Medicare and Medicaid are both government-sponsored programs designed to help cover healthcare costs. Both programs were established by the U.S. government in 1965 and are funded by taxpayers. Because the programs have similar names, there is a lot of confusion about how they work and the coverage they provide. Read on as we cut through the jargon and provide insight into these important programs.
Medicare is a federal program designed to provide healthcare coverage to the elderly. It is available to all U.S. citizens 65 years of age or older, and it also covers people with certain disabilities. The four-part program includes:
Part A: Hospitalization Coverage
You are eligible for hospitalization coverage free of charge (no monthly premium, but copays and deductibles for service apply), regardless of income, under Medicare Part A if you are age 65 or older and you or your spouse worked and paid Medicare taxes for at least 10 years. This typically includes people who are receiving retirement benefits from Social Security or the Railroad Retirement Board or are eligible to receive such benefits but have not yet filed for them. It also applies to people who had Medicare-covered government employment or have a spouse who had it.
Part B: Medical Insurance
If you are eligible for Medicare Part A, you also qualify for Part B, which provides health insurance coverage. It covers medically necessary services and equipment, including doctor’s office visits, lab work, x-rays, wheelchairs, walkers and outpatient surgeries. It also covers preventive services, such as disease screenings and flu shots.
Part B coverage requires payment of a monthly premium (generally deducted directly from your Social Security or Railroad Retirement payments) and yearly deductibles for services provided. Individuals who earn in excess of $85,000 per year ($170,000 for a couple) pay more. You may not have to sign up for it as soon you are eligible – say, if you are still working and covered by a health insurance plan that is the primary insurer – but if you don’t when you're no longer covered by employer insurance, it may cost you more to join later due to a late-enrollment penalty.
Part C: Supplemental Insurance
If you are eligible for Medicare Part A and Part B, you are also eligible for Part C (also known as Medicare Advantage), which refers to insurance plans offered by private companies instead of the federal government. This insurance provides all Medicare services offered by Parts A and B as well as additional ones, such as vision and dental coverage (see more under Part D, below). It functions much like the health maintenance organizations (commonly called HMOs) and preferred provider organizations (PPOs) through which many people receive medical services during their working years.
Enrolling in Part C may reduce the cost associated with purchasing services separately. Careful evaluation of your needs and the offerings available where you live can help you determine whether or not Part C will be valuable to you. Part C is generally paid for out-of-pocket by program participants. Services are generally limited to doctors, hospitals and other care providers in the area where you live.
It is also worth noting that Medicare Supplement Insurance (also know as Medigap) can be purchased to help cover expenses such as copayments, coinsurance and deductibles that are associated with Medicare Parts A and B but not covered by them. Deciding which choice is better for you – Medicare Advantage or Medigap – will depend on what the various available plans offer and whether you live in more than one place during the year, among other things. Note that if you use a physician who does not take Medicare (some don't), your Medigap coverage won't pay instead; it only works when the healthcare provider takes Medicare.
Part D: Prescription Drug Coverage
Medicare Part D provides prescription drug coverage. Costs include monthly premiums, a yearly deductible and copayments for some prescriptions. Parts D is paid for out-of-pocket by program participants. If you enroll in Medicare Part C, Part D coverage is generally (but not always) provided.
Picking the right plan for the medications you need is important; you should check each year at the time when you can switch plans (Oct. 15 to Dec. 7, in 2018) to make sure you have the best plan for your needs. Companies can change what they cover.
And don't delay applying: Going without coverage can mean you will be subject to a penalty rate when you finally buy Part D.
This handy chart, courtesy of medicare.gov, provides an overview of the expenses associated with the various parts of Medicare.
2018 Costs at a Glance
|Part A premium||Most people don't pay a monthly premium for Part A (sometimes called "premium-free Part A"). If you buy Part A, you'll pay up to $422 each month. If you paid Medicare taxes for less than 30 quarters, the standard Part A premium is $422. If you paid Medicare taxes for 30-39 quarters, the standard Part A premium is $232.|
Part A hospital inpatient deductible and coinsurance
- $1,340 deductible for each benefit period
- Days 1-60: $0 coinsurance for each benefit period
- Days 61-90: $335 coinsurance per day of each benefit period
- Days 91 and beyond: $670 coinsurance per each "lifetime reserve day" after day 90 for each benefit period (up to 60 days over your lifetime)
- Beyond lifetime reserve days: all costs
Part B premium
The standard Part B premium amount is $134 (or higher depending on your income). However, some people who get Social Security benefits will pay less than this amount ($130 on average).
Part B deductible and coinsurance
$183 per year. After your deductible is met, you typically pay 20% of the Medicare-approved amount for most doctor services (including most doctor services while you're a hospital inpatient), outpatient therapy and durable medical equipment (dme).
Part C premium
The Part C monthly premium varies by plan.
Part D premium
The Part D monthly premium varies by plan (higher-income consumers may pay more).
Medicaid is a joint federal and state program that helps low-income Americans, regardless of their age, pay for the costs associated with medical and long-term custodial care. (Children needing low-cost care whose families earn too much to qualify for Medicaid are covered through the Children's Health Insurance Program (CHIP), which has its own set of complex rules and requirements.)
Eligibility and Costs
Because of the federal/state partnership, there are actually 50 different Medicaid programs, one for each state. Through the Affordable Care Act, President Obama attempted to expand healthcare coverage to more Americans by having the federal government cover most of the cost of Medicaid at the state level for persons with an income level below 133% of the federal poverty level. (Healthcare.gov reports that “Because of the way this is calculated, it turns out to be 138% of the federal poverty level. A few states use a different income limit.” While 33 states have opted in to the program, political efforts to roll back coverage continue.
People covered by Medicaid pay nothing for covered services. Unlike Medicare, which is available to nearly every American 65 and over, Medicaid has strict eligibility requirements. The rules vary by state (beyond the basics set forth in the federal guidelines), but the program is designed to help the poor, so many states require Medicaid recipients to have no more than a few thousand dollars in liquid assets to participate in the program. There are also income restrictions. For a state-by-state breakdown of eligibility requirements, check out the websites Medicaid.gov and BenefitsCheckUp.org.
When Medicaid recipients reach age 65, they remain eligible for Medicaid and become eligible for Medicare. At that time, Medicaid coverage may change based on the recipient's income. Higher-income individuals may find that Medicaid pays their Medicare Part B premiums. Lower-income individuals may continue to receive full benefits.
Medicaid benefits vary by state, but the federal government mandates coverage for a variety of services, including:
- laboratory services
- doctor services
- family planning
- nursing services
- nursing facility services
- home healthcare for people eligible for nursing facility services
- clinic treatment
- pediatric and family nurse practitioner services
- midwife services
Each state also has the option of including additional benefits, such as prescription-drug coverage, optometrist services, eyeglasses, medical transportation, physical therapy, prosthetic devices and dental services.
Medicaid is also often used to fund long-term care, which is not covered by Medicare or by most private health insurance policies. In fact, Medicaid is the nation's largest single source of long-term care funding, often covering the cost of nursing facilities for those who used all their savings to pay for healthcare and had no other way to pay for nursing care.
The high cost of such care is one of the leading concerns for retirees. (If this problem is well ahead of you, it's worth learning what you can do now to keep your healthcare options open in the future. Long-term care costs should be factored into retirement planning.)
Controversy and Confusion
The prospect of healthcare coverage for all Americans has been clouded in controversy and confusion since President Teddy Roosevelt first proposed the idea in 1912. President Truman tried again in 1945, but to no avail. It would be another two decades before President Lyndon Baines Johnson brought Medicare and Medicaid into existence, offering services to a limited subset of the population.
Presidents and politicians have battled over the programs ever since, as happened in 2010, when President Obama tried to expand healthcare coverage. All this controversy – and the regional differences – add to the difficulty of planning for the future and making sure that family and friends get the care they need in their later years.
Below are five statements that sum up the differences between Medicare and Medicaid.
- Medicare is the primary medical coverage provider for many persons ages 65 and older and for those with a disability.
- Eligibility for Medicare has nothing to do with income level.
- Medicaid is designed for people with limited income.
- Often, Medicaid is a program of last resort for those without access to other resources.
- Eligibility for Medicaid is determined on a state-by-state basis.
The Bottom Line
Paying for healthcare is one of the largest burdens most retirees will face. The Medicare and Medicaid programs were designed to work together to provide medical coverage to the elderly and to individuals with limited financial means to help ease that burden. Politicians, special interest groups (and their lobbyists) and voters will ultimately decide how these programs will change in the future and, in doing so, will shape how Americans receive healthcare.