Medicare and Medicaid are the two largest government-funded health insurance programs in the United States. While both programs provide essential health coverage and were established under the same 1965 Social Security Act amendments, they are designed to serve distinct groups of people and are funded and managed very differently.
The easiest way to remember the core difference is:
- Medicare is generally for the elderly (age 65 or older) and people with certain disabilities, regardless of their income.
- Medicaid is for people with low income and limited resources, regardless of age.
1. Medicare: An Entitlement Program
Medicare is a federal social insurance program, meaning eligibility is typically based on having paid into the system through payroll taxes over a working career. It is not generally based on financial need.
Who is Eligible?
The primary eligibility criteria for Medicare are:
- Age: Individuals age 65 or older.
- Disability: People under age 65 who have been receiving Social Security Disability Insurance (SSDI) benefits for at least 24 months.
- Specific Conditions: People of any age with End-Stage Renal Disease (ESRD—permanent kidney failure requiring dialysis or a transplant) or Amyotrophic Lateral Sclerosis (ALS, or Lou Gehrig’s disease).
How is Medicare Structured? (The “Parts”)
Medicare is divided into four main parts, two run by the government (Original Medicare) and two offered by private insurance companies:
- Part A (Hospital Insurance): Covers inpatient care in a hospital, skilled nursing facility care (not long-term care), hospice care, and some home health care. Most people do not pay a premium for Part A if they or their spouse paid Medicare taxes for at least 10 years.
- Part B (Medical Insurance): Covers medically necessary services (like doctor visits, outpatient care, durable medical equipment, and preventive services). Part B requires a monthly premium.
- Part C (Medicare Advantage): A private insurance alternative to Original Medicare (Parts A and B). These plans are offered by private companies approved by Medicare and often include prescription drug coverage (Part D) and extra benefits like dental and vision.
- Part D (Prescription Drug Coverage): Covers the cost of prescription drugs. This is an optional benefit offered by private insurance companies.
Funding
Medicare is primarily funded by federal sources:
- Part A: Payroll taxes paid by current workers (the Hospital Insurance trust fund).
- Part B and D: Monthly premiums paid by beneficiaries and general revenues of the U.S. government.
2. Medicaid: A Need-Based Assistance Program
Medicaid is a joint federal and state program, meaning it is funded and administered by both the federal government and individual states. This state-level administration is why eligibility and coverage can vary significantly from one state to the next.
Who is Eligible?
Medicaid eligibility is based on financial need, specifically limited income and assets. It provides coverage to various low-income groups, including:
- Low-income adults (often expanded under the Affordable Care Act)
- Children
- Pregnant women
- Parents
- Seniors (age 65 and older)
- People with disabilities
Coverage and Costs
Because Medicaid is designed for low-income individuals, it generally has very low or no out-of-pocket costs for covered services, which include doctor visits, hospital stays, and preventive care.
Crucially, Medicaid is the largest payer of long-term care (such as nursing home care) in the United States, a service that Medicare generally does not cover. The specific services offered vary by state, but federal law requires certain essential benefits to be covered.
Funding
Medicaid is funded jointly:
- Federal Government: Provides a base amount of funding to all states (the Federal Medical Assistance Percentage or FMAP).
- State Government: The states pay the remainder, often using general revenue funds.
3. The Dual Eligible Exception (Medi-Medi)
It is possible to qualify for both programs. This happens when an individual is 65 or older (qualifying for Medicare) and has a low income and limited assets (qualifying for Medicaid). These individuals are often referred to as “dual eligible” beneficiaries.
In these cases, the two programs work together:
- Medicare pays first for covered medical services.
- Medicaid pays second, helping to cover costs that Medicare does not, such as Part A and Part B premiums, deductibles, and co-payments, effectively reducing or eliminating out-of-pocket expenses.