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What’s the Difference Between Medicare and Medicaid?

·7 min read

Although they sound similar and are both run by the Centers for Medicare and Medicaid Services (CMS), Medicare and Medicaid are separate programs with different purposes.

Medicare provides health insurance for people over 65, and almost every American will one day qualify for it. In 2020, Medicare accounted for $829.5 billion, or 20% of the total National Health Expenditure (NHE).

On the other hand, Medicaid is a program funded by state and federal dollars, and it provides health insurance for people with lower incomes. In 2020, Medicaid accounted for $671.2 billion, or 16% of total NHE.

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Each program has specific qualification requirements and is an important safety net for the people who use it. Here’s the important info you need to know about how they differ.

What is Medicare?

Medicare is a federal program that provides health insurance to those 65 and older or younger people who receive Social Security Disability benefits. Social Security and Medicare are funded by payroll taxes called FICA.

As of June 2021, 63 million people were enrolled in Medicare, or about 18.4% of the total population. Medicare is broken into four parts and covers hospital coverage (Part A), outpatient/general coverage (Part B), Medicare Advantage plans (Part C), and prescription drug coverage (Part D).

What is Medicaid?

Medicaid is a needs-based assistance program that serves low-income people of all ages. The program is run and funded jointly by federal and state governments. The federal government pays states a specified percentage called the Federal Medical Assistance Percentage (FMAP), and states must ensure that they can fund their share of the plan for services.

There are federally mandated coverage requirements for low-income families, qualified pregnant women, children, or people receiving Supplemental Security Income (SSI). States can elect to extend coverage to others, including those receiving home or community-based services or children in foster care.

As of June 2020, nearly 83 million people were enrolled in Medicaid, and a corresponding program, the Children’s Health Insurance Program (CHIP).

Who is eligible for each?

Medicare covers people 65 years or older, some people receiving Social Security disability benefits, and anyone, regardless of age, with end-stage kidney disease who requires either dialysis or a kidney transplant.

Medicaid eligibility is based on a person’s or family’s Modified Adjusted Gross Income (MAGI) and was streamlined under the Affordable Care Act to make it less complicated for people to apply and enroll. In addition to the income requirements, participants must also be residents in the state they receive Medicaid, be U.S. citizens, or certain qualified non-citizens.

Some people, like the elderly, blind, or those with disabilities receiving Supplemental Security Income (SSI), qualify for Medicaid even without meeting the income eligibility requirements. If your income is above the Medicaid income guidelines in your state, you might be able to use a Medicaid spend-down program to help you meet eligibility requirements. The spend-down program allows you to deduct certain medical expenses from your income to become eligible for Medicaid.

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What does Medicare cover?

Medicare coverage generally contains four parts, commonly called Parts A, B, C, and D. Parts A and B are often referred to as Original Medicare. Part A covers inpatient hospital stays, nursing homes or skilled nursing facilities, home health care, and hospice care.

Part B covers outpatient services like doctor or clinic visits, durable medical equipment, ambulance services, services deemed medically necessary, or supplies to diagnose and treat medical conditions. Preventive services like vaccines and tests are also usually covered to help catch problems early. Note that if you enroll late — after your initial enrollment period — you’ll likely pay a 10% penalty for as long as you’re part of the program.

Part D is prescription drug coverage and helps you pay for medications, including cancer or HIV/AIDS drugs. Enrolling in drug coverage is optional, but much like Part B, if you sign up after you’ve already enrolled in Medicare, you’ll likely pay a late penalty for as long as you’re enrolled in the program.

Part C is often referred to as Medicare Advantage plans and are private health care plans that Medicare approves. Advantage plans generally cover Parts A and B and may even include some of Part D, along with things like vision, dental, or hearing coverage. Medicare pays a fixed amount of your care costs to your chosen plan, but Medicare Advantage plans may also have deductibles or copays that you must pay outside of Parts A and B. Each program has its own rules, coverages, and fees, so make sure you do your research before deciding on one.

Note: Before you choose an insurance plan, make sure you know how coinsurance and copays work.

What does Medicaid cover?

Since the states administer Medicaid, the coverage and costs vary. All states must offer federally mandated benefits, such as inpatient and outpatient hospital visits, nursing facility services, doctor visits, X-rays, lab services, family planning services, and pediatric services.

Additional optional coverage that varies state by state can include prescription drugs, clinic services, physical and occupational therapy, respiratory care, podiatry, optometry, dental or denture services, and prosthetics.

What does each program cost?

Most people don’t pay for Medicare Part A premiums because they worked long enough to qualify for it automatically (usually 10 years). Unless you have supplemental coverage like Medigap or a Medicare Advantage plan, you may have to pay a deductible of $1,556 each time you're admitted to the hospital.

Medicare Part B premiums are $170.10 per month, or possibly higher if your adjusted gross income exceeds $91,000 for an individual or $182,000 for a couple. Premiums are usually deducted from your monthly Social Security payment. If you haven’t claimed your benefits yet, you may have to make payments directly to Medicare until you apply for Social Security.

Once you qualify for Medicaid, you’ll likely have little to no out-of-pocket costs. Because the states facilitate Medicaid, each state can decide to set premiums or out-of-pocket spending requirements, called cost-sharing. Some may opt to charge for co-pays, coinsurance, or deductibles, within preset maximums. States can impose higher charges for people with higher incomes, but children and pregnant people are generally exempt from out-of-pocket costs.

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Can you have both Medicare and Medicaid?

Yes, you can, although because you meet the requirements for one doesn’t mean you’ll automatically qualify for the other. While almost everyone will be eligible for Medicare when they reach the age of 65, or before, for those who have a pertinent disability, Medicaid is needs-based. If you have a low income or already have Supplemental Security Income (SSI), you’re likely eligible for Medicaid.

Full-Benefit Dual-Eligible (FBDE) individuals are eligible for Medicare and full Medicaid benefits through their state. Medicaid provides Part A and B premiums, deductibles, coinsurance, and copays coverage through a Medicare savings program.

Do I have to recertify every year?

You do not have to reapply for Medicare every year. Once you sign up for benefits, you remain part of the program until you unenroll. You can switch your Medicare Advantage plan or drug coverage during the yearly open enrollment period.

For Medicaid, you’ll need to requalify every year based on any changes to your state’s eligibility criteria. To limit the chance of eligible people losing benefits because they didn’t apply, Medicaid has imparted policies for ex parte renewals, meaning states are allowed to renew enrollees’ coverage if current database information indicates that they are still eligible.

How do you enroll in Medicare or Medicaid?

You can sign up for Medicare through its website or go to Social Security’s website, ssa.gov. Initial Medicare enrollment is available within a seven-month window without penalty: the three months before your 65th birthday, the month of your birthday, or within three months after your 65th birthday, even if it's outside of the open enrollment window.

If you’re still working and you (or your spouse) have employer-sponsored health care, there are different requirements, but it’s usually a good idea to sign up for Medicare at 65 to avoid potential coverage gaps.

To sign up for Medicaid, contact your state’s Medicaid agency to determine if you’re eligible and for help applying.

Bottom line

Although similarly named, Medicare and Medicaid are essential safety nets for people living at or below the poverty line and provide health care for millions of seniors, children, disabled people, and low-income families. If you qualify for either of these programs, visit their websites for help applying and to ensure you receive the benefits you’re entitled to.

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This article What’s the Difference Between Medicare and Medicaid? originally appeared on FinanceBuzz.