What’s the Difference Between Medicare and Medicaid?

Medicare and Medicaid both provide healthcare coverage via government programs, but they have some important differences.

Essentially, Medicare is for people who are over age 65 or have a disability, while Medicaid is for people with low incomes. Some people are eligible for both.

However, the differences between Medicare and Medicaid are larger than that. They differ in:

  • Who can enroll
  • Who runs them
  • How they work
  • How they're funded
  • What benefits they provide
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Who Gets Medicare vs Medicaid?

Older and disabled people get Medicare; people with a low income get Medicaid. If you’re both elderly or disabled and have a low income, you can potentially get both.

Medicare

Most Medicare beneficiaries are 65 or older. However, as of 2017, about 9 million people—15% of the Medicare population—with Medicare coverage were younger than 65.

These people were eligible for Medicare because they had a disability. In most cases, you have to receive Social Security disability benefits for two years before you become eligible for Medicare (but there are exceptions for people with end-stage renal disease and amyotrophic lateral sclerosis). 

You’re eligible for Medicare if:

  • You’re at least 65 years old
  • AND you or your spouse paid Medicare payroll taxes for at least 10 years

Whether you're rich or poor doesn't matter; if you paid your payroll taxes and you're old enough, you'll get Medicare. In that case, you'll get Medicare Part A for free.

For most people, Medicare Part B premiums are $148.50 a month (in 2021 rates). However, you'll pay higher premiums for Medicare Part B and Part D if your income is higher than $87,000 per year for a single person, or $174,000 per year for a married couple.

If you’re at least 65 but didn’t pay Medicare payroll taxes while you were younger, you may still be eligible for Medicare, but Part A isn't free. You’ll pay higher total premiums—the regular premium for Part B in addition to a premium for Part A.

In 2021, the Part A premium for people who don't have enough work history is as high as $471 a month. Very few Medicare beneficiaries pay a premium for Part A, though, as most people have a work history (or a spouse's work history) of at least ten years by the time they're eligible for Medicare.

Medicaid

Under the Affordable Care Act, you’re eligible for Medicaid if your household income is less than 138% of the federal poverty level.

However, some states have rejected this provision, and have kept their Medicaid eligibility as it was prior to the ACA, which generally means that in addition to being low income, you also have to be:

  • A child
  • A pregnant woman
  • Elderly
  • Blind
  • Disabled
  • A very low-income parent of minor children

Twelve states haven't expanded Medicaid to people earning up to 138% of the poverty level (although two of them—Missouri and Oklahoma—will expand their coverage in 2021). In 11 states, there's a coverage gap (i.e., no realistic coverage options) for childless adults living below the poverty level.

In addition to income-based Medicaid eligibility, 32 states and the District of Columbia automatically provide Medicaid benefits to aged, blind, or disabled people who are deemed eligible for Supplemental Security Income.

Who Runs Medicare and Medicaid?

The federal government runs the Medicare program. Each state runs its own Medicaid program. That’s why Medicare is basically the same all over the country, but Medicaid programs differ from state to state.

Although each state designs and runs its own Medicaid program, all Medicaid programs must meet standards set by the federal government in order to get federal funds.

The Centers for Medicare and Medicaid Services, part of the federal government, runs the Medicare program. It also oversees each state’s Medicaid program to make sure it meets minimum federal standards.

In order to make significant adjustments to their Medicaid programs, states must seek permission from the federal government via a waiver process.

How the Programs Differ

Medicare is an insurance program while Medicaid is a social welfare program.

Medicare recipients get Medicare because they paid for it through payroll taxes while they were working, and through monthly premiums once they’re enrolled.

Medicaid recipients need never have paid taxes and most don’t pay premiums for their Medicaid coverage (although some states require those on the higher end of the eligible income scale to pay nominal premiums).

Taxpayer funding provides Medicaid to eligible needy people in a manner similar to other social welfare programs like Temporary Assistance for Needy Families; Women, Infants and Children; and the Supplemental Nutrition Assistance Program.

Different Options

The Medicare program is designed to give Medicare recipients multiple coverage options. It's composed of several different sub-parts, each of which provides insurance for a different type of healthcare service.

  • Medicare Part A is hospitalization insurance.
  • Medicare Part B is insurance for outpatient care and doctors’ services.
  • Medicare Part D is prescription drug insurance.
  • Original Medicare is A and B combined with an option to add D.
  • Medicare Part C, also called Medicare Advantage, combines A, B, and sometimes D into one plan.

Opting for Part A Only

Some people choose only to have Medicare Part A coverage so that they don’t have to pay the monthly premiums for Medicare Parts B and D. If you still have insurance through an employer (yours or your spouse's), you can add the other parts later with no penalty.

However, if you decline Parts B and D and don't have another insurance plan in place, you'll face a late enrollment penalty when you add the other parts later.

In the past, Medicaid programs typically didn't offer a lot of choice in terms of plan design. Today, most states utilize Medicaid managed care organizations (MCOs). If there's more than one MCO option in a given area of the state, you may be allowed to select the one you prefer.

Medicare and Medicaid Funding

Medicare is funded:

  • In part by the Medicare payroll tax (part of the Federal Insurance Contributions Act or FICA)
  • In part by Medicare recipients’ premiums
  • In part by general federal taxes

The Medicare payroll taxes and premiums go into the Medicare Trust Fund. Bills for healthcare services to Medicare recipients are paid from that fund.

Medicaid is:

  • Partially funded by the federal government
  • Partially funded by each state

The federal government pays an average of about 60% of total Medicaid costs, but the percentage per state ranges from 50% to about 77%, depending on the average income of the state's residents (wealthier states pay more of their own Medicaid costs, whereas poorer states get more federal help).

Under the ACA's expansion of Medicaid, however, the federal government pays a much larger share.

For people who are newly eligible for Medicaid due to the ACA (i.e., adults with income up to 138% of the poverty level, who would not be eligible for Medicaid without the ACA's expanded eligibility rules), the federal government paid 100% of the costs from 2014 through 2016.

States began to pay 5% of the cost in 2017, and that increased to 6% in 2018, and to 7% in 2019. From 2020 onward, states will pay 10% of the cost and the federal government will pay 90%.

How Benefits Differ

Medicare and Medicaid don’t necessarily cover the same healthcare services.

For example, Medicare doesn’t pay for long-term custodial care like permanently living in a nursing home, but Medicaid does pay for long-term care. The majority of nursing home residents in the U.S. are enrolled in Medicaid.

Medicaid benefits vary from state to state, but each state’s Medicaid program must provide certain minimum benefits.

Medicare benefits are the same across the entire country, although people who purchase private Medicare Advantage plans will find that there's some variation from plan to plan, and some areas don't have any Medicare Advantage plans available at all.

Medicare Advantage plans are provided by private insurers, and although they have to cover all of the basic benefits that Part A and Part B would cover, insurers are free to add additional benefits, which aren't standardized.

You can learn more about what benefits Medicare provides, as well as what to expect for out-of-pocket expenses in the "Medicare and You" handbook, published each year by the federal government.

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Article Sources
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