Medicare and Medicaid: Do You Know the Difference?

Medicare and Medicaid were signed into law 36 years ago to protect older and poorer Americans against the high cost of health care. Ironically, it’s the high cost of providing health care through these programs that now threatens federal and state budgets, leading to calls for Medicare and Medicaid reform. Although these programs are often lumped together, they function quite differently. Here’s a look at the coverage each provides.

What is Medicare?

Medicare is a health insurance program funded and run by the federal government that guarantees health coverage to older Americans. Medicare is not income-based. People who have paid Medicare taxes on their earnings are automatically eligible at age 65, but some people with disabilities qualify for Medicare coverage earlier than age 65, and people with end-stage renal disease qualify at any age.

Medicare offers three main types of coverage. Part A covers inpatient hospital care, as well as short-term skilled nursing care, hospice care, and home health care under certain conditions. Part B covers medical services such as doctor’s visits, outpatient care, and laboratory tests. Part D covers prescription drugs. If you or your spouse has paid Medicare taxes while working, you generally won’t pay a premium for Medicare Part A coverage, but you’ll pay a premium if you want to enroll in Part B or in some (but not all) Part D plans. You’ll also need to pay certain out-of-pocket costs such as deductibles, co-payments, or coinsurance costs, depending on the types of coverage you have.

What is Medicaid?

Medicaid is a health insurance program funded by both the federal government and state governments to provide coverage to Americans of all ages who have low incomes and no health insurance. States administer their own Medicaid programs under federal guidelines. They must cover individuals on public assistance, but they may also opt to cover other groups and establish eligibility requirements. Children, families, people with disabilities, and older individuals may all receive Medicaid.

If you’re eligible for Medicaid, you may have to pay a small co-payment when receiving medical services, but most of your health-care costs will be covered.

Can you be eligible for both Medicare and Medicaid?

Yes–if you’re eligible for both programs, you’re¬†known as a “dual eligible” beneficiary. Generally, individuals who are eligible for both programs are older or disabled (or both) and need help paying their Medicare costs because they have very low incomes. Medicaid covers premiums, deductibles, co-payments, coinsurance, and other Medicare costs and provides some health benefits that Medicare does not. Individuals in nursing homes are often dual eligible beneficiaries, and that’s partly behind the misconception that Medicare pays for nursing home or other long-term care (it does not–see sidebar); instead, Medicaid is the primary payer of nursing home bills. Because many older individuals cannot afford the high cost of nursing home care and exhaust their savings, they eventually become eligible for Medicaid.



Primarily age-based; individuals age 65 and older qualify, along with some individuals with disabilities

Primarily means-based; individuals of any age with low incomes who meet eligibility requirements may qualify

The federal government runs Medicare, and the program is the same for all Americans

State governments run programs under federal guidelines, so programs vary from state to state

Financing comes from federal funds; partly financed through payroll taxes and premiums

Financing comes from federal, state, and local revenue

Medicare Part A provides coverage for hospital stays; Medicare Part B covers the cost of doctor’s bills, laboratory costs, and some outpatient costs; Medicare Part D covers some prescription drug costs

Broader coverage of health costs than Medicare, including inpatient and outpatient care, prescription drugs, laboratory costs, family planning, and nursing home care (types of coverage may vary from state to state)

Medicare beneficiaries may pay deductibles, co-payments, coinsurance costs, and premiums

Medicaid generally pays all approved charges, though a small deductible or co-payment may be required

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