Chances are you’ve heard of Medicare and Medicaid. You know they’re health care programs, but don’t know much about them. However, you should at least understand how these options work. Even if you don't need them now, you might need to use one or both at some point. They aren’t the same thing, even if many people use the terms interchangeably.
Here’s what you need to know about Medicare, Medicaid, and the differences between the two.
What Is Medicare?
Medicare is health insurance run by the federal government for a particular group of people. You must be 65 or older, have certain disabilities, or have end-stage renal disease — kidney failure that requires dialysis or a kidney transplant — to qualify.
Medicare has four different parts that pay for different types of services.
Medicare Part A
Commonly called hospital insurance, Medicare Part A typically covers medical expenses for inpatient hospital stays, care in a skilled nursing facility, and some types of home health care.
In 2018, it costs $422 per month if you paid Medicare taxes for less than 30 quarters when you were working. If you paid Medicare taxes for 30 to 39 quarters, the premium is $232 per month.
However, most people don’t pay a monthly premium for Part A because they paid Medicare taxes for 40-plus quarters.
Part A has a deductible of $1,340 for each benefit period, and it might charge coinsurance, as well.
Medicare Part B
Medicare Part B is often called medical insurance. It covers doctor visits and services, outpatient care at medical facilities, medical supplies, and preventative health care services.
In 2018, the cost for Part B coverage varies based on your income. If you file as single or married filing separately and your income was below $85,000, your premium is $134 per month. However, if your income exceeds $160,000, rates go up in multiple steps until they reach $428.60 per month. Income amounts are doubled for those who file a joint tax return.
You’ll have to pay a deductible of $183 per year for Part B services, and you may have to pay a coinsurance amount, as well.
Medicare Part C
Medicare Part C, also known as Medicare Advantage Plans, is run by private companies that have contracts with Medicare. Rather than go through Medicare for Part A and Part B benefits, you go through the private company with which you have a plan.
These plans might cover prescription benefits, too. They can be run as health maintenance organizations, preferred provider organizations, private fee-for-service plans, special needs plans, or Medicare medical savings account plans. Premiums and other costs vary based on the plan you choose.
Medicare Part D
Medicare Part D covers prescription drugs. You can add Part D coverage to original Medicare and Medicare savings account plans as well as some Medicare cost or private fee-for-service plans. Premiums and other costs vary based on the plan you choose.
What Is Medicaid?
Medicaid is a health insurance program that individual states administer based on federal requirements. While the federal government and states fund Medicaid, each state’s program may be different as long as it follows the broad guidelines the federal government requires.
In all 50 states, Medicaid provides health insurance for certain low-income people, families, and children; pregnant women; the elderly; and people with disabilities. In certain states, Medicaid covers all low-income adults below a certain income level. You can use HealthCare.gov's tool to see if you qualify for Medicaid based on your income alone.
Variations Between States
Each state can choose the type, amount, duration, and scope of services it covers, as long as it meets the federal guidelines. For instance, all Medicaid programs must include benefits for things like inpatient and outpatient hospital services, physician services, lab and X-ray services, and transportation to medical care. However, states can choose whether they want to offer services for things like prescription drugs, prosthetics, case management, physical therapy, and optometry services. You can view a full list of mandatory and optional benefits at the official Medicaid website.
While most people think Medicaid is free, it depends on how your state runs its program. Certain medical benefits might be completely free in your state. But some states may require you to make copayments or pay other related expenses to receive certain medical services.
The best way to learn more about your state’s program is to visit Medicaid’s specific page for your state or visit your state’s Medicaid website. There, you can find the information you need or see where to get additional information.
But even with Medicaid, not everyone who needs free or reduced-price medical care has access to it.
If you don’t qualify for your state’s Medicaid program, you may want to check your state’s health insurance exchange to see if you qualify for tax rebates for reduced-price health insurance. Alternatively, you can look for free or reduced-price medical clinics in your area.
How to Remember the Difference Between Medicare and Medicaid
If you can’t remember the difference between Medicare and Medicaid, you’re not alone. My wife works at a hospital as a nurse and uses an easy saying to remember the difference: “You care for the old and aid the poor.”
Hopefully now you’ll know exactly what people are talking about.
The Future of Medicare and Medicaid
No one has a crystal ball that can predict the future of these programs. However, medical care prices are rising more quickly than inflation. Additionally, the number of people paying into these programs is decreasing while the number of people claiming benefits is likely to increase.
Something will have to change to keep these programs solvent. Unfortunately, no one knows what will change. It's highly unlikely that these programs will disappear, but they could change and require people to pay more of the costs out of their own pockets.
If benefits are reduced in the future, you may need to save more to cover your future medical expenses. On the other hand, taxes could increase to keep benefits at the current level. However, if that happens, your income after taxes will be lower.
In the meantime, all you can do is prepare for the worst and hope for the best. Keep up to date on changes to these programs and how they’ll affect your retirement planning.