Medicare and Medicaid: What's the Difference?

Medicare and Medicaid coverage explained.

Medicare and Medicaid are very different. Medicaid is a federal program for low-income, financially needy people, set up by the federal government and administered differently in each state. (This program is called Medi-Cal in California.)

Eligibility for Medicare, also a federal program, is not tied to individual need. Rather, it is an entitlement program; you are entitled to it because you or your spouse paid for it through employment or self-employment taxes. Medicare was created in an attempt to address the fact that many older citizens have medical bills significantly higher than the rest of the population, while it is much more difficult for most seniors to continue to earn enough money to cover those bills.

Although you may qualify for and receive coverage from both Medicare and Medicaid, there are separate eligibility requirements for each program -- being eligible for one program does not necessarily mean you are eligible for the other. Also, Medicaid pays for some services for which Medicare does not. If you are eligible for Medicaid, Medicaid may pay Medicare deductibles and the Medicare premium.

The following chart summarizes the differences between the two programs.

	Medicare	Medicaid
Who Is Eligible	Medicare covers almost everyone 65 or older, certain people on Social Security disability, and some people with permanent kidney failure.	Medicaid covers low-income and financially needy people, including those over 65 who are also on Medicare.
Who Administers the Program	Medicare is a federal program whose rules are the same all over the country. Medicare information is available at your Social Security office.	Medicaid is administered by the 50 states; rules differ in each state. Medicaid information is available at your local county social services, welfare, or department of human services office.
Coverage Provided	Medicare hospital insurance (Part A) provides basic coverage for hospital stays, post-hospital nursing facility stays, and home health care. Medicare medical insurance (Part B) pays most basic doctor and laboratory costs, and some out-patient medical services, including medical equipment and supplies, home health care, and physical therapy. Medicare prescription drug coverage (Part D) pays some of the costs of prescription medications.	In many states, Medicaid covers services and costs Medicare does not cover, including prescription drugs, diagnostic and preventive care, and eyeglasses.
Costs to Consumer	You must pay a yearly deductible for all three parts of Medicare. Under Part A you must also pay hefty copayments for extended hospital stays. Under Part B, you must pay 20% of doctors' bills and sometimes an additional 15%. Part B also charges a monthly premium. Under Part D, you must pay a monthly premium and 25% of your prescription costs after you meet the deductible. Part D also has a coverage gap during which you must pay all your prescription costs. In 2008, the gap begins when your total prescription costs reach $2,510 and ends when your costs reach $4,050.	Medicaid can pay Medicare deductibles and the 20% portion of charges not paid by Medicare. Medicaid can also pay the Medicare premium. In some states, Medicaid charges consumers small amounts for certain services.

For more information on what Medicare doesn't cover, see Medigap: Covering the Gaps in Medicare.

To learn more about health care options in your retirement years, get Social Security, Medicare, and Government Pensions , by Josepth L. Matthews and Dorothy Matthews Berman (Nolo).