What Is the Difference Between Medicare and Medicaid?

Medicare is a federal health insurance program primarily for Americans aged 65 and older, while Medicaid is a joint federal-state program that covers people with low incomes regardless of age. Both were signed into law on July 30, 1965, as part of the Social Security Amendments, and both have grown into pillars of the American health care system, yet they differ in who qualifies, who pays, what gets covered, and how much the experience varies from one state to another.¹

Who Qualifies for Each Program

Medicare eligibility is tied mainly to age and work history. If you or your spouse paid Medicare taxes for at least ten years, you automatically qualify at 65. Younger people can also qualify if they have received Social Security disability benefits for two years or have been diagnosed with end-stage kidney disease or amyotrophic lateral sclerosis (ALS). Income does not factor into Medicare eligibility at all. A retired executive and a retired janitor who both turn 65 enroll on the same terms.

Medicaid eligibility, by contrast, is built around income and, in many states, specific life circumstances. Historically, Medicaid covered mainly pregnant women, children, parents of dependent children, elderly adults, and people with disabilities whose incomes fell below certain thresholds. The Affordable Care Act expanded eligibility in participating states to include all adults earning up to 138 percent of the federal poverty level. States that adopted this expansion saw uninsured rates among low-income adults drop sharply, with coverage gains observed across nearly every demographic group examined.² Not all states chose to expand, though, which has created a patchwork where your eligibility for Medicaid can depend heavily on where you live.

How Funding and Administration Work

Medicare is funded and administered almost entirely by the federal government, through the Centers for Medicare and Medicaid Services (CMS). It draws revenue from payroll taxes, premiums paid by enrollees, and general federal revenue. The rules are essentially the same whether you live in Maine or Montana.

Medicaid’s funding structure is fundamentally different. Costs are shared between each state and the federal government, with the federal share never dropping below 50 percent. Poorer states receive a larger federal match. The formula is designed so that the federal government picks up a greater portion of the tab in states with lower per capita income.³ Because states have to put up their own money, state legislatures and governors play a direct role in how generous or restrictive Medicaid is. The federal government sets broad parameters, but states have substantial discretion over how the program operates on the ground, from which optional benefits to include to how much to pay doctors.⁴

What Each Program Covers

Medicare is divided into parts. Part A covers hospital stays, skilled nursing facility care (up to 100 days after a qualifying hospital stay), hospice, and some home health services. Part B covers outpatient care, doctor visits, preventive services, and durable medical equipment. Part D covers prescription drugs. You can also choose Medicare Advantage (Part C), which bundles A, B, and often D through a private insurer and sometimes adds extras like dental or vision.

Medicaid’s benefits vary by state, but federal law requires every state to cover certain core services: hospital care, physician services, lab tests, home health services, and nursing facility care for adults. Many states go well beyond these mandates and cover things like dental care, physical therapy, prescription drugs, and personal care services. For low-income children, the required benefit package is especially broad. Medicaid also covers long-term care in ways that Medicare largely does not, which is a critical distinction for anyone facing a chronic illness or disability that requires ongoing assistance.

One common misconception is that Medicare is a comprehensive safety net for older adults. In practice, traditional Medicare has significant gaps. It does not cover long-term nursing home stays, and it generally excludes routine dental care, eye exams for glasses, and hearing aids. These omissions push many Medicare beneficiaries to buy supplemental insurance (Medigap policies), enroll in Medicare Advantage plans that offer extra benefits, or pay out of pocket.

The Long-Term Care Divide

This is where the two programs diverge in a way that catches many families off guard. Medicare covers short-term rehabilitation in a skilled nursing facility after a hospitalization, but it does not pay for the kind of ongoing, custodial nursing home care that someone with advanced dementia or a severe disability might need for years. For that, Medicaid is the primary payer in the United States.

To qualify for Medicaid-funded long-term care, you typically have to meet both medical need criteria and strict financial limits. Many people who enter nursing homes start by paying privately and only become Medicaid-eligible after spending down most of their assets. Medicaid also funds home and community-based services through waiver programs, which provide things like personal care aides, homemaker services, and assistive technology so that people can remain in their own homes rather than moving to a facility.⁵ The availability of these waiver programs varies enormously by state, and waiting lists can stretch for years in some places.

What Happens When Someone Qualifies for Both

About 12 million Americans are “dual-eligible,” meaning they qualify for both Medicare and Medicaid simultaneously. These are typically low-income older adults or younger people with disabilities. In theory, having both programs should provide comprehensive coverage: Medicare handles hospital and doctor bills, while Medicaid fills the gaps by covering premiums, copays, long-term care, and benefits Medicare does not offer like dental care.

In practice, coordinating two completely separate programs has been a persistent headache. Medicare and Medicaid have different rules, different billing systems, and different provider networks. A person might see a doctor who accepts Medicare but not Medicaid, or vice versa. The Affordable Care Act tried to address this by creating a Federal Coordinated Health Care Office specifically tasked with improving care for dual-eligible beneficiaries.⁶

Various integrated care models have been tested to bring both programs under one administrative roof for dual-eligible enrollees. A systematic review of these programs found that some models did succeed at reducing or delaying long-term nursing home admissions and increasing use of home-based services, which aligns with what most people prefer. But results were inconsistent across different models. Findings on hospitalization rates, care coordination, and spending were mostly mixed or inconclusive, and evidence on patient satisfaction and health outcomes for subgroups like people with serious mental illness remained thin.⁷ The honest picture is that integrating two massive programs turns out to be harder than it sounds.

Why Your State Matters So Much for Medicaid

Because Medicaid is jointly run by states and the federal government, the program you experience in Texas looks very different from the one in Massachusetts. States choose which optional benefits to include, set their own income thresholds (within federal guidelines), decide provider payment rates, and determine whether to run the program through managed care organizations or pay providers directly. Some states have embraced broad Medicaid coverage with relatively generous benefits, while others have kept eligibility narrow and benefits minimal.

The single biggest source of state-level variation in recent years has been the Medicaid expansion under the Affordable Care Act. States that expanded Medicaid saw uninsured rates among poor adults drop by roughly nine percentage points more than states that did not, and the expansion accounted for the entire reduction in the coverage gap across income groups during its first three years.⁸⁹ If you are a low-income adult without children or a disability living in a state that did not expand, you may fall into a coverage gap: earning too much for traditional Medicaid but too little to qualify for marketplace subsidies.

Provider Access and Reimbursement Differences

Even when you have coverage, finding a doctor who accepts your insurance can be a different experience under Medicare versus Medicaid. Medicare generally pays providers more than Medicaid does, and research consistently shows that doctors are more willing to see new patients when reimbursement rates are higher.¹⁰ Most physicians accept Medicare. The acceptance rate for Medicaid is lower, and it fluctuates with how much each state decides to pay.

This reimbursement gap has real consequences for patients. Studies in ophthalmology, for instance, have found that Medicaid patients have more difficulty getting appointments than privately insured patients, and that lower Medicaid reimbursement may worsen disparities in the quality and accessibility of eye care for vulnerable populations.¹¹ The pattern extends across specialties: when states raise Medicaid payment rates, physician willingness to see Medicaid patients tends to increase, and when rates are cut, access tightens. Medicare enrollees generally face fewer access barriers in this regard, though rural areas and certain specialties can still present challenges.

Dental, Vision, and Hearing Gaps

One of the most consequential coverage gaps in American health insurance sits at the intersection of these two programs. Traditional Medicare does not cover routine dental care, eyeglasses, or hearing aids. These are services that older adults commonly need and that can have serious effects on quality of life, nutrition, and even cognitive health. As of 2016, only about a fifth of beneficiaries in traditional Medicare had purchased a standalone dental plan, while roughly three in five Medicare Advantage enrollees were in plans that included a dental benefit.¹²

Even among Medicare beneficiaries who had some form of dental, vision, or hearing coverage, out-of-pocket costs remained strikingly high. Out-of-pocket expenses still made up about 70 percent of dental spending, 62 percent of vision spending, and 79 percent of hearing spending among covered beneficiaries.¹² Medicaid, by contrast, often covers dental and vision services, especially for children, though adult dental benefits in Medicaid vary widely by state and can be limited to emergency extractions in some places. For dual-eligible beneficiaries, Medicaid can fill in these Medicare gaps, which is one of the tangible benefits of carrying both forms of coverage.

How Prescription Drug Coverage Differs

Medicare covers prescriptions through Part D plans, which are offered by private insurers and come with their own premiums, formularies, and copay structures. Enrollees choose among competing plans each year during open enrollment, and costs vary based on the specific drugs they take and the plan they pick. The program includes a coverage gap that has narrowed over the years, and there are subsidies for low-income beneficiaries.

Medicaid handles drug coverage differently. Medicaid programs must cover outpatient prescription drugs as a condition of participating in the federal drug rebate program, and in return, drug manufacturers are required to provide mandatory rebates to Medicaid. The basic rebate is either about 23 percent of the average manufacturer price or the lowest price available to private-sector wholesalers and retailers, whichever is greater. On top of that, an inflation rebate offsets price increases that exceed general inflation, and this additional rebate often exceeds the basic one for drugs whose prices have risen rapidly.¹³ The result is that Medicaid typically pays far less per drug than Medicare Part D plans or private insurers do. For enrollees, Medicaid drug copays are either very low or nonexistent.

Medicaid Estate Recovery

A feature of Medicaid that surprises many families is estate recovery. Since 1993, states have been required to seek reimbursement from the estates of deceased Medicaid beneficiaries for certain costs, particularly long-term care. In practical terms, this means that after a Medicaid recipient dies, the state can file a claim against their estate to recoup what it spent on nursing home care or other covered services.¹⁴

The most common target is the family home. If a Medicaid beneficiary owned a house and spent years in a nursing home paid for by Medicaid, the state may place a lien on the property or recover funds from the estate after the beneficiary and their surviving spouse have both died. Research suggests that this policy may cause some older adults to avoid enrolling in Medicaid altogether, borrow against home equity to pay for care privately, or transfer assets to family members in advance, all of which can create financial complications.¹⁴ Medicare has no equivalent provision. What you receive from Medicare is yours to use without any obligation to repay the program after death.

The Managed Care Shift in Both Programs

Both Medicare and Medicaid have moved substantially toward managed care over the past two decades, though the details differ. On the Medicare side, Medicare Advantage plans now enroll a majority of Medicare beneficiaries in many areas of the country. These private plans receive a per-person payment from the federal government and manage all of a beneficiary’s care, often adding supplemental benefits to attract enrollees. Minority beneficiaries are significantly more likely to enroll in Medicare Advantage than white beneficiaries, and among minority enrollees, those in Medicare Advantage showed better rates of access to primary care and higher rates of preventive services like vaccinations and cancer screenings compared to those in traditional Medicare.¹⁵

On the Medicaid side, the vast majority of Medicaid enrollees are now in some form of managed care as well. States contract with private health plans that receive a fixed monthly payment per enrollee and are responsible for arranging and paying for covered services. This shift has been especially notable in long-term care, where some states have moved from traditional fee-for-service arrangements, which relied heavily on community-based aging agencies, to capitated managed care models run largely by for-profit insurance companies.¹⁶ Whether managed care improves or degrades quality is debated, and the answer seems to depend heavily on how well states oversee their contracts and hold plans accountable.

Racial and Ethnic Disparities Within Both Programs

Both Medicare and Medicaid serve highly diverse populations, and both show persistent racial and ethnic disparities in access and outcomes. Within Medicare, minority beneficiaries have lower rates of specialist visits, primary care access, and preventive services like flu and pneumonia vaccinations compared to white beneficiaries, even after adjusting for other factors.¹⁵ Minority Medicare beneficiaries are also more likely to be disabled, more likely to be enrolled in Medicaid simultaneously, and more likely to report poor health.

Within Medicaid, the consequences of losing coverage fall disproportionately on Black and Hispanic beneficiaries. When people lose Medicaid eligibility above the federal poverty level, Black and Hispanic beneficiaries experience sharper drops in outpatient care use and medication fills than their counterparts. One study found that losing eligibility was associated with about 15 percent fewer medication fills per year among Black and Hispanic beneficiaries, along with increased difficulty paying for care.¹⁷ Meanwhile, within Medicaid managed care, disparities in patient experience vary depending on the plan’s enrollment composition. Plans with higher percentages of Hispanic or Latino enrollees tend to show smaller disparities in patient experience across racial groups.¹⁸

The Medicaid expansion narrowed insurance coverage gaps across racial groups by roughly 23 percent over its first three years.⁸ But expanding coverage did not automatically translate into equal improvements in access and health outcomes. Through 2016, the expansion appeared more effective at improving access and health outcomes among white low-income adults than at closing racial and ethnic gaps.⁹ Getting someone an insurance card is a necessary first step, but it does not on its own eliminate the structural barriers, from provider availability to transportation to language access, that drive disparities in who actually gets care.

1
Europe PMC. Medicare and Medicaid: the past as prologue
2
PubMed Central. The Impact of the ACA Medicaid Expansions on Health Insurance Coverage through 2015 and Coverage Disparities by Age, Race/Ethnicity, and Gender
3
KFF. Medicaid Financing: The Basics
4
PubMed Central. State discretion and medicaid program variation in long-term care: when is enough, enough?
5
International Journal of Social Welfare. Uneven care across states: Disparities in Medicaid 1915(c) home and community‐based services waivers for older adults in the United States
6
PubMed. Care coordination for dually eligible medicare-medicaid beneficiaries under the affordable care act
7
JAMA Health Forum. Quality, Spending, Utilization, and Outcomes Among Dual-Eligible Medicare-Medicaid Beneficiaries in Integrated Care Programs: A Systematic Review
8
PubMed Central. The three-year impact of the Affordable Care Act on disparities in insurance coverage
9
PubMed. The Effect of the Affordable Care Act Medicaid Expansion on Disparities in Access to Care and Health Status
10
PubMed. Payment generosity and physician acceptance of Medicare and Medicaid patients
11
PubMed Central. Disparities in Medicaid and Medicare physician reimbursements for ophthalmic procedures
12
Health Affairs. Dental, Vision, And Hearing Services: Access, Spending, And Coverage For Medicare Beneficiaries
13
JAMA Health Forum. Estimates of Medicaid and Non-Medicaid Net Prices of Top-Selling Brand-name Drugs Incorporating Best Price Rebates, 2015 to 2019
14
PubMed Central / Wiley Online Library. The Association of Medicaid Estate Recovery with Homeownership, Home Equity, and Medicaid Enrollment
15
JAMA. Association of Race and Ethnicity and Medicare Program Type With Ambulatory Care Access and Quality Measures
16
Oxford Academic. Failures of Regulation and Policy in Medicaid-Managed Long-Term Care and Medicare Advantage
17
JAMA Internal Medicine. Racial and Ethnic Disparities in Health Care Use and Access Associated With Loss of Medicaid Supplemental Insurance Eligibility Above the Federal Poverty Level
18
PubMed Central. Racial And Ethnic Disparities In Patient Experience Of Care Among Nonelderly Medicaid Managed Care Enrollees