Medicare & Medicaid Health Insurance Programs Explained

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I’ve never had the need or the opportunity the learn about Medicare or Medicaid, two government programs that garner a lot of attention every two years, and that have recently been in the news because of President Obama’s attempts to bring about health care reform. Like many people, I didn’t understand how either program worked so I decided to do some research and put together this Foundation post.

The biggest difference between the two is eligibility based on financial need. Medicaid is designed to help low-income, financially needy individuals and is administered differently in each state. Medicare is not based on need and is entitlement based, through your payments into the program through your taxes. Medicare is administered nationally and the rules are the same everywhere.

If you’re curious to learn more, read on plucky adventurer because it starts getting a little more complicated. 🙂


Medicaid is an means-based assistance program managed by each state, with funds coming from both the state and federal budgets. For a state to receive funds, the state’s Medicaid program needs to conform to the guidelines set by the federal government. Medicaid was created in the Social Security Act of 1965, run by the Department of Health and Human Services, and administered at the state level. Participation is voluntary, but each state participates.

How Medicaid is funded: As a joint federal and state program, funds to operate the program come from both the federal and state governments.

Determining Medicaid eligibility: There are a number of requirements for Medicaid eligibility, with income being one of the primary requirements. From the Medicaid eligibility website:

Many groups of people are covered by Medicaid. Even within these groups, though, certain requirements must be met. These may include your age, whether you are pregnant, disabled, blind, or aged; your income and resources (like bank accounts, real property, or other items that can be sold for cash); and whether you are a U.S. citizen or a lawfully admitted immigrant. The rules for counting your income and resources vary from state to state and from group to group. There are special rules for those who live in nursing homes and for disabled children living at home.

Since Medicaid is a state run program, the scope of the coverage will vary from state to state, keeping in line with federal regulations. For specific information, I recommend you research your state’s program. Usually a google search of “[Your State] Medicaid” will get you on the right track.


Medicare is a federally administered program, run by the Department of Health and Human Services, funded by payroll deductions (payments made from your paycheck). It’s a single-payer health care system, which is a buzz-word you have probably heard a lot lately. It was created by the Social Security Act of 1965, signed into law by President Lyndon Johnson. Back in 1965, the Medicare Part B premium cost $3 a month, in 2008 the premium was $45.50 per month.

The program has four parts:

  • Part A: Hospital Insurance – covers inpatient overnight hospital stays, up to 100 days, with the cost being split between the Medicare program and the patient according to a schedule. It also includes coverage in a skilled nursing facility if you meed certain criteria.
  • Part B: Medical Insurance – covers outpatient services and products not covered by Part A, such as x-rays, lab tests, vaccinations, etc. You can decline this optional coverage.
  • Part C: Medicare Advantage – Sometimes called the HMO plan, this lets you receive your Medicare benefits through private health insurance rather than through Medicare Part A and Part B, as long as they exceed the standards set by Part A and B.
  • Part A: Prescription Drug – This is the most recent addition to Medicare, added in 2006, and anyone eligible for Part A or B is eligible for Part D. Individuals with Medicare have to enroll in a Prescription Drug Plan (PDP) or a Medicare Advantage (Part C) that includes a prescription drug coverage. The PDPs are administered by private insurance companies and they choose which drugs they wish to cover, as long as they follow Medicare rules.

How Medicare is funded: If you ever look at a pay-stub, you might notice that a small part, 1.45% (2009), is taken out for Medicare. Your employer also pays 1.45%, on your behalf. If you’re self-employed, you pay both sides, for a total of 2.90% of your earnings.

Determining Medicare eligibility: It covers almost everyone 65 and older, some individuals who qualify for Social Security disability coverage, and some individuals with permanent kidney failure. There are more clearly defined rules for eligibility at the website.

For more information about Medicare, you can download or request free publications at Here is the latest Medicare & You 2009 handbook, it’s a whopping 128 page booklet.


Hopefully this article has shed some light on these two programs and give you the basis for continuing your research.

Is there something I missed in this article that I should include? If so, let me know in the comments or by email and I will expand it as needed.

{ 9 comments, please add your thoughts now! }

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9 Responses to “Medicare & Medicaid Health Insurance Programs Explained”

  1. Dave says:

    Thanks, very informative.

  2. Marlo says:

    Very good overview of the programs. Here in our state, to qualify for Medicaid a person cannot have more than 2K in financial assets.

    Also, some states can collect on a deceased persons estate after they have used Medicaid funds. For example, if they have any assets like a personal residence that is sold after the recipient passes the state can recoup some costs of care from the proceeds of that sale.

    Unfortunately I am not an expert of this and at this time of the morning I do not have links! I recall reading an article about this in the WSJ a few years back that explained it. I have also worked with Medicaid programs in our state but cannot come up with a link yet.

  3. Patrick says:

    It’s always good to know the difference between these programs. Since they sounds really similar, people often think they are the same program or mix the two programs up.

  4. freeby50 says:

    The prescription drug plan is part D rather than part A.

  5. eric says:

    It’s an often-confused topic. Good post!

  6. dilbert69 says:

    My friend who lives in Oregon and has zero income cannot qualify for Medicaid because she doesn’t have any children. So it’s not just for poor people. It’s for poor people with children or those whom Social Security deems disabled.

  7. Shawanda says:

    I really never gave much consideration to these programs. I long to live off income that isn’t subject to Medicare and Social Security taxes.

    A while back, I tried to see if a close family member qualified for Medicaid. Although this individual had a low income, she did have a modest amount of equity in her home, as well as, what I’d consider, a little bit set aside in her 401(k). I don’t think it takes much in assets to disqualify you for the Medicaid.

  8. Shirley says:

    Facts about Medicare:

    Part A is mandatory, no choice.
    Part B premium ($93.50 in 2009) is taken out of the monthly SS check.

    Medicare does not cover preventative medical care. For that coverage, you must also subscribe to another health care coverage and part B is a mandatory requirement.

    We have one of the least expensive at $109 each monthly. I know that others can run quite a bit more.

  9. Cody says:

    Medicare is currently based on age. Would there be any benefits of Medicare being based on need rather than age?

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