Medicaid vs. Medicare: An Overview
While they may sound alike, Medicare and Medicaid are actually two different programs. Both can help you pay for health care and medical expenses, but Medicaid is a public assistance health care program for low-income Americans regardless of their age. Medicare, on the other hand, is an age-based federal health insurance program that guarantees coverage for individuals ages 65 and over and some younger people with disabilities. Here’s how to tell them apart and discover whether you qualify for either or both of them.
- Although two different programs, both Medicaid and Medicare can help you pay for healthcare expenses.
- Medicaid is a public assistance program based largely on financial need; it's paid for with public funds collected through taxes.
- Medicare is a health insurance policy offered to the senior-citizen set, along with people under 65 who are disabled in certain ways.
Medicaid is a public assistance program based largely on financial need. This means it's paid for with public funds that are collected through income taxes. According to Statista, 17.9% of the American population was covered by Medicaid in 2018. Unlike Medicare, which is a federal program, both your state and the federal government fund Medicaid. The program, which provides health insurance to low-income Americans of all ages, works differently in each state. Federal guidelines do apply.
Application rules vary by state, but be aware that the process may take weeks or even months. You may also be required to take a medical screening and may be asked to provide extensive documentation of past and present financial transactions.
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.
As long as there's a financial need, you may qualify for Medicaid if you fall into one of the following groups:
- You're pregnant: Whether you're single or married, apply for Medicaid if you are pregnant. You and your child will be covered.
- You're the parent of a minor or a teenager living alone: You can also apply if you have a child under 18 and you have a financial need. If your child is sick and needs skilled nursing, but could stay home with quality medical care, Medicaid may be able to help. Medicaid also covers teenagers living on their own. Some states allow for coverage for dependents up to the age of 21.
- You're 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 needs may apply regardless of age.
- You have no disabilities or 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.
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 cases involving especially high medical expenses, your income could exceed guidelines and you may 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. The Medicaid website helps link you to a regional office that can clarify whether this option is available to you.
In addition to income, some of your assets will count toward determining your eligibility for Medicaid. Countable assets include stocks and bonds, CDs, the funds within checking and 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 married couple. Some assets don’t count toward the total—a home, car, personal effects, home furnishings, and household goods, among others.
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.
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 health care, 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 care, or personal care, helps you with daily activities. These activities include eating, bathing, dressing, and using 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, but it doesn't cover extended care. Nursing home care under Medicaid is a complex subject. Even if you qualify for it, you may have to pay part of the cost—depending on your income and tax deductions. The results of the application process determine how much you have to pay if anything.
States may also provide benefits beyond the mandatory requirements including prescription drug coverage, physical and occupational therapy, optometry, chiropractic services, dental care, and more.
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.
Medicare Vs. Medicaid
Medicare is considered to be an entitlement by most people. Think of Medicare as a health insurance policy offered to the senior citizen set, along with people under 65 who qualify because of certain disabilities. 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. Medicare covers anyone who qualifies regardless of their income.
Parts of Medicare
Medicare comes in four parts. Some parts require payment of a monthly premium similar to private health insurance, but the program is not based on financial need:
- Part A: This part of the plan covers hospital care, notably the cost of being in a medical facility. Those enrolled are responsible for deductibles and coinsurance. For example, the inpatient hospital deductible for 2020 is $1,408, while hospital stays between the 61st and 90th days are charged $352 per day.
- Part B: Part B covers doctors, medical tests, some medical equipment and procedures. Basically, it covers anything done to you. There is a monthly premium for Part B coverage. The 2020 monthly standard premium for Part B coverage is $144.60, with the annual deductible set at $198. People who fall into a higher income range will have to pay income-related monthly adjustment amounts.
- Medicare Advantage: This plan is also called Part C. This is an alternative to traditional Medicare coverage, and often includes Parts A, B, and D, and may also include some procedures not covered by Medicare such as hearing, vision, and dental. Private insurance companies administer Medicare Advantage plans.
- Part D: Part D comprises Prescription drug coverage and is also administered by private insurance companies. 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. The average monthly premium for Part D in 2020 is expected to be $32.74.
As a taxpayer, you contribute to Medicare during your working years and will receive Part A coverage probably at no cost to you. Additional coverage, such as Part B and Part D, may be required and could 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.
Medicare isn’t a comprehensive health insurance plan, so if you only have traditional Medicare, there are gaps in coverage like long-term care.
Medicare Savings Programs
If you aren't eligible for Medicaid, you may qualify for one of four Medicare Savings Programs (MSPs), which are administered by your state's Medicaid program. Some states have more liberal allowances, so it might be worth applying even if you are over the limit. The following limits are the most current—for 2019—and may be higher for 2020.
- Qualified Medicare Beneficiary (QMB) Program: QMB helps pay for Medicare Part A premiums, Part B premiums, deductibles, co-insurance, and co-payments. Monthly income limits are $1,061 for an individual and $1,430 for a couple. The value of assets or resources you can own is limited to $7,730 for a single person and $11,600 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 $1,269 for an individual and $1,711 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. You have to apply or re-apply for QI benefits each year. These benefits are granted on a first-come, first-served basis, and priority is given to those who received QI benefits the previous year. Income limits are $1,426 for individuals and $1,923 for couples. Resources allowed are the same as for QMB and SLMB. You may not receive QI benefits if you qualify for Medicaid.
- Qualified Disabled and Working Individuals (QDWI): This program helps qualifying people to pay for Part A premiums in various situations including if you are a working individual who's disabled and under 65. The individual monthly income limit was $4,249 for individuals and $5,722 for couples. Individual resource limits were $4,000, while those for couples were $6,000.
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. Your checking and savings account balances, as well as the value of all stocks and bonds, are counted when determining the value of your resources. Your home, one car, a burial plot plus $1,500 worth of burial expenses, furniture, and other household and personal items are not counted.
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 aware of 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.
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.
If somebody qualifies for both Medicare and Medicaid, they 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.