Medicare and Medicaid: What's the Difference?

Medicare and Medicaid are very different programs. Medicaid is a federal program for low-income people without health care insurance, set up by the federal government and administered differently in each state. (For instance, Medicaid is called Medi-Cal in California and MassHealth in Massachusetts.)

Medicare was created to deal with the high medical costs that older citizens face relative to the rest of the population—especially troublesome given their reduced earning power. But eligibility for Medicare isn't tied to individual need. Instead, it's an "entitlement program." You're entitled to it because you or your spouse paid for it through FICA taxes (or self-employment taxes).

Although you can qualify for and receive coverage from both Medicare and Medicaid, you must meet separate eligibility requirements for each program. Being eligible for one program doesn't mean you're eligible for the other. If you qualify for both, Medicaid will often pay for your Medicare deductibles, premiums, and copayments through a Medicare Savings Program.

The information below provides the basics of each program.

Medicare Explained

• Who Is Eligible: Medicare covers almost everyone 65 or older, people on Social Security disability (eventually), and some people with permanent kidney failure.
• 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.
• Coverage Provided:
  • Medicare hospital insurance (Part A) provides basic coverage for hospital stays and posthospital nursing facility and home health care.
  • Medicare medical insurance (Part B) pays most basic doctor and laboratory costs, and some outpatient 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.
• Costs to Consumer: You must pay a yearly deductible for both Medicare Part A and Part B and make hefty copayments for extended hospital stays. Under Part B, you must pay the 20% of doctors' bills Medicare does not pay, and sometimes up to 15% more. Part B also charges a monthly premium. Under Part D, you pay a monthly premium, a deductible, copayments, and all of your prescription drug costs over a certain yearly amount and up to a ceiling amount, unless you qualify for a low-income subsidy. If you sign up for a Medicare Advantage plan (Part C), your copays for doctor visits and other expenses are likely to be greatly reduced.

Medicaid Explained

• Who Is Eligible: Medicaid covers low-income and financially needy people, including those over 65 who are also on Medicare.
• Who Administers the Program: 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:
  • Medicaid provides comprehensive inpatient and outpatient health care coverage, including many services and costs Medicare does not cover, such as prescription drugs, preventive care, and eyeglasses. The amount of coverage, however, varies from state to state.
  • Medicaid can pay Medicare deductibles and the 20% portion of charges not paid by Medicare. Medicaid can also pay the Medicare premium.
• Costs to Consumer: In most states, Medicaid charges consumers small amounts for certain services. In some states, Medicaid will withhold coverage until an individual has incurred a certain amount of medical expenses (like a deductible). Typically, only states with medically needy programs (or 209(b) states like Missouri and Ohio) have Medicaid deductibles. In some of these states, the deductible, or "spend-down" amount, has to be met every six months, while other states establish eligibility on a monthly basis.

Further Resources

For more information on what Medicare doesn't cover, see our article on services not covered by Medicare.

To learn more about health care options in your retirement years, you may find it helpful to read Social Security, Medicare, and Government Pensions, by Joseph Matthews and Dorothy Matthews Berman (Nolo).