Medicare and Medicaid are the two large government-facilitated healthcare programs in the United States. Their similar names may cause some confusion, but the programs differ in terms of funding, eligibility, intended use, and administration. Medicare is a federal program designed to provide healthcare coverage to retirees. Medicaid provides coverage to low-income individuals and families, and it is administered by a combination of federal and state agencies. While some people qualify for both, the target beneficiaries are different.
Medicare is primarily for people older than 65, though people with certain diseases and disabilities are also included. It has three primary segments. Part A is hospital insurance that covers inpatient care. There generally is no monthly premium paid, because it is covered by payroll taxes paid throughout a person’s working life. Medicare Part B covers other medical expenses such as doctors, outpatient care, and certain home health services. It is meant to supplement Part A, and it generally requires monthly premiums paid by the insured. Medicare Part D is a prescription drug insurance plan, and it also generally requires monthly premiums.
You may have noticed that Medicare Part C isn’t one of the three primary elements of Medicare. Part C does exist, but it functions differently because it offers government-approved health plans available for purchase from private insurance companies. These are often called Medicare Advantage plans, and they function like an HMO or PPO that may be more advantageous or preferable for some individuals. Medicare will typically pay a set portion of the monthly premium, and the insurers must follow certain rules, but variations exist in other plan terms, such as out-of-pocket cost.
Medicare is an important piece of most people’s financial plan in retirement because people no longer have coverage through their employer during the years when they are likely to incur most of their healthcare expenses. You can go to the program’s website at medicare.gov for more information regarding costs, eligibility, and to enroll. You should consider all of your likely healthcare needs, as well as your retirement monthly income relative to cash requirements, before deciding which parts of the Medicare program to select.
Federal and state governments jointly run Medicaid to provide healthcare coverage to low-income Americans, with roughly 25% of the population receiving benefits.  The terms and implementation of Medicaid vary state-to-state, meaning eligibility and covered treatments depend on where you live. Generally, eligible people and households can sign up for coverage either through the state program or an approved private insurance company. A combination of state and federal governments will pay for the cost of care. The federal government guarantees to match state expenditure and provide additional programs. Medicaid was expanded significantly in 2010 with the Affordable Care Act, with most states increasing eligibility to those falling within 133% of the federal poverty level.
From a financial planning perspective, Medicaid programs have limited applications. If you are unable to afford the healthcare coverage that you need, you should visit your state’s Medicaid website to determine eligibility. It can be a great way to reduce monthly expenses and eliminate the risk of incurring a major future liability from expensive medical procedures.
Medicaid comes into play for many seniors, especially those who require home care, nursing homes, or long-term care. Those bills can easily exceed $7,000 monthly in years when retirees are working on fixed budgets without prospects of earned income. Even seniors with sufficient assets to cover those expenses often explore Medicaid trust planning, in which they transfer assets to a trust controlled by a reliable loved one. Funds in the trust would not impact Medicaid eligibility, but those assets could still be distributed for the retiree’s benefit.
Medicaid and Medicare are both government-run medical insurance programs, but they are administered in different ways. Many people qualify for both programs, and it is wise to determine eligibility if you are a senior, disabled, or from a low-income household.
Author: Ryan Downie is a consultant and former equity research analyst and financial planner with a BA in economics from Notre Dame.