What's the Difference? Medicare vs MedicaidI was at a dinner party last night, people within hearing distance at the table were making polite conversation by discussing professions and careers. When it came, my turn to answer “What do you do?” I said, "I work for the Medicare division of a managed care company.” 

In unison, two people said, “What is the difference between Medicare and Medicaid?” One added, “Aren’t they the same?” A do-gooder next to me said, “No, Medicare covers medical and Medicaid covers prescriptions.” I didn’t want to embarrass the “do-gooder” so I gave a very brief description of the differences… but for you, my readers, I will go into more detail. 

What is the difference between Medicare and Medicaid? I’m so glad you asked.

Medicare and Medicaid

Medicare and Medicaid are both government-sponsored programs designed to help cover healthcare costs. While both were established by the federal government in 1965 and funded by taxpayers, they are very different programs. 


Medicare is a federal program, attached to Social Security, serving people over 65, disabled people and dialysis patients – regardless of their income.  It is run by the Centers for Medicare & Medicaid Services, an agency of the federal government. Patients pay part of costs through deductibles and copayments on hospital stays, 20-35% of medical bills and copayments as well as deductibles on prescription coverages.   

The four-parts of Medicare include:

  • Part A - Hospitalization coverage
  • Part B - Medical insurance
  • Part C - Private insurance managed care through Managed Care Organizations
  • Part D - Prescription drug coverage

Parts A and B are paid for by payroll taxes and deductions from Social Security income.

Parts C and D are paid out-of-pocket by program participants.

In 2016, Part A (Hospital coverage), can cost up to $411 a month unless you qualify for premium-free coverage.  

Qualification for premium-free Part A at 65:

  • Already receive retirement benefits from Social Security or the Railroad Retirement Board.
  • Eligible to get Social Security or Railroad benefits but haven't filed for them yet.
  • Enrollee or spouse had Medicare-covered government employment.

If under 65, qualification for premium-free Part A:

  • Received Social Security or Railroad Retirement Board disability benefits for 24 months.
  • Have End-Stage Renal Disease (ESRD) and meet certain requirements.

In 2016, Part B (Medical coverage), carried premiums based on income with the minimum amount being at least $121.80. There is also a $166.00 annual Part B deductible. After the deductible is met, there is a typically co-payment of 20% of the Medicare-approved amount for most doctor services (including most doctor services while hospitalized), outpatient therapy, and medical equipment. 

In 2016, Part D (Prescription drug coverage), also has a monthly premium as well as an annual deductible. Deductibles vary between Medicare drug plans but no deductible can be more than $360. Some Medicare drug plans don't have a deductible. Drug plan costs will vary depending on the following:

  • The drugs prescribed
  • The plan and coverage selected
  • Using a pharmacy in the plan's network vs an out of network pharmacy
  • Drug plan's formulary and drugs prescribed
  • Qualifying for assistance paying Medicare Part D costs


Medicaid, a joint federal and state program, serves low-income people of every age. The federal government funds up to 50% of the cost of each state's Medicaid program, with more affluent states receiving less funding than less affluent states. There are 50 different Medicaid programs, one for each state. Patients pay no part of costs for covered medical expenses.  

Medicaid has strict eligibility requirements. Rules vary by state. The program is designed to help the poor thus requiring recipients to have no more than a few thousand dollars in available assets and a qualifying maximum income. 

Services vary by state, but the federal government mandates coverage for the following services when deemed "medically necessary":

  • Hospitalization
  • Laboratory services
  • X-rays
  • Doctor services
  • Family planning
  • Nursing services
  • Medical and surgical dental services
  • Nursing facility services for people aged 21 or older
  • Home healthcare for people eligible for nursing facility services
  • Clinic treatment
  • Pediatric and family nurse practitioner services
  • Midwife services
  • Screening, diagnosis and treatment services for persons under age 21

Each state also has the option of including additional benefits, such as prescription drug coverage, optometrist services, eyeglasses, medical transportation, physical therapy, prosthetic devices and dental services.

The Bottom Line

The Medicare and Medicaid programs work together to provide medical coverage to elderly and poor people. Medicare is the primary medical coverage provider for many persons aged 65 and older and for those with a disability. Eligibility has nothing to do with income level. Meanwhile, Medicaid eligibility is designed for people with limited income and is often a program of last resort for those without access to other resources.

This is a brief description. For more information, please visit Medicare and Medicaid directly.