How does Medicare differ from Medicaid?

June 25, 2018     About this blog:  click here

How does Medicare differ from Medicaid?

Here are two words which sound almost alike.  They’re spelled the same, except for the last two letters of each:  Medica-RE,  and Medica-ID.

It’s no surprise then, that quite a few people frequently mix up the two words.

All the more so, since they have a lot in common.  However, they also have huge differences.  Let’s end the confusion!

Common Features:

  • Medicare and Medicaid are both government programs, to help pay for the cost of health care.
  • Both were created in 1965 by Congress and signed into law by President Lyndon Johnson.
  • The purpose of both is to help people afford their health care who typically need a lot of care, and don’t have a lot of money to pay for it.

Big Differences:

Who is it for?

Medicare is for two groups of people:  Everyone age 65 and up; and people younger than 65 who are on Social Security Disability.

Medicaid is for people who have low incomes, below or near the poverty level.  There are several variations of Medicaid, with some different levels for each of them; and these vary state to state.  There is an income limit, and in most cases a limit on liquid assets, too.

Some people happen to be elderly or disabled AND on a poverty level.  So, which program is for them?  Answer:  Both programs.  These folks are on both Medicare and Medicaid at the same time.

How are they paid for?

Medicare is paid from four sources:

  • Part of the payroll tax from your wages when you worked.  (1.45 percent of the gross pay);
  • An equal match for your payroll tax, paid by your employer;
  • The monthly Medicare premium you pay to the government ($134 for most people); and
  • Appropriations by Congress out of general tax revenue.

The payroll taxes are about 36% of the total; premiums 21%; and federal tax money is 43%.

Most people don’t “make a payment” to the government for their monthly Medicare premium.  Instead, it is deducted from their Social Security before that is deposited in their bank accounts.


Medicaid is paid from two sources:

  • Appropriations by Congress out of general tax revenue; and
  • Appropriations by each State Legislature out of the state’s tax revenue.

What Medicaid?  I don’t see any Medicaid!

To add some more confusion, Medicaid is also known by a totally different name.  And, that second name is different in every state!  For example:  “Medical Assistance” in Minnesota, and “Badger Care” in Wisconsin.

There’s a reason for this:  As you can see a few lines above, the funding for Medicaid is shared by the federal and state governments.  Congress lets each state cook up its own name for the Medicaid program in that state.

Each state also gets to create many of the features for its own Medicaid program, including eligibility limits, as long as they get it approved by the feds.

How does the coverage work?

Here there are vast differences.

Medicare, its original form, focuses on medical services from doctors, hospitals, and other health professionals.  Some key things it pays for are:

  • All of a hospital stay (admitted as an in-patient), except for $1,340 deductible
  • All other hospital care, and all necessary doctor care, except for $183/year deductible AND 20% co-insurance that you have to pay.
  • Short-term rehab in a nursing home, if you have first been a hospital in-patient for three days or more
  • Prescription drugs from the pharmacy – IF you buy a Medicare Part D drug insurance policy.

Medicare does NOT cover some important things:  Dental care, routine eye care and glasses, routine hearing care and hearing aids; and long term nursing home or home care.


Medicaid, on the other hand, has much more complete coverage than Medicare.

Medicaid covers all the same things as Medicare, PLUS more things.  They vary from state to state, but can include:

l No deductibles for doctor and hospital care, and either no co-pays, or only small ones

  • Prescription drugs for everyone on Medicaid
  • Eye and ear care, including glasses and hearing aids
  • Dental care
  • Long term care in a nursing home, or long term home care

What’s this “Medicaid Expansion” I’ve heard about in the news?

Part of the Affordable Care Act (aka Obamacare) increased the income limits for Medicaid – up to 138% of the poverty level–  so that more people could enroll, who otherwise couldn’t afford health insurance.

The Supreme Court said that each state can decide whether or not to do this.   32 states and the District of Columbia decided to do this.  18 states, at current count, have not.

The Medicaid expansion eligibility is only for people who are NOT also on Medicare.  And, there isn’t a limit on liquid assets for people in the expansion category.  The federal government pays almost all of the extra cost for the expansion.

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