My clients often get confused about the difference between Medicaid and Medicare. Their names are so similar, they are both government programs, they both cover health care, and they often seem to overlap. It’s only natural to confuse the two (or even to say one word when you mean the other). But Medicaid and Medicare serve different purposes and have different rules for eligibility and coverage, so it’s important to understand the difference. These details matter.
The best way to think of it is this: Medicare is like regular private health insurance—the kind that pays for doctor visits, routine care, and hospital stays. Medicaid, on the other hand, is like long-term care insurance.
Note: Although I’ve said Medicaid is like long-term care insurance, there is a part of Medicaid that works like regular health insurance. The rules for those Medicaid programs are different. This site is only about Medicaid for long-term care.
Differences in eligibility
Pretty much everyone is eligible for Medicare once they turn 65. It doesn’t matter how much or how little you have in terms of assets, either. (High income can increase your Part B premium, but few of my clients have to worry about that.)
For Medicaid, though, eligibility very much depends on how much or how little you own. For Medicaid to pay for long-term care, your countable assets must be below a certain level. Most people are only eligible for Medicaid after a “spend-down” of their resources above that level.
Differences in coverage
Medicare is like regular health insurance: through Parts A and B it generally covers doctor visits, checkups, medical procedures, hospital stays, and acute care. Part D can cover prescriptions. These are all exactly what we think of as the normal health care we all need throughout our lives.
The big thing Medicare does not cover, in most cases, is long-term care. Under some circumstances, Medicare can cover up to 100 days of rehab in a nursing home after a transfer from a hospital. But that short-term coverage is it.
The problem with long-term care is in the long-term part. The big risk is not that you’ll need a couple of months of care; it’s that you’ll need years of it. When paying out of pocket means $5-10,000 each month, you can see why long-term care is the biggest financial risk everyone faces in retirement. Simply put, neither Medicare nor any other kind of regular health insurance covers that risk.
That’s where Medicaid comes in. Medicaid is essentially the default long-term care insurance policy for everyone. It covers long-term care in a nursing home, assisted living facility, or at home, in a potentially unlimited amount. But it will only do so after you’ve spent down your own savings.
Note: Of course, you can get private long-term care insurance instead of relying on Medicaid, if you plan for it. I encourage my clients who are near retirement and planning ahead to consider this option. I believe it is, on balance, better than relying on a complicated government program. Unfortunately, because of the high cost of long-term care and the high risk of needing it, this type of insurance is expensive. Few of my clients decide they can afford it.