for Medicaid, you’ll receive low-cost health insurance from your state, which may cover you for:

• Inpatient (hospital-type) care
• Outpatient (like office visits) care
• Home health care
• Nursing care

Benefits can vary by state, but Medicaid covers vision, dental, and hearing services in many cases. You may have a small deductible to pay each year, and you might have very low copayments or coinsurance.

Key differences between Medicare and Medicaid

There are several important differences between these two programs, which mainly involve the way in which you qualify for coverage, and who is responsible for running the program.

• Medicaid is means or needs based: You must meet certain income, asset, and living situation targets to qualify for Medicaid.
• Medicare is generally age-based: People age 65 and over are eligible (with a few exceptions like people who are disabled).
• Medicaid is run by the states: Each state’s program may have slightly different rules or coverage.
• Medicare is a national program: It’s the same across every state, and there’s a lot of overlap between the government system and private insurance companies.

Can you have Medicare and Medicaid at the same time?

Yes, it’s possible to be covered by both programs. A person who is eligible for both programs is called dual-eligible (you might also encounter the term “medi-medi”).

When you have both Medicare and Medicaid, you need to know that Medicare is your primary insurance. Medicaid is the secondary, or backup, coverage. This means Medicare pays most of the cost for services, and Medicaid pays the rest.

In many cases, dual-eligible beneficiaries will receive services but have no out-of-pocket cost. But they must use doctors and facilities that accept both Medicare and Medicaid patients.

Dual-eligibility and Medicare premiums

One of the most valuable benefits of being dual-eligible is the Medicare Savings Program (MSP), which is based on a range of income levels.

If you qualify for the MSP, your state will cover all or a portion of your Medicare premiums. Depending on your income levels, you could get help with Part A premiums, Part B premiums, or both Part A and Part B premiums. Or you may have no premium payment for your health insurance coverage.

Dual-eligibility and prescription drugs

If you have dual-eligibility for Medicare and Medicaid, you can receive discounts on prescription drugs because dual-eligible beneficiaries participate in a program called Extra Help.

With Extra Help, your cost for medications could cost as little as $8.95 for brand name drugs, and $3.60 for generics.

You also must enroll in a Medicare Part D prescription drug plan. In fact, you will automatically be enrolled in a plan if you don’t choose one yourself, but you have the freedom to change plans if needed, though there may be time restrictions on when you can make the change.

Dual-eligibility and Medicare Advantage plans

If you’re dual-eligible, you can get a private Medicare Advantage plan. Medicare Advantage plans can combine several types of coverage into one plan:

• Part A hospital services (in all plans)
• Part B outpatient services (in all plans)
• Part D prescription drugs (in most plans)
• Non-Medicare benefits like vision, hearing, and dental

Insurance companies often have plans designed specifically for dual-eligible people. These plans have the lowest out-of-pocket costs of any Medicare Advantage plans. They can also provide other benefits like transportation to and from medical appointments.

Understanding your options

Being eligible for both Medicare and Medicaid can be a valuable benefit. Your costs will be capped for all kinds of services and procedures, and your prescription drug costs will be much less than if you only qualify for Medicare.

You may want to consider a Medicare Advantage plan to further maximize your benefits. Submit your zip code to get instant Medicare quotes for available plans in your area. Our licensed Medicare agents can also give you unbiased guidance on plan options.