A Quick Guide to the Difference Between Medicaid & Medicare

Medicare and Medicaid may sound alike, but the health insurance programs are wildly different. Here's a quick primer.

Medicare and Medicaid may sound alike, but these government health insurance programs are dramatically different from one another. Here’s a brief overview.

What Is Medicare?

Administered by the federal government, Medicare is a health insurance program primarily for adults who are 65 years of age or older and have paid into the Social Security system for at least 40 quarters (about 10 years). An individual who lacks the necessary work credits can also benefit from the program through their spouse, as can individuals who are younger than 65 but have received Social Security Disability Insurance payments for at least two years.

What Medicare Covers

There are different parts to Medicare that make it a veritable “alphabet soup.” For example, Medicare Part A covers mostly in-patient hospital care and provides a minimal benefit for skilled nursing care and hospice care. Medicare Part B covers the costs of outpatient care, such as doctors’ visits, lab tests and preventative care. Medicare Part C is the Medicare Advantage program and an alternative to Medicare parts A and B.

Like most types of insurance, Medicare parts A, B and C include co-pays and deductibles. Generally, the amount of income you earn and the amount of assets you own are irrelevant for participation, so paupers, billionaires and everyone in between can be eligible.

Surprisingly, given that Medicare is primarily a program for individuals 65 and older, the program covers just a small portion of the cost of a nursing home stay. At most, it fully covers the costs associated with the initial 20 days of a stay and provides only partial coverage for the next 80 days. In addition, for a stay to be covered, a patient must meet certain requirements.

For example, the patient must have been hospitalized for at least three consecutive days directly prior to receiving care at a nursing home and that care must be considered medically necessary. Because of these requirements, patients or their families are often forced to pay out of pocket for nursing home care or seek relief from Medicaid.

What Is Medicaid?

Medicaid (known as Medi-Cal in California) is a federal-state program. It primarily acts as a safety net for those who can’t pay for healthcare.

Seniors can participate in Medicaid if they pass three tests: a medical necessity test, an asset test and an income test.

The medical necessity test requires that skilled nursing care is necessary to address the patient’s medical needs. The asset test places strict limits on how much property a patient and the patient’s spouse can own while benefiting from Medicaid. The income test limits how much individuals and couples may earn to be eligible for Medicaid.

There are ways to get around these eligibility tests if you or a loved one can’t pass them but want Medicaid to help pay for the cost of a nursing home stay. However, doing so may require the help of an attorney who practices elder law. A relatively new kind of law, elder law can help individuals preserve their assets and qualify for Medicaid. (Disclosure: The Wiewel Law firm, in Austin, Texas, specializes in estate planning.)

Remember, Medicaid planning is a complicated process and even a small error can mean the program will refuse to help pay for the cost of a nursing home stay. Be sure to speak with an expert if you have concerns.

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The Basics of Medicare Eligibility

How does Medicare eligibility work?

Medicare is a federal health insurance program widely used by U.S. citizens and permanent residents age 65 and older. The program also applies to those younger than age 65 who have disabilities, end-stage renal disease (ESRD) or other diseases. But Medicare has multiple parts, and the eligibility requirements vary for each. 

Who Is Eligible for Medicare?

U.S. citizens or permanent residents who’ve lived in the U.S. for more than five years qualify for Medicare if they’re age 65 or older. Those younger than age 65 also qualify for Medicare if they disabilities or life-threatening diseases.

Medicare Eligibility for People Over 65

If you’re age 65 or older, you can get Part A coverage without paying premiums, as long as you or your spouse worked and paid Medicare taxes for at least 10 years, according to the U.S. Department of Health and Human Services. In order to skip the premium payments, though, one of the following must apply to you:

  • You are receiving Social Security or Railroad Retirement Board retirement benefits
  • You are eligible to receive Social Security or Railroad Retirement Board benefits but have not collected them
  • You or your spouse had a Medicare-covered government job

Being eligible for Part A coverage also guarantees your eligibility for Part B Medicare coverage. The only difference is that you’ll have to purchase Part B coverage. However, if you’re receiving Social Security or Railroad Retirement Board benefits at least four months prior to turning 65, you’ll be automatically enrolled in Part B.

Medicare Eligibility for People Under 65

If you’re under age 65, you can enroll in Medicare if you:

  • Have received Social Security Disability Insurance (SSDI) checks for at least 24 months
  • Have been diagnosed with end-stage renal disease (ESRD)
  • Have amyotrophic lateral sclerosis (ALS)
  • Have permanent kidney failure which requires dialysis or a transplant

You’ll automatically receive Part A and Part B coverage if you’ve either gotten disability benefits from Social Security for 24 months, or if you’ve received certain disability benefits from the Railroad Retirement Board for 24 months, according to medicare.gov.

Medicare Eligibility for Part C and Part D

Medicare Part C is a Medicare health plan that’s typically offered by private insurance companies. Also known as Medicare Advantage, you’re eligible for Part C if you’re enrolled in Part A and Part B, you don’t have ESRD and the option is available in your area. These plans include health maintenance organizations, preferred provider organizations, special needs plans, private fee-for-service plans and Medicare medical savings account plans.

Offered by private insurance companies, Medicare Part D provides prescription drug coverage. You’ll need to be enrolled in Part A or Part B to be eligible. You won’t be eligible, however, if you’re enrolled in Part C coverage.

Bottom Line

Eligibility requirements for Medicare vary based on a number of different factors such as age and medical history and condition. This is why it’s crucial to do your research so you can determine which parts of Medicare best align with your retirement savings goals.

Retirement Planning Tips

  • Not sure you’re saving enough for retirement? Our retirement calculator can help you determine your estimated Social Security benefits, how much money you need to retire and how much annual income you’ll need in retirement.
  • A financial advisor can offer advice on any of your Social Security, Medicare or retirement savings needs. SmartAsset’s free financial advisor matching tool connects you with up to three local advisors.

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