While they sound alike, Medicare and Medicaid are two different programs. Both can help you pay for health care and medical expenses. But Medicare is an age-based, federal health insurance program that guarantees coverage for individuals aged 65 and over – and some younger people with disabilities – while Medicaid is a public-assistance program for needy Americans of all ages. Here’s how to tell them apart and discover whether you qualify for either or both of them.
Think of Medicare as a health insurance policy offered to the senior-citzen set, along with people under 65 who are disabled in certain ways. It is is considered an entitlement: If you paid Medicare taxes on your earnings while working (they're usually taken out of your paycheck automatically, just like Social Security contributions), you are automatically eligible for Medicare at age 65. It is not income-based.
Benefits under Medicare
Part A – Hospital care – covers the cost of being in a medical facility.
Part B – covers doctors, medical tests and procedures – basically, anything done to you. There is a monthly premium for Part B coverage.
Part C – Medicare Advantage – is an alternative to traditional Medicare coverage. Coverage often includes Parts A, B and D. Medicare Advantage plans are administered by private insurance companies.
Part D – Prescription drug coverage – D is administered by private insurance companies, and you are required to have it unless you have coverage from another source. Part D requires you to pay a monthly premium in most cases.
Medicare isn’t a comprehensive health insurance plan. If you only have traditional Medicare, there are gaps in coverage. For example, Medicare doesn’t cover long-term care, unless you purchase a Medicare Advantage or Medigap policy.
Medicaid is a public assistance program based largely on financial need; it's paid for using public funds collected through taxes.
Unlike Medicare, a federal program, both state governments and the federal government fund Medicaid. The program, which provides health insurance to low-income Americans of all ages, works differently in each state, although federal guidelines apply.
Providing there is a financial need, you likely qualify for Medicaid if you fall into one of the following groups.
1) You're pregnant – Whether you’re single or married, apply for Medicaid if you are pregnant. You and your child will be covered.
2) Parent of a minor or a teenager living alone – If you have a child under 18 and you have financial need, you can apply. Also, if your child is sick and needs skilled nursing, but could stay home with quality medical care, Medicaid might be able to help. Finally, Medicaid covers teenagers living on their own. Some states allow for coverage for “children” up to 21 years old.
3) Aged, blind or disabled – Medicare comes with sometimes-sizable premium payments. If you are over 65 and can’t afford healthcare coverage, apply for Medicaid as well. People with medical need may apply regardless of age.
4) No disabilities, no children under 18 – The Affordable Care Act gives states the opportunity to provide Medicaid to low-income individuals under the age of 65 without a disability or minor children. Check with your state agency for more information. You can see whether your state is expanding its Medicaid coverage here.
Benefits under Medicaid
Although benefits vary by state, each state is required to cover certain types of care. These include inpatient and outpatient hospital services, nursing-home and home healthcare, laboratory and x-ray diagnostic services, transport to a medical facility and tobacco-cessation counseling for pregnant women.
In addition to paying Medicare-related expenses such as hospitalization, doctors and medicines, Medicaid offers two additional types of care that Medicare does not.
- Custodial Care. Custodial or personal care helps you with daily activities. These activities include eating, bathing, dressing and going to the bathroom. Custodial care can be provided in a skilled nursing facility, if you're there for a recuperative stay following a stroke or accident. It can also be provided at home, as a way to avoid being admitted to a nursing home, or for some period before a nursing home becomes the best option.
- Nursing Home Care. Medicaid is the primary provider of long-term nursing-home care. (Medicare will pay for skilled nursing short-term, or rehabilitation in a skilled nursing facility; however, it does not covered extended care.) Nursing home care under Medicaid is a complex subject. Even if you qualify for it in general, you may have to pay part of the cost, depending on your income and tax deductions. The results of the application process will determine how much you have to pay, if anything.
In addition, states may provide benefits beyond the mandatory requirements including prescription drug coverage, physical and occupational therapy, optometry, chiropractic services, dental care and more.
Applying for Medicaid
Application rules vary by state. But be aware that the process may take weeks or even months and could require a medical screening, as well as extensive documentation of past and present financial transactions.
Income standards for Medicaid are generally based on the Federal Poverty Level. Guidelines for your state Medicaid program will spell out the details for your situation. In some cases, involving especially high medical expenses, your income could exceed guidelines and you could still qualify for help as someone who is “medically needy.”
Qualifying as “medically needy” involves a process through which you are allowed to subtract (or spend down) your medical expenses in order to get below a certain income level. Rules vary by state and the Medcaid.gov website will help link you to a regional office that can clarify whether this option is available to you.
In addition to income, certain of your assets will count toward determining if you are eligible for Medicaid. Countable assets include stocks and bonds, CDs, the funds within checking/savings accounts, property (other than your primary residence) and additional vehicles (if you have more than one). In most states, the amount of countable assets you can retain and still qualify for Medicaid is $2,000 for an individual and $3,000 for a couple.S ome assets don’t count towards the total – a home, car, personal effects, home furnishings and household goods, among others.
The Medicaid Spend Down
Since Medicare has very limited coverage for nursing homes, seniors who need it sometimes try to qualify for Medicaid, especially when they are trying to ensure they have enough money left over for a spouse who isn't going into care.
People who have more than the allowable amount of assets have to “spend down” until they reach an income level that qualifies them for Medicaid. Spending down works differently depending on your state, but you may be able to pay off debts, prepay a mortgage and other loans, repair or renovate a home, prepay funeral expenses and purchase certain investment products, depending on what the state allows.
If you fit into any of the above groups, you may be able to receive Medicaid benefits even if you’re above the income limits, provided your state has a Medicaid Excess Income Program. Similar to a deductible, you may be required to pay a certain amount of your expenses each month before Medicaid benefits take over. And if you are spending down, you have to spend down a certain number of years prior to applying.
Why? Because the authorities are on to people who deplete assets just to qualify for Medicaid. When you apply, the state “looks back” five years to determine if you transferred, sold below fair market value or gave away assets that would have made you ineligible for the program. If so, you may be subject to what’s known as a transfer penalty. Typically, the penalty is a “timeout” period during which you cannot receive Medicaid benefits, even though you now technically qualify.
The process to determine the penalty involves denying benefits in proportion to the time you could have paid for a nursing home if you would have kept those assets. The look-back period starts when you apply for Medicaid. So even if the transfer was up to five years ago, it could trigger the penalty.
Partial Help: Medicare Savings Programs
Even if you aren't eligible for Medicaid, you may qualify for one of three Medicare Savings Programs (MSPs), administered by your state’s Medicaid program.
Federal income and resource limits listed below are for 2015. Limits for 2016, when released, will be slightly higher. Some states have more liberal allowances, so it might be worth applying even if you are over the limit.
- Qualified Medicare Beneficiary (QMB) Program: QMB helps pay for Medicare Part A premiums, Part B premiums, deductibles, co-insurance and co-payments. Income limits are $1,001 for an individual and $1,348 for a couple. The value of assets (or "resources") you can own are limited to $7,280 for a single person and $10,930 for a couple.
- Specified Low-Income Medicare Beneficiary (SLMB): SLMB helps pay for the cost of Medicare Part B premiums. SLMB income is limited to $1,197 for an individual and $1,613 for a couple. Resources limits are the same as for the QMB program.
- Qualifying Individual (QI) Program: QI helps pay the cost of Medicare Part B premiums only. Each year, you have to apply for QI benefits (or re-apply). These benefits are granted on a first-come, first-served basis; priority is given to those who received QI benefits the previous year. Income limits are $1,345 (individual) and $1,813 (couple). Resources allowed are the same as for QMB and SLMB. You may not receive QI benefits if you qualify for Medicaid.
If you qualify for a QMB, SLMB or QI program, you automatically qualify to get Extra Help paying for Medicare prescription drug (Part D) coverage. In determining the value of your resources, your checking and savings account balances as well as the value of all stocks and bonds are counted. Your home, one car, a burial plot plus $1,500 worth of burial expenses, furniture, and other household and personal items are not counted.
Can You Have Both?
Yes. If you qualify for both Medicare and Medicaid, you are “dual eligible.” Under this status, most or all of your healthcare costs will be covered. Medicaid will pay for most of your Medicare Parts A and B premiums (if you have premiums), along with deductibles and co-payments you may have. It doesn’t matter if you get your Medicare coverage through traditional Medicare or a Medicare Advantage (MA) Part C plan.
If you are “dual eligible” and receive full Medicaid, your prescription drug coverage (Part D) will go through Medicare but you will automatically qualify for Extra Help paying for your medicines. In addition, Medicaid may cover some drugs that Medicare does not.
The Bottom Line
As a taxpayer, you contribute to Medicare during your work years, and will receive Part A coverage probably at no cost to you. Additional coverage, such as Parts B and Part D, might be required and come with a monthly premium. Because Medicare has gaps in coverage, you’ll likely need additional coverage that might come with an extra monthly premium on top of what you already pay.
Medicaid is a needs-based program. Although states have the option of charging out-of-pocket fees, certain groups, such as children and people living in institutions, are generally exempt from these costs.
With life expectancies getting longer, and retirement savings falling short, more and more seniors might find themselves qualifying for Medicaid benefits, either in full or in part. In addition to helping with medical costs, Medicaid offers coverage not normally available through Medicare, such as extended nursing-home care and custodial or personal care services. But since the income requirements are stringent, and the program penalizes people who try to shed assets right before they apply, long-term planning is required to qualify.