The Difference Between Medicare and Medicaid

Dani Milton
March 16, 2020

Most Americans wonder how they’ll pay for their health care if they retire or suffer a life-changing disability. They want affordable insurance plans that will pay for their routine doctor’s visits and inpatient hospital stays. Others need benefits that will cover prescription drugs, medical equipment and preventative care like flu shots.

Many retirees and people with disabilities turn to Medicare and Medicaid to pay for their medical expenses, but these federal insurance plans can be confusing. What costs does each of these programs cover, and are there any fees associated with these programs?

In today’s SmartFinancial guide, you’ll learn the differences between Medicare and Medicaid. You’ll also learn what each program covers and how to qualify for them.

What is Medicare?

Medicare is a federal insurance program that began under the Social Security Administration. It is now managed by the Centers for Medicare and Medicaid Services (CMS). This type of policy provides healthcare coverage for people 65 years and older. Younger people may also qualify for this insurance if they have certain disabilities, end-stage kidney failure, or amyotrophic lateral sclerosis (Lou Gehrig’s disease).

After enrolling in the program, you can select different Medicare options that fit your healthcare needs and budget. You can select Original Medicare (Parts A and B) or Medicare Advantage Plans managed by private insurers. According to the CMS, there are currently 37.4 million people enrolled in Original Medicare and 24.6 million individuals that have Medicare Advantage health plans.

This federal insurance policy covers inpatient hospital stays, skilled nursing facility care and home health services. It also pays for mental health assistance and hospice care. Although these beneficial policies pay for many healthcare costs, they don’t cover all medical expenses. People with Original Medicare have the option of buying Medicare Supplements, a type of insurance designed to cover out-of-pocket costs.

What is Medicaid?

Medicaid is a health insurance program that provides coverage to eligible low-income adults, children, pregnant women, the elderly and people with disabilities. This program is jointly run by states and the federal government. Local governments administer this program according to federal guidelines and requirements.

States determine the income-and-asset eligibility for their local Medicaid program. After a resident qualifies for the program, they can enroll.

The Medicaid program provides a wide range of health insurance coverage that includes lab tests, x-rays, medical transportation, doctor visits, hospital expenses, long-term stays in nursing homes, home health care services and other nurse practitioner services.

Medicaid also oversees the Medicare Savings Program that can help pay for expenses that Medicare doesn’t.

What are the Differences between Medicaid and Medicare Coverage?

Medicaid provides coverage for long-term care costs in nursing homes and at-home care. Medicare doesn’t provide funding for long-term care facilities.

Prescription drugs are also not covered under the Medicare program, but if you qualify for the program, you can pay the premium for Medicare Part D, the prescription drug plan. Whether your doctor accepts Medicaid coverage varies. You should check with your provider to learn if they accept this coverage, especially when you see a specialist.

Some people qualify for both Medicare and Medicaid. For more information, contact your local medical assistance agency or a social services office.

How Do I Apply for Medicare?

The Social Security Administration processes all applications for Original Medicare (Part A and B). If you’re eligible for Medicare, you have a 7-month initial enrollment period to sign up for Part A and Part B. It includes your birth month, and three months before and after it.

After you submit your information, the federal agency automatically enrolls people in the Original Medicare (Part A and Part B) program once they start receiving benefits from the Social Security Administration or the Railroad Retirement Board (RRB). Your Medicare benefits should start on the first day of the month after you turn 65 years old. If your birthday falls on the first day of the month, your benefits will begin in the prior one.

If you’re under 65 and have a disability, you’ll automatically get Part A and Part if you receive Social Security benefits.

What Medicare Options Can I Select?

Medicare is divided into four parts. Part A covers inpatient hospital care, skilled nursing care, hospices services, and some mental health policies. Part B covers outpatient services including some provider’s services at hospitals. Part D covers prescription drugs. Part C are the Medicare Advantage programs that allow patients to select health plans with the same coverage as Parts A and B, Part D benefits, and some extra services.

Most recipients will automatically receive Parts A and B under the Original Medicare Plan. The federal government negotiates the premium rates that providers receive. If you have this plan, you won’t need referrals to see specialists, and you’ll be covered throughout the U.S. You can enhance Original Medicare with a Part D plan if you need prescription drug coverage.

You can purchase a Part D, or Medicare Supplemental Insurance, through a private insurer. These policies, known as Medigap plans, cover out-of-pocket expenses that Medicare doesn’t pay for, such as pharmaceutical medicines, copayments, deductibles, and the 20 percent coinsurance fee for doctor visits and other outpatient services. These policies are not the same as Medicare Advantage Plans.

Private insurance companies offer Part C, or Medicare Advantage Plans. If you select a Medicare Advantage Plan (Part C), a private insurer will bundle Parts A, B, and D together into a cohesive package.

These policies offer one-stop coverage and some benefits explained above. They typically have lower out-of-pocket costs than Original Medicare. Most private insurers have a network of healthcare providers. If you see an out-of-network doctor, you may pay higher fees. Do you need help finding a Medicare Advantage Plan that’s right for you? Compare several Medicare Advantage plan rates here. Keep in mind that you can only switch from original Medicare to Medicare Advantage each year between January 1 and March 31.

Medicare Part A – Hospital Insurance

Once a person qualifies for Medicare coverage, they’ll automatically be enrolled into Part A, or hospital insurance. If your doctor admits you into a medical facility, this policy will pay for your inpatient hospital stay. Part A also covers skilled nursing home services when you need rehabilitation to recover from an illness or serious injuries. It will also cover hospice care when you reach the end of your life. Part A also covers inpatient mental health care stays (up to a lifetime 190 day maximum).

Ninety-nine percent of Medicare participants won’t pay a Part A premium, if they have worked at least 40 quarters in a Medicare-covered job. If you haven’t worked long enough to qualify, you can pay a premium to enroll.

Medicare healthcare coverage isn’t completely free for participants. Beneficiaries must meet a 2020 deductible of $1,408 before the policy kicks in. Additionally, participants must pay a coinsurance fee of $352 each day for the first 60 to 90 days of their hospitalization and $704 for lifetime reserve ones. These fees change every year.

Part A doesn’t pay for all hospital expenses. You may have to pay some costs if your healthcare provider recommends services not covered by Medicare. Be proactive. Ask your doctor why certain treatments are necessary and if they’re covered under your plan.

Some people use Medigap policies to cover out-of-pocket costs for hospital stays not covered by Original Medicare. These fees include copayments, coinsurance, and deductibles. Private insurance companies sell these policies. They are not the same as Medicare Advantage Plans (Part C).

Part B – Physicians and Outpatient Services

Medicare Part B coverage pays for doctor visits, diagnostic screenings, lab tests, medical equipment, ambulance transportation, and outpatient services. Part B has higher costs, unlike Part A. You may delay signing up for Medicare Part B if you’re still employed or your partner’s health insurance covers you.

Medicare Part B covers several types of services. The first one are medically necessary services. These are services or supplies that physicians need to diagnose or treat your medical condition and that meet the accepted standards of medical practice. The second one involves preventative care (for illnesses like the flu) to detect it at an earlier stage when treatments are most likely to work. Some preventative care services (flu shots) are free.

Medicare Part B also pays for durable medical equipment such as walkers, wheelchairs, and oxygen tanks. It also covers diagnostic tests, ambulance services, doctor-administered medications and occupational therapy.

If you are uninsured and don’t sign up for Part B when you first enroll in Medicare, you’ll probably incur a higher monthly premium for as long as you remain in the program. Shop for a Medicare Plan early.

Medicare Part B pays 80 percent of the Medicare-approved amount for covered services after you pay the deductible. The monthly premium for Part B in 2020 is $144.60. The annual deductible for all Medicare Part B beneficiaries is $198. You may have to pay more if your income is more than $87,000. You must cover 20 percent of the bills for outpatient services and doctor visits. When you collect Social Security, the government deducts these premiums from your benefits.

Part C – Medicare Advantage Programs

Medicare Advantage Plans fall under Medicare Part C. A private insurance company bundles together Medicare Parts A and B and sometimes D into a comprehensive plan for consumers. If you choose this plan, you’ll still need to enroll in Medicare Parts A and B, then pay the Part B premium. Additionally, you will select a Medicare Advantage plan from a private insurance company.

The federal government requires insurers to provide everything offered in the original Medicare plan, plus services that original Medicare doesn’t offer. These include dental care, hearing and vision appointments, and wellness programs (like gym memberships).

Some Medicare Advantage Plans also cover extras like wheelchair ramps, shower grips, meal delivery services, over-the-counter drugs, transportation to doctor’s offices, adult day-care services and wellness programs. Some insurers will tailor these plans to suit the needs of chronically ill people.

Read your plan descriptions carefully. Many Medicare Advantage plans include prescription drug coverage, but some may not provide some of the same benefits.

Medicare Advantage Plans fall into two categories: Health Maintenance Organizations (HMOs) and Preferred Provider Organizations (PPO). HMO plans require you to select a primary doctor who will manage your health care and provide you referrals to see specialists. PPO has physician and health facility networks that you can see without referrals. You may have to pay more if you see an out-of-network provider.

Do you need help selecting an affordable Medicare Advantage Plan that’s right for your budget? Use SmartFinancial’s online rate checker. We’ll help you find affordable coverage that’s right for you.

Part D – Prescription Drug Program

Medicare’s prescription drug payments fall under Part D. Individuals may purchase these plans through private insurers. Each policy must provide a standard level of coverage set by Medicare. Insurance companies provide different lists of drugs they cover (called a formulary) and they group medications into separate tiers on their formularies. They typically offer plans that:

Offer a stand-alone Medicare Part D prescription drug plan for those enrolled in Medicare Part A and/or Part B.

Include a Medicare Advantage Prescription Drug plan.

Some plans require some premiums and out-of-pocket costs. Others ask for a flat copay or coinsurance fee for every medication or a percentage of these fees.

Patients who have higher prescription drug bills may be subject to the Medicare coverage gap, known as the doughnut hole. After you exceed a certain amount for your drugs, you’ll need to pay 25 percent for brand-name prescription costs and 37 percent for generic ones.

Medicaid Can Pay for Expenses that Medicare Doesn’t Cover

Although Medicare doesn’t cover all expenses, there are other plans that can help. If you cannot afford copays and other costs, Medicaid can help pay for these fees as long as you meet your state’s eligibility criteria. People who receive both types of coverage are called “dual eligible” or “duals.” More than 8 million receive Medicaid and Medicare.

Each state has different eligibility guidelines; however, many consider your financial assets and annual income to determine whether you qualify for full Medicaid. If you participated in the program before you turned 65 years old, you may not qualify for the policy after enrolling in Medicare. Talk with your state's Medicaid office for details.

If you’re a Medicare beneficiary, your enrollment in Medicaid may be subject to a financial asset test. The total value of assets you’re allowed to possess (and remain eligible for Medicaid) varies by state. Federal guidelines allow some recipients to have $2,000; but, some states have higher thresholds while others don't have asset tests.

After you enroll in the program, Medicare will become your primary insurance and settle your medical bills first. Medicaid will become your secondary coverage, paying for expenses that Medicare doesn’t cover. They provide this coverage through Medicare Savings Plans. You can learn more about these programs in the next section.

Additionally, you will begin receiving your prescription drug coverage from Medicare’s Part D, instead of Medicaid. After enrolling, you’ll automatically qualify for the Medicare Part D Low Income Subsidy (LIS/ Extra Help) which allows you to get Part D coverage without paying any deductibles or premiums. You’ll also have lower copays for all of your medications.

To receive this coverage, you’ll still need to select a Part D prescription drug plan and enroll in it. To get the best coverage at the lowest cost for you, contact your state health insurance assistance program (SHIP) which has Medicare and Medicaid counselors that can help you free of charge. You can also use SmartFinancial’s online app to compare rates.

There is no open enrollment period for Medicaid. You can apply at any time of the year. In many states, you have to update your enrollment information every year to make sure you still qualify. You can lose your coverage if you don’t. Here are some expenses that Medicaid covers:

  • The $144.60 Medicare Part B premium for doctor visits.
  • Your Medicare Part B deductible which is $198 for 2020.
  • Your Medicare Part A and Part B copays and premiums
  • Your Medicare Part D premium, deductibles and copays for prescription drugs. Coverage for those costs is available through the Extra Help program. Medicaid and Medicare Savings Program enrollees automatically qualify for this initiative.
  • Nursing home care, long-term services and support.
  • Medicaid will also cover some benefits that Medicare doesn’t cover, such as dental care, transportation to doctor’s offices, vision appointments, and physical therapy.

Four Medicare Savings Programs that Make Medicare More Affordable

Medicare Savings Programs (MSPs) are Medicaid-managed programs for its beneficiaries who have low incomes and limited resources. They help qualified people pay for Medicare. There are four different Medicare Savings Programs.

The Qualified Medicare Beneficiary Program (QMB) pays for Part A and Part B premiums, deductibles, coinsurance, and copays. If you qualify, you'll also receive assistance from the Extra Help Prescription Drug Program. This coverage pays for out-of-pocket medication costs. The QMB has the lowest income threshold of the four Medicare Savings Programs.

The Specified Low-Income Medicare Beneficiary Program (SLMB) only covers part B premiums. You may qualify for this program when your income is too high to qualify for the QMB. Additionally, you can also automatically qualify for Extra Help for prescription drugs.

The Qualifying Individual Program (QI) only pays for Part B premiums and no other cost-sharing. You may qualify for this program if your income is too high for you to qualify for the QMB or SLMB. You'll need to reapply for benefits every year. This program gives priority to individuals who received help from QI in the previous year.

The Qualified Disabled and Working Individuals Program (QDWI) covers Medicare Part A (hospital insurance) premiums. The QDWI helps young, employed people with disabilities under 65 years old. Some may have lost their premium-free Part A benefits when they began working. To qualify, you cannot currently receive Medicaid in your state. Additionally, you should meet the income and resource limits set by your community.

Each one has different eligibility limits and income requirements. You can research the financial limits for each program for 2020 on this page.

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