What exactly is Medicare and Medicaid?
Medicare and Medicaid are two government programs that provide medical and other health-related services to specific individuals in the United States. Medicaid is a social welfare or social protection program, while Medicare is a social insurance program.
President Lyndon B. Johnson created both Medicare and Medicaid when he signed amendments to the Social Security Act on July 30, 1965.
The two programs that help people pay for their healthcare are different. The Centers for Medicare and Medicaid Services (CMS), a division of the U.S. Department of Health and Human Services (HHS), oversee both.
Data on Medicaid show that it serves about 64.5 million people, as of November 2019.
Medicare funded the healthcare costs of more than 58 million enrollees, according to the latest figures.
Medicaid, Medicare, the Children’s Health Insurance Program (CHIP), and other health insurance subsidies represented 26% of the 2017 federal budget, according to the Center on Budget and Policy Priorities.
The CMS report that around 90% of the U.S. population had medical insurance in 2018.
According to the 2017 U.S. census, 67.2% of people have private insurance, while 37.7 percent have government health coverage.
Medicaid is a means tested health and medical services program for low income households with few resources. Individuals must meet certain criteria to qualify. These criteria vary between states.
Federal authorities primarily oversee Medicaid, but each state is responsible for:
- establishing eligibility standards
- deciding service type, amount, duration, and scope
- setting rate of payment for services
- administering the program
For more resources to help guide you through the complex world of medical insurance, visit our Medicare hub.
Each state makes the final decisions regarding what their Medicaid plans provide. However, they must meet some federal requirements to receive federal matching funds.
Not all insurance providers must accept Medicaid. Users must check their coverage before receiving health care.
People who do not have private health insurance can seek help at a federally qualified health center (FQHC). These centers provide coverage on a sliding scale, depending on the person’s income.
FQHC provisions include:
- prenatal care
- vaccines for children
- doctor services
- nursing services for people of 21 years or more
- family planning services and supplies
- rural health clinic services
- home healthcare for people eligible for skilled nursing services
- laboratory and X-ray services
- pediatric and family nurse practitioner services
- nurse-midwife services
- FQHC services and ambulatory services
- early and periodic screening, diagnostic, and treatment (EPSDT) for under 21s
States may also choose to provide additional services and still receive federal matching funds.
The most common of the 34 approved optional Medicaid services are:
- diagnostic services
- prescribed drugs and prosthetic devices
- optometrist services and eyeglasses
- nursing services for children and adults under 21 years
- transport services
- rehabilitation and physical therapy services
- dental care
Eligibility for Medicaid
Each state sets their own Medicaid eligibility guidelines. The program aims to support people in low income households. However, other eligibility requirements relate to:
- assets
- age
- pregnancy status
- disability status
- citizenship
For a state to receive federal match funding, they must provide Medicaid services to individuals in certain categories of need.
For example, a state must provide coverage for some individuals who receive federally assisted income maintenance payments and similar groups who do not receive cash payments.
The federal government also consider some other groups to be “categorically needy.” People in these groups must also be eligible for Medicaid.
They include:
- Children under 18 years whose household income is at or below 138% of the federal poverty level (FPL).
- Women who are pregnant with a household income below 138% of the FPL.
- People who receive Supplemental Security Income (SSI).
- Parents who earn an income that falls under the state’s eligibility for cash assistance.
States may also choose to provide Medicaid coverage to other, less well-defined groups who share some characteristics of the above.
These groups may include:
- Pregnant women, children, and parents earning income above the mandatory coverage limits.
- Some adults and older adults with low incomes and limited resources.
- People who live in an institution and have low income.
- Certain adults who are older, have vision loss or another disability, and an income below the FPL.
- Individuals without children who have a disability and are near the FPL.
- “Medically needy” people whose resources are above the eligibility level their state has set.
Medicaid does not provide medical assistance to all people with low income and low resources.
The Affordable Care Act of 2012 gave states the option to expand their Medicaid coverage. In the states that did not expand their programs, several at-risk groups are not eligible for Medicaid.
These include:
- Adults over 21 years who do not have children and are pregnant or have a disability.
- Working parents with incomes below 44% of the FPL
- Legal immigrants in their first 5 years of living in the U.S.
Who pays for Medicaid?
Medicaid does not pay money to individuals but sends payments directly to healthcare providers.
States make these payments according to a fee-for-service agreement or through prepayment arrangements, such as health maintenance organizations (HMOs). The federal government then reimburse each state for a percentage share of their Medicaid expenditures.
This Federal Medical Assistance Percentage (FMAP) changes each year and depends on the state’s average per capita income level.
The reimbursement rate begins at 50% and reaches 77% in 2020. Wealthier states receive a smaller share than states with less money.
In the states that chose to expand their coverage under the Affordable Care Act, more adults and families on low incomes are eligible with the new provision allowing enrolment at up to 138% of the FPL. In return, the federal government cover all expansion costs for the first 3 years and over 90% of the costs moving forward.
What is Medicare?
Medicare is a federal health insurance program that funds hospital and medical care for older people in the U.S. Some people with disabilities also benefit from Medicare.
The program consists of:
- Part A and Part B for hospital and medical insurance
- Part C and Part D that provide flexibility and prescription drugs
Medicare Part A
Medicare Part A, or Hospital Insurance (HI), helps pay for hospital stays and other services.
In the hospital, this includes:
- meals
- supplies
- testing
- a semi-private room
It also pays for home healthcare, such as:
- physical therapy
- occupational therapy
- speech therapy
However, these therapies must be on a part-time basis, and a doctor must consider them medically necessary.
Part A also covers:
- care in a skilled nursing facility
- walkers, wheelchairs, and other medical equipment for older people and those with disabilities
Payroll taxes cover the costs of Part A, so it is not usually compulsory to pay a monthly premium. Anyone who has not paid Medicare taxes for at least 40 quarters will need to pay the premium.
In 2021, people who have paid the tax for less than 30 quarters will need to pay a $471 premium. A $259 premium will apply to those who have paid for 30–39 quarters.
Medicare Part B
Medicare Part B, or outpatient medical insurance, helps pay for specific services.
These services include:
- medically necessary doctor’s visits
- outpatient hospital visits
- home healthcare costs
- services for older people and those with a disability
- preventive care services
For example, Part B covers:
- durable medical equipment, such as canes, walkers, scooters, and wheelchairs
- doctor and nursing services
- vaccinations
- blood transfusions
- some ambulance transportation
- immunosuppressive drugs after organ transplants
- chemotherapy
- certain hormonal treatments
- prosthetic devices
- eyeglasses
For Part B, people must:
- pay a monthly premium, which in 2021 is $148.50 per month
- meet an annual deductible of $203 a year before Medicare funds any treatment
Premiums might be higher, depending on the person’s income and current Social Security benefits.
After meeting the deductible, most people on a Medicare plan will need to pay 20% of costs approved by Medicare for many doctor services, outpatient therapist treatment, and durable medical equipment.
Enrollment in Part B is voluntary.
Medicare Part C
Medicare Part C, also known as Medicare Advantage Plans or Medicare+ Choice, allows users to design a custom plan that suits their medical situation more closely.
Part C plans provide everything in Part A and Part B, but may also offer additional services, such as dental, vision, or hearing treatment.
These plans enlist private insurance companies to provide some of the coverage. However, the details of each plan will depend on the program, and the eligibility of the individual.
Some Advantage Plans team up with HMOs or preferred provider organizations (PPOs) to deliver preventive healthcare or specialist services. Other plans focus on people with specific needs, such as individuals living with diabetes.
Medicare Part D
This prescription drug plan was a later addition in 2006. Several private insurance companies administer Part D.
These companies offer plans that vary in cost and cover different lists of drugs.
To participate in Part D, a person must pay an additional fee called the Part D income-related monthly adjustment amount. The fee depends on the person’s income.
Many people’s Social Security checks will deduct the premium. Others will, instead, get a bill directly from Medicare.
Services that Medicare does not provide
If Medicare does not cover a medical expense or service, a person may wish to take out a Medigap plan for supplemental coverage.
Private companies also offer Medigap plans. Depending on the individual plan, Medigap may cover:
- copayments
- coinsurances
- deductibles
- care outside of the U.S.
If a person has a Medigap policy, Medicare will first pay their eligible portion. Afterward, Medigap will pay the rest.
To have a Medigap policy, a person must have both Medicare Parts A and B and pay a monthly premium.
Medigap policies do not cover prescription drugs, which a Part D plan covers.
Who is eligible for Medicare?
An individual must be one of the following to be eligible for Medicare:
- age over 65 years
- age under 65 years and living with a disability
- any age with end stage renal disease or permanent kidney failure needing dialysis or transplant
They must also be:
- a U.S. citizen or permanent legal resident for 5 years continuously
- eligible for Social Security benefits with at least 10 years of contributing payment
Dual eligibility
Some people are eligible for both Medicaid and Medicare.
Currently, 12 million people have both types of cover, including 7.2 million older adults with a low income and 4.8 million people living with a disability. This accounts for over 15% of people with Medicaid enrollment.
Provisions vary, depending on the U.S. state where a person lives.
Who pays for Medicare?
Most of the funding for Medicare comes from:
- payroll taxes under the Federal Insurance Contributions Act (FICA)
- the Self-Employment Contributions Act (SECA)
Typically, the employee pays half of this tax, and the employer pays the other half. This money goes into a trust fund that the government uses to reimburse doctors, hospitals, and private insurance companies.
Additional funding for Medicare services comes from premiums, deductibles, coinsurance, and copayments.
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