Medicare and Medicaid are two distinct government programs designed to provide health coverage, but they serve different populations and operate under separate rules. The confusion about whether a person needs both arises because, for millions of low-income Americans, the programs overlap to provide comprehensive coverage. Medicare is primarily an entitlement program based on age or disability status, while Medicaid is a means-tested program based strictly on financial need. Understanding this fundamental difference is the first step toward clarifying how the two systems work together.
Understanding the Scope of Each Program
Medicare is a federal health insurance program. It is funded largely through federal payroll taxes, premiums paid by beneficiaries, and general revenue. Eligibility is generally tied to being 65 or older, or under 65 with certain disabilities, such as End-Stage Renal Disease.
Original Medicare consists of Part A, which covers inpatient hospital stays and skilled nursing facility care, and Part B, which covers outpatient medical services like doctor visits and preventive care. Part C (Medicare Advantage) and Part D (prescription drug coverage) are options offered through private insurance companies. Unlike Medicaid, Medicare requires beneficiaries to pay deductibles, co-pays, and co-insurance, which can lead to significant out-of-pocket costs.
Medicaid is a joint federal and state program. The federal government sets broad guidelines, but each state administers its own program, resulting in variations in coverage and eligibility requirements. The program’s fundamental purpose is to provide health coverage to individuals and families with limited income and resources.
Because Medicaid is means-tested, eligibility is determined by a person’s income and assets, rather than their age or previous work history. This structure means that coverage is designed to be low-cost or free for the recipient, often covering services that Medicare does not, such as long-term nursing home care.
The Status of Dual Eligibility
The question of needing both programs is answered by the status known as “dual eligibility,” or “Medi-Medi,” which applies to individuals who qualify for both Medicare and full Medicaid benefits. This status exists because Medicare does not cover all medical expenses and requires significant cost-sharing. Dual eligibility is a financial necessity for low-income seniors and certain individuals with disabilities who cannot afford Medicare’s out-of-pocket expenses.
For a person with limited financial resources, Medicaid acts as a financial safety net, making Medicare coverage feasible and comprehensive. Without Medicaid, a low-income individual would struggle to pay for the Part B premium, which is mandatory for most medical services, as well as the deductibles and co-insurance amounts. This combined coverage ensures the individual is protected from the financial burdens associated with both acute medical care and long-term care needs.
This combined enrollment provides a more complete health benefit package than either program offers alone. Medicaid covers expenses like long-term care, which Medicare generally does not pay for beyond a short period of skilled care.
How Coverage is Coordinated
When a person is dual-eligible, the payment for medical services follows a strict sequence known as coordination of benefits. Medicare is designated as the primary payer for all Medicare-covered services. Providers must first submit the claim to Medicare for processing and payment.
Medicaid then functions as the secondary payer, often referred to as the “payer of last resort.” After Medicare pays its authorized share of the claim, the remaining balance is sent to the state Medicaid program. Medicaid will typically cover the remaining out-of-pocket costs, such as the Medicare co-insurance and deductibles.
This coordination mechanism ensures that the dual-eligible individual has minimal to no out-of-pocket costs for services covered by both programs. For example, if Medicare Part B covers 80% of an approved doctor’s visit, Medicaid will generally pay the remaining 20% co-insurance.
Specialized Assistance for Dual-Eligibles
State Medicaid offices administer programs specifically designed to assist dual-eligible individuals with their Medicare enrollment costs. These are known collectively as the Medicare Savings Programs (MSPs). MSPs help people with limited income and assets pay for their Medicare premiums and other cost-sharing amounts.
The Qualified Medicare Beneficiary (QMB) program is the most comprehensive of the MSPs. Enrollment in QMB means that a provider cannot legally bill the beneficiary for any Medicare cost-sharing. QMB pays for:
- The Medicare Part A premium (if one is required)
- The Part B premium
- Deductibles
- Co-insurance and co-payments for services covered by Medicare Parts A and B
Other MSPs, such as the Specified Low-Income Medicare Beneficiary (SLMB) program, help with the Part B premium only, for those whose income is slightly too high for QMB. These programs provide specialized financial support for Medicare beneficiaries who do not qualify for full Medicaid benefits.