Discerning the Difference Between Medicare and Medicaid

Medicare and Medicaid are like the twins you knew growing up. They're hard to tell apart at first -- but getting to know them better reveals many differences. 

Like twins, Medicare and Medicaid look alike. The similar spelling of their names causes confusion right off the bat. Plus, Medicare and Medicaid are both government programs that operate in the healthcare space.  

The details of these programs, however, are very different. Take a look at the table below for key distinctions between Medicare and Medicaid.

Source: Medicaid¹

Like most health insurance programs, Medicare charges premiums in exchange for covering some of your health care bills. On top of your premiums, you will also have out-of-pocket cost-sharing with Medicare, in the form of copayments, coinsurance, and deductibles. 

Medicaid, on the other hand, is an assistance program. If you meet Medicaid's strict eligibility requirements, you often have no premiums and minimal out-of-pocket costs. 

Note that each state sets its own rules for Medicaid programs. States can set premiums, copayments, coinsurance, and deductibles -- but many eligible individuals will be exempt from these charges.²

Read on for a closer look at the details of Medicare and Medicaid, including the pros and cons of each and how to apply for these programs. In case neither one suits your situation today, you'll also find three alternative healthcare options below.

Medicare: Health insurance for seniors and disabled persons

You know that FICA deduction on your paycheck? Those FICA taxes pay for Social Security and Medicare. Like Social Security, Medicare is primarily a program for seniors. Most people become eligible for Medicare at age 65, about the time you'd retire and lose your work-based health insurance. You may qualify for Medicare at a younger age if you have end-stage renal disease or a long-term disability.³

What does Medicare cover?

Medicare has multiple components, called "parts." Each part addresses a different layer of medical services:⁴ 

• Medicare Part A is hospital coverage. This helps pay for your in-patient hospital stays. 

• Medicare Part B is medical coverage, which helps pay for outpatient doctors' visits and related services. 

• Medicare Part C, also known as Medicare Advantage, is private insurance that includes hospital coverage, medical coverage, and (often) prescription drug coverage (Part D). A Medicare Advantage plan is an alternative to "Original Medicare," which consists of Parts A and B above. You can opt for Medicare Advantage or Original Medicare, but not both. 

• Medicare Part D helps with the cost of prescription drugs and vaccines. As noted, many Medicare Advantage plans include Part D coverage. You can also add Part D coverage to your Original Medicare plan. 

Notably, Medicare does not normally pay for long-term care. Medicaid does. 

What does Medicare cost?  

Contrary to popular belief, Medicare is not free. Your out-of-pocket health care costs can include premiums, deductibles, copayments, and coinsurance. These vary depending on whether you have Original Medicare plus optional Part D coverage or a bundled Medicare Advantage Plan. 

The table below outlines primary costs associated with Original Medicare in 2021. These amounts can change annually. 

Part D coverage also has a monthly premium, which varies by the plan you choose. 

Medigap coverage 

If you opt for an Original Medicare plan in lieu of Medicare Advantage, you can supplement your coverage with a paid Medigap plan. Medigap plans cover some of Original Medicare's deductibles, copayments, and coinsurance. Your monthly premium for Medigap varies depending on which plan you select and where you live. 

Pros and cons of Medicare 

The table below outlines some key pros and cons of Medicare health insurance. 

Applying for Medicare

If you are receiving Social Security at age 65, Social Security will enroll you in Original Medicare automatically. If you are not yet receiving Social Security, you can apply for Medicare online. Unless you qualify under a disability, you must be at least 64 years and 9 months old to apply.⁵

Medicaid: Health assistance for low-income households 

Where Medicare primarily serves seniors, Medicaid serves low-income individuals. Those who meet Medicaid's eligibility requirements generally have access to free or low-cost health care, including long-term care. 

Medicaid eligibility requirements vary by state. At a minimum, states must provide coverage to: 

• Children under age 18 who live in households earning less than 138% of the federal poverty level (FPL). This equates to about $30,000 in 2020.⁶

• Pregnant women with income below 138% of FPL. 

• Parents and caretakers with low income. 

• Seniors and people with disabilities who are Supplemental Security Income (SSI) beneficiaries.

There are 15 states that follow these minimums. In these states, adults over the age of 21 are not eligible for Medicaid at any income level, unless they are pregnant, disabled, or caring for a child or senior. 

The other 35 states plus the District of Columbia do serve low-income single adults. In those states, adults earning less than 138% of FPL can enroll in Medicaid -- even if they are not caregivers, pregnant, or disabled.⁷ 

You can look up Medicaid eligibility guidelines by state at Medicaid.gov.

What does Medicaid cost?  

For most who are eligible, Medicaid is free. 

Pros and cons of Medicaid 

Applying for Medicaid 

Each state has its own Medicaid application process, though you can often apply online. Access a list of state Medicaid websites at Medicaid.gov.

Can you have Medicare and Medicaid at the same time? 

Yes, you can have Medicare and Medicaid at the same time. This is known as "dual eligibility." As an enrollee in both programs, Medicaid would pay some of your out-of-pocket Medicare costs.⁹

Three more health insurance options 

There are other health insurance options if don't qualify for Medicare or Medicaid, and you don't have access to an employer-based health plan. 

1. VA health care 

You may be eligible for VA health care benefits if you served in the active military and were not dishonorably discharged. Unless you qualify for an exemption, the minimum service period is one tour or 24 continuous months. 

VA health care programs cover hospital stays, doctors' visits, mental health services, prescription drugs, and assisted living, depending on need.¹⁰ 

2. COBRA (Consolidated Omnibus Budget Reconciliation Act) 

COBRA allows you to keep your work-based health insurance after you've left that job. Federal law requires employers with more than 20 employees allow for this temporary extension of coverage. 

You will have 60 days after leaving your job to opt into COBRA, and you can extend the coverage for up to 36 months.¹¹ 

The big drawback of COBRA is the cost. Many employers supplement the premium you pay as an employee. That supplement typically ends when you resign. As a result, COBRA ends up costing far more than what you'd paid for the coverage as an employee.¹² 

3. Marketplace health insurance 

Lastly, you can search for health insurance on the Healthcare.gov marketplace. All marketplace plans must include coverage for hospital stays, outpatient doctors' visits, prescription drugs, and mental health coverage. 

Marketplace health plans charge premiums, plus deductibles, copayments, and coinsurance. The good news is that you may qualify for lower premiums if you have low income. Also, all plans cover preexisting conditions and have an out-of-pocket maximum.

In 2021, you can enroll in a marketplace plan between November 1 and January 15, 2022. Or, if you've recently left a job, you can enroll within 60 days of separating from your former employer. 

Help with healthcare 

Medicare and Medicaid both defray medical bills, but each has its own costs and eligibility rules. If you're a senior aged 65 or older, Medicare should be your first option. If you are younger, but with low income, research the Medicaid rules in your state. 

Outside of those twin-like programs, you can check the VA or the Healthcare.gov marketplace. COBRA is also an option if you've just left a job, but it's probably pricey.