Medicare and Medicaid: What do they do?

The two programs are very different, but they both come under the management of the Centers for Medicare and Medicaid Services. This is a division of the U.S. Department of Health and Human Services.

President Lyndon B. Johnson created both Medicaid and Medicare when he signed amendments to the Social Security Act on July 30, 1965.

Medicaid is a social welfare, or social protection, program. Data from August 2018 show that it serves about 66.6 million people.

Medicare is a social insurance program that served more than 56 million enrollees in 2016.

Medicaid, Medicare, the Children’s Health Insurance Program, and other health insurance subsidies represented 26 percent of the 2016 federal budget, according to the Center on Budget and Policy Priorities.

The Centers for Medicare and Medicaid Services (CMS) report that 91.1 percent of the U.S. population had medical insurance in that year.

According to the 2017 U.S. census, 67.2 percent of people have private insurance while 37.7 percent have government health coverage.

What is Medicaid?

Medicaid is a means-tested health and medical services program for certain individuals and low-income households with few resources.

Primary oversight of the program happens at the federal level, but each state is responsible for:

• establishing its eligibility standards
• determining the type, amount, duration, and scope of its services
• setting the rate of payment for services
• administering its own Medicaid program

What services does Medicaid provide?

Each state makes the final decisions regarding what their Medicaid plans provide, but they must meet some federal requirements to receive federal matching funds.

Medicaid does not directly provide people with health services. Instead, it reimburses healthcare providers for the care that they deliver to enrolled patients.

Not all providers need to accept Medicaid, so it is essential that users check their coverage before receiving care.

People who do not have private health insurance can seek help at a federally qualified health center (FQHC). These provide coverage on a sliding scale, depending on the person’s income.

Centers must provide specific services, including:

• inpatient hospital services
• outpatient hospital services
• prenatal care
• vaccines for children
• physician services
• nursing facility services for people aged 21 years or older
• family planning services and supplies
• rural health clinic services
• home healthcare for people who are eligible for skilled nursing services
• laboratory and X-ray services
• pediatric and family nurse practitioner services
• nurse-midwife services
• FQHC services and ambulatory services
• early and periodic screening, diagnostic, and treatment (EPSDT) services for both children and adults under the age of 21 years

States may also choose to provide optional additional services and still receive federal matching funds. The most common of the 34 approved optional Medicaid services are:

• diagnostic services
• prescribed drugs and prosthetic devices
• optometrist services and eyeglasses
• nursing facility services for children and adults under the age of 21 years
• transportation services
• rehabilitation and physical therapy services
• dental care

The program aims to help people in low-income households, but there are other eligibility requirements too. These relate to age, pregnancy status, disability status, other assets, and citizenship.

For a state to receive federal matching funds, it must provide Medicaid services to individuals who fall under certain categories of need.

For example, the state must provide coverage for some individuals who receive federally assisted income-maintenance payments and similar groups who do not receive cash payments.

The federal government also considers some other groups to be “categorically needy.” People in these groups must also be eligible for Medicaid.

They include:

• children under the age of 18 years whose household income is at or below 138 percent of the federal poverty level (FPL)
• pregnant women with a household income below 138 percent of the FPL
• people who receive Supplemental Security Income (SSI)
• parents who earn an income that falls under the state’s eligibility for cash assistance

States may also choose to provide Medicaid coverage to other, less well-defined groups who share some characteristics with those above.

These may include:

• pregnant women, children, and parents who earn an income above the mandatory coverage limits
• some adults and seniors with low income and limited resources
• people who live in an institution and have low income
• certain adults who are older, have vision loss or another disability, and have an income below the FPL
• individuals without children who have a disability and are near the FPL
• “medically needy” people whose resources are above the eligibility level that their state has set

Medicaid does not provide medical assistance to all people with low income and resources.

The Affordable Care Act of 2012 gave states the option to expand their Medicaid coverage.

In the states that did not expand their programs, several at-risk groups are not eligible for Medicaid.

These include:

• adults over the age of 21 years who do not have children and are pregnant or have a disability
• working parents with incomes below 44 percent of the FPL
• legal immigrants during their first 5 years of living in the U.S.

Who pays for Medicaid?

Medicaid does not pay money to individuals but sends payments to healthcare providers instead.

States make these payments according to a fee-for-service agreement or through prepayment arrangements, such as health maintenance organizations (HMOs).

The federal government then reimburses each state for a percentage share of their Medicaid expenditures.

This Federal Medical Assistance Percentage (FMAP) changes each year, and it depends on the state’s average per capita income level.

The average reimbursement rate varies between 57 and 60 percent. Wealthier states receive a smaller share than poorer states, which can receive up to 73 percent of the money back from the federal government.

In the states that chose to expand their coverage once the Affordable Care Act became effective, more adults and families on low incomes became eligible because the new provision allowed enrolment at up to 138 percent of the FPL. In return, the federal government covers all of the expansion costs for the first 3 years and over 90 percent of the costs moving forward.

What is Medicare?

Medicare is a federal health insurance program that pays for hospital and medical care both for people in the U.S. who are older and for some people with disabilities.

The program consists of:

• two main parts for hospital and medical insurance (Part A and Part B)
• two additional parts that provide flexibility and prescription drugs (Part C and Part D)

Medicare Part A

Medicare Part A, or Hospital Insurance (HI), helps pay for hospital stays and other services.

In the hospital, this includes:

• meals
• supplies
• testing
• a semi-private room

It also pays for home healthcare, such as:

• physical therapy
• occupational therapy
• speech therapy

However, these therapies must be on a part-time basis, and a doctor must consider them medically necessary.

Part A also covers:

• care in a skilled nursing facility
• walkers, wheelchairs, and some other medical equipment for older people and those with disabilities

Payroll taxes cover the costs of Part A, so a person does not usually have to pay a monthly premium. However, anyone who has not paid Medicare taxes for at least 40 quarters will need to pay it.

Medicare Part B

Medicare Part B, or Supplementary Medical Insurance (SMI), helps pay for specific services.

These include:

• medically necessary physician visits
• outpatient hospital visits
• home healthcare costs
• other services for older people and those with a disability
• preventive care services

For example, Part B covers:

• durable medical equipment, such as canes, walkers, scooters, and wheelchairs
• physician and nursing services
• certain vaccinations
• blood transfusions
• some ambulance transportation
• immunosuppressive drugs after organ transplants
• chemotherapy
• certain hormonal treatments
• prosthetic devices
• eyeglasses

For Part B, people must:

• pay a monthly premium, which was $134 per month in 2018
• meet an annual deductible of $183 a year, before coverage begins

Premiums might be higher or lower depending on the person’s income and Social Security benefits.

Enrollment in Part B is voluntary.

Medicare Part C

Medicare Part C, also known as Medicare Advantage Plans or Medicare+ Choice, allows users to design a custom plan to suit their medical needs more closely.

Part C plans provide everything in Part A and Part B, but may also offer additional services, such as dental, vision, or hearing.

These plans enlist private insurance companies to provide some of the coverage. However, the details will depend on the program and the eligibility of the individual.

Some Advantage Plans team up with HMOs or preferred provider organizations (PPOs) to deliver preventive healthcare or specialist services. Others focus on people with specific needs, such as individuals living with diabetes.

Medicare Part D

This prescription drug plan was a later addition in 2006. Several private insurance companies administer Part D.

These companies offer plans that vary in cost and cover different lists of drugs.

To participate in Part D, a person must pay an additional fee called the Part D income-related monthly adjustment amount. The fee will depend on the person’s income.

In many cases, the amount will come out of the person’s Social Security check. However, others will get a bill from Medicare instead.

Services that Medicare does not provide

If Medicare does not cover a medical expense or service, Medigap plans can provide supplemental coverage for it.

Private companies also offer Medigap plans.

Depending on the individual plan, Medigap may cover:

• copayments
• coinsurances
• deductibles
• care outside of the country

If a person has a Medigap policy, Medicare will first pay the portion that it will cover, and then Medigap will pay the rest.

To have a Medigap policy, a person must have both Medicare Part A and Part B and pay a monthly premium.

Medigap policies do not cover prescription drugs. A person must have a Part D plan for that coverage.

Who is eligible for Medicare?

To be eligible for Medicare, an individual must meet one of the following requirements:

• being at least 65 years old
• being under 65 years old and living with a disability
• being any age with end-stage renal disease or permanent kidney failure that needs dialysis or a transplant

They must also be:

• a U.S. citizen or permanent legal resident for 5 continuous years
• eligible for Social Security benefits with at least 10 years of contributing payment into the system

Dual eligibility

Some people are eligible for both Medicaid and Medicare. Currently, 8.3 million people have both types of cover, including over 17 percent of Medicaid enrollees. Seniors with a low income and people with disabilities may be eligible for both.

Provisions vary depending on the U.S. state in which a person lives.

Who pays for Medicare?

Most of the funding for Medicare comes from:

• payroll taxes that the Federal Insurance Contributions Act (FICA) collects
• the Self-Employment Contributions Act (SECA)

Usually, the employee pays half of this tax, and the employer pays the other half.

This money goes into a trust fund, which the government uses to reimburse doctors, hospitals, and private insurance companies.

Additional funding for Medicare services comes from premiums, deductibles, coinsurance, and copays.

If health spending continues as it is, national health spending is likely to rise by 5.5 percent each year from 2017 to 2026. In 2016, government health spending represented 17.9 percent of Gross Domestic Product (GDP). In 2026, experts expect that it will account for 19.7 percent of GDP.

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