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The Basics of Medicare and Medicaid

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Medicare and Medicaid are two U.S. government programs designed to provide access to healthcare for Americans. The terms are often confused or used interchangeably, however these two programs are actually very different. Each is regulated by its own set of laws and policies, and the programs are usually designed for different sets of people, although it is possible to be eligible for both programs.

To select the correct program for your needs, it’s important to understand the differences between Medicare and Medicaid. Keep in mind that plan options and costs are subject to change each year. 

Medicare is federal health insurance for people 65 or older, and some people under 65 with certain disabilities or conditions. A federal agency called the Centers for Medicare & Medicaid Services runs Medicare. Because it’s a federal program, Medicare has set standards for costs and coverage. This means a person’s Medicare coverage will be the same no matter what state they live in. Medicare-related bills are paid from two trust funds held by the U.S. Treasury. Different sources (including payroll taxes and funds that Congress authorizes) fund the trust funds. People with Medicare pay part of the costs through things like monthly premiums for medical and drug coverage, deductibles, and coinsurance.

There are two main branches of Medicare to choose from — original Medicare and Medicare Advantage.

Original Medicare covers:

  • Inpatient hospital services (Medicare Part A). These benefits include coverage for hospital visits, hospice care, and limited skilled nursing care and at-home nursing care. 
  • Outpatient medical services (Medicare Part B).These benefits include coverage for preventive, diagnostic, and treatment services for health conditions.

Medicare Advantage is an additional insurance option (Medicare Part C) for people who want the coverage of original Medicare but with more coverage choices. Medicare Advantage plans are offered through private insurance companies. Many of these plans cover services like prescription drug coverage, dental, vision, and hearing care that aren’t included in original Medicare.

People receiving Medicare benefits pay part of the cost through deductibles for things like hospital stays. For coverage outside the hospital, such as a doctor’s visit or preventive care, 

Medicare requires small monthly premiums. There may also be some out-of-pocket costs for things like prescription drugs.

Medicaid is a program that combines the efforts of the U.S. state and federal governments to assist households in low-income groups with healthcare expenses. These costs may include major hospitalizations and treatments as well as routine medical care. The program provides services to millions of adults, children, and people with disabilities each year. In 2020, the Department of Health and Human Services reported that over 72 million adults were enrolled in Medicaid, and over 6 million children were enrolled in the Children’s Health Insurance Program (CHIP). 

The federal government has general rules that all state Medicaid programs must follow, but each state runs its own program. This means eligibility requirements and benefits can vary from state to state. People receiving Medicaid benefits often don’t have to pay for covered expenses at all, but some cases require a small copayment. This applies to certain groups of Medicaid enrollees, including: 

  • pregnant women and infants with a household income at or above 150 percent of the federal poverty level (FPL)
  • qualified disabled and working individuals with an income above 150 percent of the FPL
  • disabled working individuals eligible under the Ticket to Work and Work Incentives Improvement Act of 1999
  • disabled children eligible under the Family Opportunity Act
  • medically needy individuals

The benefits covered by Medicaid vary by state, but there are some benefits included in every program. These include:

  • lab and X-ray services
  • inpatient and outpatient hospital services
  • family planning services, such as birth control and nurse midwife services
  • health screenings and applicable medical treatments for children
  • nursing facility services for adults
  • surgical dental services for adults

To enroll in either Medicare and/or Medicaid, you must meet certain criteria. In most situations, eligibility for Medicare is based on the age of the applicant. A person must be a citizen or permanent resident of the United States and 65 years old or older to qualify.

Premiums and specific Medicare plan eligibility will depend on how many years of Medicare taxes have been paid. The exception to this is people younger than age 65 who have certain documented disabilities. Because Medicaid is different in each state, you may want to connect with a Medicaid caseworker in your state to assess your personal situation and get help applying.

Generally, people who receive Medicare benefits also receive some form of Social Security benefits. Medicare benefits can also be extended to:

  • a person eligible for the Social Security disability program who’s also the widow or widower and is age 50 or older
  • the child of a person who worked a minimum length of time at a government job and paid Medicare taxes

Eligibility for Medicaid is based primarily on income. Whether or not someone qualifies depends on income level and family size. The Affordable Care Act has extended coverage to fill in the healthcare gaps for those with the lowest incomes, establishing a minimum income threshold constant across the country. To find out if you qualify for assistance in your state, visit Healthcare.gov.

For the majority of adults under age 65, eligibility is an income lower than 133 percent of the federal poverty level. According to Healthcare.gov, this amount for 2021 is approximately $12,880 for an individual and $26,500 for a family of four. Children are afforded higher income levels for Medicaid and the CHIP based on the individual standards of their state of residence.

There are also special programs within the Medicaid program that extend coverage to groups in need of immediate assistance, such as pregnant women and those with pressing medical needs.

Some people qualify for both Medicare and Medicaid, and are considered dual eligible. In this case, you may have original Medicare (parts A and B) or a Medicare Advantage plan (Part C), and Medicare will cover your prescription drugs under Part D. Medicaid may also cover other care and drugs that Medicare doesn’t, so having both will probably cover most of your healthcare costs.

In summary, Medicare and Medicaid are two U.S. government programs designed to help different populations get access to healthcare. Medicare typically covers citizens age 65 and over and those with certain chronic conditions or disabilities, while Medicaid eligibility is mainly based on income level and need. The programs are quite different. Knowing which one is right for you can help support you in paying for the healthcare you need for yourself and your family.

Learn more from the Department of Health and Human Services:

What is the Medicaid program?

Who’s eligible for Medicaid?

Who’s eligible for Medicare?

How do I enroll in Medicare?

What are the Medicare premiums and coinsurance rates?

Written by Stacey Kendrick

Stacey has a masters degree in health promotion from the University of North Carolina. She has over 20 years of experience as a health educator and fitness professional. After a career at Vanderbilt University Medical Center, Stacey has been continuing her passion for helping people live healthy lifestyles by freelance writing that is focused on health, wellness and nutrition.
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