By: Eligibility Team | March 19, 2019

Health care in the United States is highly complicated. And two of the pillars of US health care – Medicare and Medicaid – are at the center of this confusion.

But you should know the differences between these two programs.

To help you know your rights and benefits under Medicare or Medicaid, let’s look at how they are alike, but more importantly, how they differ. And finally, how these disparate programs may someday evolve.

What’s the difference between Medicare and Medicaid?

Medicare is a federal health care program and managed at the national level. It subsidizes health care specifically for US residents ages 65 and over. Eligibility for most Americans is determined solely by age.

Medicaid is also a federal program, primarily managed at the state level. It is designed to subsidize health care for low-income individuals, regardless of age – it covers adults, children, and other specialized groups. Eligibility is determined primarily by income, but each state establishes its specific eligibility requirements.

History of Medicare and Medicaid

Both programs can be traced back to 1965, when they were signed into law by President Lyndon Johnson. Although the two programs were designed to address a variety of health care needs, both fell short of their original goals, which were to contribute to the creation of comprehensive “national” health care program.1

As the two programs became finalized, they offered what pundits at the time called a “three-layer cake.” The first layer addressed hospital costs for all Americans 65 and older. However, after some fine-tuning, care for seniors was extended beyond hospital costs, creating the second “layer” of coverage. Eventually, this coverage was extended to subsidize welfare recipients (regardless of age), thus creating the third layer of coverage, which ultimately served as a foundation for Medicare.

At a high level, these “layers” became the following:

  1. Medicare Part A, which covers hospital costs for most US residents age 65 and older
  2. Medicare Part B, which covers doctors’ visits and is funded in part by monthly premiums+
  3. Medicaid, which covers all medical expenses for low-income earners of any age#

Medicare and Medicaid program participation

The number of Americans participating in Medicare and Medicaid has risen dramatically in recent years.

As of 2017, there were 59 million Americans enrolled in Medicare. Compare this to the 49 million Americans enrolled in the program as of 2011. This 21% increase2 stems primarily from the growing number of baby boomers who began retiring around 2001. It is estimated that 10,000 boomers turn 65 each day, qualifying for Medicare. This pattern is projected to continue until 2022, when the number of retiring boomers will subside; however, it won’t change the fact that 80 million seniors will be dependent on Medicare as of 2030.

Right now, Medicaid serves nearly 74 million individuals, 45% of whom are under the age of 18. This number includes a 31% spike in Medicaid enrollment that occurred when a wave of new enrollees came on board in 2014 and 2015 as part of the Affordable Care Act’s Medicaid expansion.3

Included in both segments are individuals who qualify for both programs. This segment, known as the “dual eligible,” includes Americans who are both disabled and earn incomes that fall below the national poverty benchmark. As of 2017, nearly 12 million Americans were dual eligible.

The costs of Medicare and Medicaid


Most Medicare enrollees select both Part A and Part B coverage. Part A covers hospital-related charges and doesn’t require a premium for most participants. Part B covers physician services and usually requires a monthly premium from participants. This premium is deducted from the recipient’s monthly Social Security payment. Although the amount of the deduction can vary, in 2018 the average monthly cost was about $134.

Conversely, Medicaid enrollees do not usually pay any premium to receive benefits. There are exceptions, but studies show when premiums were introduced in the past, enrollees typically declined to pay them, or they dropped out of the program entirely.4


Medicare requires deductibles for both Part A and Part B.  These amounts for 2018 are $1,340 and $183, respectively.5 Additionally, cost-sharing charges may be necessary. Part A charges become effective as of the 61st day of any hospital stay. Cost-sharing charges for Part B are 20% of all expenses once the enrollee’s deductible is met.

Medicaid charges no deductible.

What’s covered with Medicare and Medicaid?

In general, the area of overlap for Medicare and Medicaid concerns benefits.

Both programs deliver comprehensive benefits for basic health care: hospital charges, doctor visits, outpatient care, lab work, physical therapy, and similar services. However, Medicare Parts A and B do not generally cover the cost of vision care, dental, or prescription drugs. If you are seeking that level of coverage, Medicare Part C (Medicare Advantage, a private insurance option) is one solution, and Part D are also available. First introduced in 2006, Part D offers a drug benefit (subject to premiums, deductibles, and shared costs).

Many private insurance companies also offer “Medicare Supplement” policies that cover the coinsurance portions of Part B. They also provide a variety of other plans that include dental, vision, and other related benefits.

Medicaid covers all these benefits. Additionally, Medicaid can also be applied to the costs of nursing homes and assisted living providers as well as family planning, and, in some cases, related-transportation services.6

The consistency of care: Medicare and Medicaid

Medicare and Medicaid vary significantly regarding the population served, program costs, benefits, and other vital areas. But, the consistency of care differs as well.

For instance, because Medicaid patients are likely to be less healthy than the average Medicare recipient, Medicaid recipients may need more oversight, resulting in more paperwork. There are also reduced reimbursement rates (e.g., Medicaid pays about 61% of what Medicare pays, nationally, for outpatient physician services.7).

Another critical behavior affecting the quality of care is the amount “churn” – or the rate of exiting and re-entering of enrollees as their eligibility changes – in the program.

Data from 2004–2008 indicates that more than 30 % of Medicaid enrollees lost eligibility within six months of enrollment, while about half lost eligibility within twelve months.8

Churn has explicitly hurt Medicaid patients. By dropping care or changing doctors, many patients disrupt the continuity and quality of their care. Medicare patients, on the other hand, typically keep their same primary doctor for years, even if moving from original Medicare to Medicare Advantage and back again.

This serves as a reminder that merely offering Medicaid coverage does not ensure eligible recipients will take advantage of health care services.

The future of Medicare and Medicaid

Since introduced, both Medicare and Medicaid have fundamentally reshaped the US health care landscape—and will continue to do so.

Will Medicaid ever morph into Medicare?

While the concept of single-payer, “universal” health care remains uncertain, the Centers for Medicare & Medicaid Services (CMS), which manage both programs, is on record saying prevention and population health are its second-highest strategic priority. (Its first is better, more affordable programs.).7

There are currently an array of programs attempting to address the growing need for universal health care in the US Until such a program gains widespread acceptance, Medicare and Medicaid will continue to offer support for countless millions of Americans.

+Medicare involves many variations and choices. For example, Medicare Advantage (MA) was introduced in 1997 and combines parts A and B, and usually adds other benefits as well. In 2018, 36% of seniors choose “Part C” for their Medicare benefit.

#Medicaid has complex requirements for eligibility and benefits. For more information, go here.


  1. PNHP, “A Brief History: Universal Health Care Efforts in the US
  2., “Medicare Enrollment Dashboard
  3. Statista, “Total Medicaid enrollment from 1966 to 2017 (in Millions)
  4. Governing, “When Medicaid Charges Premiums, Thousands Fall Behind
  5., “Medicare Costs at a Glance
  6., “Complete List of Medicaid Benefits
  7. Forbes, “Why Many Physicians Are Reluctant to See Medicaid Patients
  8. NCBI, “Evaluating State Options for Reducing Medicaid Churning