Medicare vs. Medicaid: What's the difference?

As the annual Medicare open enrollment period unfolds, millions of Americans are evaluating their healthcare options for the year ahead. From reviewing prescription drug plans to considering Medicare Advantage options, open enrollment is a critical time for beneficiaries to ensure they're getting the coverage that best suits their needs. During this period, though, one question often arises: What is the difference between Medicare and Medicaid?

While these two programs share a common goal — providing access to healthcare — Medicare and Medicaid serve very different populations and operate under distinct guidelines. But with so much at stake during open enrollment, it's crucial to understand the role each program plays in ensuring your access to care. Certain people may even qualify for both programs, making it even more important to understand how these two pillars of American healthcare function and interact with each other.

So, how do Medicare and Medicaid differ? Below, we'll break down what you need to know about the differences between these two healthcare programs.

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Medicare vs. Medicaid: What's the difference?

While Medicare and Medicaid may sound similar, there are a few key differences between these two programs.

What to know about Medicare

Medicare is a federal health insurance program primarily designed for individuals aged 65 and older, although younger people with certain disabilities or illnesses, such as end-stage renal disease or amyotrophic lateral sclerosis (ALS), can also qualify. 

Medicare is largely funded through payroll taxes, premiums paid by beneficiaries and general revenue from the federal government. It operates as an entitlement program, meaning that those who meet the age or disability criteria qualify automatically, regardless of their income or financial status.

Medicare is divided into distinct parts:

• Part A covers hospital insurance
• Part B provides medical insurance
• Part C (Medicare Advantage) offers comprehensive coverage through private insurers
• Part D covers prescription drugs

Medicare Part A is typically premium-free for most people who have paid into Social Security for at least 10 years. It covers hospital stays, skilled nursing facility care, hospice, and some home health care services. Part B, on the other hand, requires a monthly premium and covers outpatient services like doctor visits, preventive care, durable medical equipment, and certain home health services.

For those looking for more comprehensive coverage, Medicare Advantage (Part C) plans, offered by private insurers, bundle Part A and Part B services, often including additional benefits such as vision, dental and wellness programs. Finally, Part D helps cover the cost of prescription medications, an essential service for many beneficiaries.

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What to know about Medicaid

Medicaid, unlike Medicare, is a joint federal and state program designed to provide healthcare coverage for individuals and families with low incomes. Medicaid is funded by both federal and state governments, with the federal government matching a percentage of each state's expenditures. The amount of federal funding states receive is determined by a formula that accounts for the state's per capita income. 

Eligibility for Medicaid varies by state, as each state administers its own program within federal guidelines. Factors that determine eligibility typically include income, family size, disability status and, in some cases, assets. Pregnant women, children, seniors and individuals with disabilities are often among those who qualify for Medicaid.

One of the unique aspects of Medicaid is its flexibility. States have the authority to expand Medicaid services and eligibility criteria, especially under the Affordable Care Act (ACA), which encouraged states to expand Medicaid to cover more low-income adults. As a result, Medicaid benefits vary widely from state to state, but essential services generally covered include hospital visits, doctor appointments, long-term care and prescription drugs.

Another major difference lies in long-term care. Medicaid often covers long-term care in nursing homes or in-home services for eligible individuals, something Medicare covers only in very limited circumstances and typically for a short duration. This makes Medicaid a crucial resource for seniors who require extended long-term care and cannot afford it.

Dual eligibility: When Medicare and Medicaid work together

Some people qualify for both Medicare and Medicaid, a situation known as dual eligibility. Dual-eligible individuals can benefit from both programs to maximize their healthcare coverage. In these cases, Medicare typically covers medical services like hospital visits and outpatient care, while Medicaid may step in to cover additional costs, such as long-term care, dental services and prescription drug costs not fully covered by Medicare.

For dual-eligible individuals, Medicaid can also help pay for Medicare premiums and out-of-pocket costs like deductibles and copayments. This coordination between the two programs helps reduce the financial burden of healthcare for low-income seniors and individuals with disabilities who need comprehensive care.

The bottom line

While Medicare and Medicaid share a common goal of providing healthcare coverage, they serve distinct populations and operate under different rules. Medicare is a federally run program for seniors and people with disabilities, while Medicaid is a joint federal-state program primarily for low-income individuals. Understanding the differences between the two is essential during open enrollment and throughout the year, ensuring that those who are eligible receive the healthcare services they need without financial strain.