The world of finance and investments is notorious for its extensive use of jargon. With a goal to enhance financial literacy and make the world of money more transparent, we have our “monthly jargon” articles that focus on debunking financial terms that are often used sans explanation. This month, we’re focusing on two prominent healthcare terms that, although phonetically similar, are crucially different in terms of what each provides for Americans: Medicare and Medicaid.
Medicare vs. Medicaid
Both established in 1965, Medicare and Medicaid are healthcare programs sponsored by the U.S. government that are designed to cover healthcare costs for qualifying American citizens. These programs are funded by taxpayers and have specific requirements for qualification and eligibility. Medicare offers medical coverage for Americans age 65 and older and for those with a qualifying disability, while Medicaid provides coverage for people with limited income and without access to other healthcare resources. Therein lies the primary difference between the two programs: Medicare has nothing to do with someone’s income level, whereas Medicaid has everything to do with a person’s income. You must qualify for Medicaid based on your financial status, while all Americans are eligible for Medicare once they turn age 65 or if they have a disability that qualifies them for Medicare. Both of these programs are complex and multi-faceted. Let’s take a deep dive into each.
Medicare: The Four-Part Program
Medicare is the primary provider of medical coverage for American seniors and disabled individuals. The program’s mission is to help provide healthcare coverage to U.S. citizens who are age 65 and older and who have certain disabilities. Medicare is a four-part program that involves the following: Hospital Insurance, Medical Insurance, Prescription Drug Coverage, Medicare Advantage Plans.
It is important to note that if you are already claiming Social Security benefits, you will be automatically enrolled in Original Medicare, Medicare Part A and Medicare Part B, upon turning age 65. Otherwise, you can sign up during your Initial Enrollment Period, which is a seven-month period that starts three months before your 65th birthday, includes the month of your 65th birthday, and ends three months following your 65th birthday. If you miss your Initial Enrollment Period, you can register during the General Medicare Enrollment Period, which is January 1 to March 31 every year, and your coverage will start on July 1. You may also be eligible for a Special Enrollment Period if you have had a certain qualifying life event. If you miss these enrollment opportunities, you will most likely have to wait for the annual Medicare Open Enrollment Period in the fall. It is during this annual Medicare Open Enrollment Period that you can make Medicare coverage changes that involve switching and/or adding/dropping plans.
Medicare vs. Long-Term Care
Medicare does not cover long-term care – often called custodial care, meaning non-medical care that can be provided by non-licensed caregivers. Most nursing home care is custodial – in other words, non-medical – care, which is care that involves assistance with daily living activities like dressing, eating, using the bathroom, personal hygiene and bathing, and mobility. Most long-term care is not medical care; however, some long-term care is known as skilled care that can only be provided by or under the supervision of skilled or licensed medical professionals. Although Medicare does not cover long-term nursing care, Medicare does help pay for recovery in a skilled nursing care facility after a minimum of a three-day hospital stay. Medicare will cover the total cost of skilled nursing care for the first 20 days, after which you must pay a daily coinsurance, which typically involves Medicare paying 80% of the cost and you paying 20% of the cost for the next 80 days. Skilled nursing care beyond 100 days is not covered by Original Medicare.
What About Medigap?
Medicare Supplemental Insurance is known as Medigap. This is additional coverage you can purchase from a private insurance company that helps pay for your share of costs in Original Medicare (Medicare Part A and Part B). Overall, Medigap is designed to fill the coverage gaps of Original Medicare, and it helps cover coinsurance, deductibles, and copayments under Medicare Part A and Part B. There are 12 standardized Medigap Plans approved by the Federal Government: Plans A, B, C, D, F, F-High Deductible, G, G-High Deductible, K, L, M, and N. The benefits in each plan type are the same. For example, Plan F coverage is standardized across the board regardless of which private insurance company you buy the coverage from.
Medicaid is a joint federal and state program designed to help low-income Americans of all ages pay for medical and long-term custodial care. Medicaid provides health coverage for people with limited income and resources, and through the 2010 Affordable Care Act (ACA), nearly all legal U.S. residents and citizens with incomes 138% below the Federal Poverty Line qualify for Medicaid coverage.
Medicaid benefits vary by state; however, the Federal Government mandates coverage for a range of services, including: doctor services, pediatric services, family planning, nursing facility services, hospitalization, family nurse practitioner services, laboratory services, x-rays, home healthcare for people eligible for nursing facility services, midwife services, and clinic treatment. States also have the option to include additional benefits, and some states do offer prescription drug coverage, optometry services, dental services, medical transportation, and physical therapy.
Overall, Medicare pays first, and Medicaid pays second. In other words, Medicaid covers costs after Medicare, employer group health insurance plans, and/or Medigap have paid. If you have Medicare and full Medicaid coverage, a majority of your healthcare costs are likely covered.
Healthcare coverage is a complex topic, and it is essential to consult a financial advisor to thoroughly evaluate your financial life to determine what coverage options are optimal for you. Understanding the benefits through these plans and leveraging the proper coverage when the time comes can vastly impact your financial plan.