In a few of my previous posts about long term care in retirement, I mentioned two major healthcare programs: Medicare and Medicaid.
These programs are designed to help provide some form of medical coverage to Americans. However, many people don’t know the difference between Medicare and Medicaid, which can cause problems when applying for assistance in covering medical expenses such as long term care.
What are the differences between Medicaid and Medicare?
Let’s take a look at these two programs to sort out their differences:
What is Medicare?
First and foremost, Medicare is a federal health insurance program. As stated on the Department of Health & Human Services website, Medicare “serves people over 65 primarily, whatever their income; and serves younger disabled people and dialysis patients. Patients pay part of costs through deductibles for hospital and other costs.”
This program is funded by the Federal Insurance Contributions Act, which takes 1.45% of an individual’s earnings to pay for insurance programs such as Medicare. As cited by CNN Money, “employers pay another 1.45%, brining the total to 2.9%. (if you’re self-employed, you must cough up the entire 2.9%).”
If you take a look at one of your pay stubs, you should see a listing for a FICA deduction, a FICA-HI deduction, or a Medicare deduction on there. This money is put into a trust that is used to fund the Medicare program.
Typically, eligibility for Medicare coverage begins at age 65, but, as noted above, certain medical conditions can qualify for early access to Medicare benefits.
This program is split up into multiple parts:
- Medicare Part A: This is basic hospital insurance designed to cover inpatient hospital stays, skilled nursing facilities, hospices, and some other specialized health care.
- Medicare Part B: This insurance covers things such as doctor’s services, outpatient care, preventative services, and some medical supplies
- Medicare Part C: Also known as Medicare Advantage Plans, these are offered by private companies such as HMOs to provide both Part A and Part B benefits.
- Medicare Part D: This is an add-on to Medicare that adds prescription drug coverage to the plan. Like Part C, this coverage is offered by insurance companies and other approved private entities. Sometimes, this can be included in a Medicare Advantage Plan.
In most cases, you’ll be automatically enrolled in Medicare once you reach age 65. This program is available to all Americans who have paid into the program via the Medicare deduction on their paychecks.
Long story short: Medicare operates like medical care insurance, and it has copays and deductibles just like said insurance would. The major difference from standard insurance is that you’ve been paying into it your whole life, rather than applying for coverage with a private company.
What is Medicaid?
Medicaid operates a bit differently from Medicare. According to Medicare.gov, “Medicaid is a joint federal and state program that helps with medical costs for some people with limited income and resources. Medicaid also offers benefits not normally covered by Medicare, like nursing home care and personal care services.”
The Medicaid program gets its funding from both states and the federal government, which is part of the reason why the program’s rules and coverage may vary from one state to the next. This funding is used to help people with limited income and resources pay for qualifying medical expenses.
As stated on the Medicaid.gov website: “States establish and administer their own Medicaid programs and determine the type, amount, duration, and scope of services within broad federal guidelines. States are required to cover certain ‘mandatory benefits,’ and can choose to provide other ‘optional benefits’ through the Medicaid program.”
So, pretty much no matter where in America you live, if you qualify for Medicaid coverage, you know that you’re covered for:
- Early and periodic screening, diagnostic, and treatment services (EPSDT)
- Inpatient and outpatient hospital services
- Laboratory and x-ray services
- Nursing facility services
- Transportation to medical care
Just to name a few.
Services that might not be available depending on where you live include optometry, dental, and chiropractic services.
Eligibility rules for Medicaid vary by state, but there are some minimum eligibility rules that have been established by the federal government. According to the Medicaid website’s eligibility page, there is “a national Medicaid minimum eligibility level of 133% of the federal poverty level ($29,700 for a family of four in 2011) for nearly all Americans under age 65.”
In other words, if you make less than 133% of the current federal poverty level in income, you are considered financially eligible for Medicaid assistance. Some states have eligibility that is expanded beyond this level, however.
For many retirees, the income limits on Medicaid may prevent them from being able to use the program.
While Medicaid offers assistance in paying for health care costs, some states may have premiums, copays, or deductibles that Medicaid users have to pay. Medicaid applicants should check with an expert for their state to see what Medicaid-related costs their state imposes.
The Difference Between Medicare and Medicaid
Here is a summary of a few of the major differences between the two programs:
- Is almost universally available to Americans age 65 or older;
- Has coverage that remains largely the same no matter what state you live in; differences are largely based on what parts of Medicare you’re enrolled in (A, B, C, and/or D);
- Is funded by paycheck deductions;
- Has semi-automatic enrollment (for original Medicare, which covers parts A and B).
- Has limited eligibility requirements;
- Has coverage that changes depending on your state of residence;
- Is funded by the state and federal government;
- Requires you to apply for benefits.
Many Americans look to these programs to help pay for medical expenses in retirement, helping avoid the problem of running out of money in retirement. However, without knowing the distinctions between these two programs, it can be easy to get them confused, leading to potential problems.
I hope that this post helps you sort out these two programs. For more detailed advice, I would strongly recommend speaking with an advisor who is experienced in handling long term care and other medical expenses.