Understanding the Difference Between Medicare and Medicaid
Medicare and Medicaid are two separate government health insurance programs, but many people confuse them because of their similar names. Understanding how each program works is the first step in learning about your options for health coverage.
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Medicare is primarily a program for people age 65 and older. It is also available to some younger people with disabilities and to people with end-stage renal disease (ESRD). The program is run by the Centers for Medicare & Medicaid Services (CMS), which is part of the U.S. Department of Health and Human Services. Medicare is funded through payroll taxes that workers pay during their working years. When you reach age 65, you become part of the program based on your age and work history, not based on how much money you have.
Medicaid, by contrast, is a joint federal and state program designed to help people with lower incomes pay for medical care. Each state runs its own Medicaid program within federal guidelines, so the rules about who can receive coverage and what services are covered vary from state to state. Unlike Medicare, Medicaid looks at your income and other financial resources to determine whether you may receive coverage. Medicaid has been available since 1965 and serves millions of people, including children, pregnant women, parents, seniors, and people with disabilities.
The funding sources are also different. Medicare is paid for through the Social Security payroll tax system. Medicaid is funded by a combination of federal taxes and state taxes. This means that a person might be covered by both programs at the same time. These individuals are called "dual eligible" beneficiaries. They might be 65 years old and enrolled in Medicare while also receiving Medicaid because their income is low.
Practical takeaway: Before you look into either program, determine which one might apply to your situation. If you are 65 or older, Medicare is likely available to you. If you are under 65 and have a lower income, Medicaid may be an option. Many people qualify for only one program, but some may be covered by both.
Medicare Coverage: What You Should Know
Medicare has different parts, and each part covers different types of medical care. Learning about these parts will help you understand what services may be covered and what out-of-pocket costs you might face.
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Medicare Part A covers hospital insurance. This includes inpatient hospital stays, skilled nursing facility care, hospice care, and some home health care services. Most people who have worked and paid into Social Security for at least 10 years receive Part A with no monthly premium when they turn 65. However, you still pay a deductible and coinsurance for the services you use. For example, in 2024, the Part A hospital deductible is $1,632 per benefit period. A benefit period starts when you enter a hospital and ends after you have not received inpatient care for 60 days in a row.
Medicare Part B covers medical insurance for doctor visits, outpatient services, medical equipment, and preventive care. Part B requires a monthly premium, which is typically deducted from your Social Security check if you receive Social Security benefits. The standard Part B premium for 2024 is $164.90 per month, though higher-income individuals pay more. Part B also has a yearly deductible, which is $240 in 2024. After you meet the deductible, you typically pay 20 percent of the cost for most services, and Medicare pays the other 80 percent.
Medicare Part D provides prescription drug coverage. This is optional, and you can choose to enroll in a Part D plan run by private insurance companies. Each plan has different drugs on its list of covered medications (called a formulary), so the specific drugs covered may vary by plan. Part D plans have a monthly premium, an annual deductible, and cost-sharing requirements. In 2024, the average Part D premium is around $34 per month.
Medicare Advantage, also called Part C, is an alternative way to get your Medicare coverage. Instead of using the Original Medicare plan (Parts A and B), you can choose a Medicare Advantage plan offered by a private insurance company. These plans must cover everything that Original Medicare covers, but they often include additional services like dental, vision, or hearing coverage. Many Medicare Advantage plans have lower monthly premiums or no premium at all, but they typically have higher out-of-pocket costs and may require you to use doctors within their network.
Practical takeaway: Before you reach age 65, learn the differences between Original Medicare and Medicare Advantage. If you have a chronic health condition, consider what doctors and hospitals you want to use and whether you prefer a plan that gives you more flexibility or one that may have lower out-of-pocket costs.
Medicaid Coverage: How It Works Across States
Medicaid is the largest source of health insurance coverage for low-income people in the United States. According to recent data, Medicaid covers about 72 million people, or roughly 21 percent of the population. Because each state designs its own Medicaid program, the rules about who may receive coverage and what services are covered can be very different depending on where you live.
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Income limits are one of the main factors that determine whether you may receive Medicaid. The federal government sets a minimum income threshold, but states may set higher income limits for certain groups. For example, the income limit for a parent in one state might be 138 percent of the federal poverty level, while another state might set it at 100 percent of the federal poverty level. As of 2024, the federal poverty level for a single person is $14,580 per year. For a family of four, it is $30,000 per year. Your state uses these thresholds to decide whether your income is low enough to receive Medicaid.
Asset limits also matter. Most states have limits on how much money or property you can own and still receive Medicaid. These limits are typically around $2,000 for a single person and $3,000 for a couple, though some states have higher limits or no asset limit at all for certain groups. Assets might include bank accounts, cars, and real estate. However, your primary home and certain other assets are often not counted toward the limit.
Medicaid covers a wide range of services. These may include doctor visits, hospital care, prescription medications, mental health services, dental care, vision care, nursing home care, and home health care. The exact services covered depend on your state. All state Medicaid programs must cover certain core services, but they have flexibility to offer additional services. For instance, New York's Medicaid program covers acupuncture, while some other states do not.
People who may receive Medicaid include children, pregnant women, parents and caretakers, seniors, people who are blind or have disabilities, and, in many states, low-income adults without children. As of 2024, 38 states have expanded Medicaid to cover adults with incomes up to 138 percent of the federal poverty level. The other 12 states have not expanded Medicaid, so coverage options for low-income adults may be more limited in those states.
Practical takeaway: Check your state's Medicaid website to learn the specific income and asset limits that apply where you live and what groups of people your state's program covers. The rules are different in each state, so information from another state may not apply to you.
Medicare Coverage Requirements and Who Receives It
Medicare has specific requirements for coverage. Understanding these requirements will help you know whether Medicare may be available to you and when you should enroll.
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Age is the primary way people receive Medicare. You are generally eligible for Medicare Part A at age 65 if you or your spouse paid Social Security taxes for at least 10 years while working. This amounts to at least 40 credits, with a maximum of 4 credits earned per year. If you receive Social Security retirement benefits before age 65, you will be automatically enrolled in Parts A and B when you turn 65. If you do not receive Social Security benefits, you will need to enroll in Medicare yourself during the enrollment period.
You do not have to be retired to receive Medicare at age 65. Your work status does not matter. Whether you continue working or have already stopped working, you may receive Medicare based on your age and work history. However, if you are still working and have employer health insurance, you may choose to delay enrolling in Part B. If you work for an employer with 20 or more employees and have group health insurance through that employer, you can usually delay Part B enrollment