Medicare and Medicaid: Understanding the Differences

Margaret A. Fitzgerald, DNP, FNP-BC, NP-C, FAANP, CSP, FAAN, DCC, FNAP

I am a NP who has recently graduated and am uncertain about the differences between Medicare and Medicaid. Can you provide some background on these programs?

Medicare and Medicaid are two separate government insurance programs that provide health coverage for individuals who meet the program’s eligibility requirements. The programs were established in 1965 during the Johnson Administration by passage of amendments to the Social Security Act, which was enacted in 1935. Medicare was originally established to provide health insurance for individuals over the age of 65 years, regardless of income or medical history. Over time the program has been expanded to include individuals younger than 65 years with certain medical conditions and disabilities. Medicaid was initially established to provide medical assistance to individuals and families with limited income, and it too has been expanded to reach more uninsured Americans living below or near the poverty line. In 2018 Medicare provided health insurance coverage to nearly 44 million people, while in 2018 Medicaid provided coverage for 97 million low-income people over the course of the year.^1,2

What services do the programs cover?

Medicare
Medicare is a federally administered program comprised of four different parts that cover different services without regard to an individual’s income or assets.

Part A (hospital insurance) helps cover:

• Inpatient hospital stays
• Skilled nursing facility care
• Hospice care
• Some home health care

Part B (medical insurance) helps cover:

• Services from healthcare providers
• Outpatient care
• Home health care
• Durable medical equipment
• Some preventive services

If an individual or an individual’s spouse paid Medicare taxes for a certain amount of time while working, they don’t have to pay a monthly premium for Part A. Everyone pays a monthly premium for Part B— most beneficiaries pay the standard premium amount, which in 2020 was $144.60.

Part C (Medicare Advantage) allows private Medicare-approved health insurance companies to provide Medicare benefits, giving beneficiaries an alternative to the traditional fee-for-service plan. Medicare Advantage plans include all the benefits and services covered under Parts A and B and usually include Medicare prescription drug coverage (Part D). Medicare Advantage Plans may offer other coverage, such as vision, hearing, dental, and/or health and wellness programs, for an extra cost. The companies that administer these plans receive payments from Medicare to provide Medicare-covered benefits, such as hospital and physician services. Beneficiaries pay a monthly premium to enroll in Medicare Advantage plans. Each plan can charge different out-of-pocket costs and have different rules for how beneficiaries access services.

Part D (prescription drug coverage) helps cover the cost of prescription drugs (both brand-name and generic). This benefit is delivered through private insurance plans from companies that contract with Medicare. Beneficiaries who enroll in these plans typically pay a monthly premium as well as copayments. Coverage and cost-sharing combinations, prescription drugs covered, and which pharmacies beneficiaries can use differ from plan to plan.

Medicaid
Medicaid is a state and federal program that provides health coverage to low-income families and individuals. Each state administers its own Medicaid program within broad federal guidelines and, as a result, benefits and eligibility vary significantly from state to state. Federal guidelines require state Medicaid programs to cover specific mandatory services, including:

• Nurse practitioner, nurse midwife, and physician services
• Inpatient and outpatient hospital services
• Early and periodic screening, diagnostic, and treatment (EPSDT) services for persons under 21
• Laboratory and x-ray services
• Family planning services and supplies
• Rural health clinic/federally qualified health center services
• Nursing facility and home health care for adults over 21
• Nonemergency medical transportation for medically necessary services
• Freestanding Birth Center services (when licensed or otherwise recognized by the state)
• Tobacco cessation counseling for pregnant women

In addition to federally mandated services, states cover a range of services that federal law considers “optional.” These include:

• Prescription drugs
• Physical and occupational therapy
• Dental services and dentures
• Vision services
• Prosthetic devices
• Durable medical equipment
• Hearing aids and eyeglasses
• Nursing facility and inpatient psychiatric services for individuals under 21

What is Medigap insurance?

Medigap insurance, or Medicare Supplement Insurance, is a separate policy that beneficiaries can buy from private health insurance companies to help cover some of the “gaps” in Medicare coverage. Such gaps include copayments, coinsurance, and deductibles. More details about Medigap insurance can be found in the Center for Medicare & Medicaid Services’ document Choosing a Medigap Policy.

Who is eligible for Medicare and Medicaid?

Medicare
Individuals aged 65 and older qualify for Medicare if they are a US citizen or a permanent legal resident (at least 5 years of continuous residence) and they or their spouse have worked at a job where they paid Medicare taxes for 10 years. People who are otherwise qualified for Medicare but do not have the required work history can still get Medicare benefits but must pay a premium for Part A (hospital insurance).

Individuals under age 65 qualify for Medicare if they have a permanent disability and have received Social Security Disability Income (SSDI) payments for 24 months (nonconsecutive). Individuals over age 18 with end-stage renal disease who have been on dialysis for three months or have had a kidney transplant and people with Lou Gehrig’s disease (amyotrophic lateral sclerosis) are immediately eligible for Medicare and do not have to meet the 24-month SSDI payment requirement.

Medicaid
Medicaid eligibility is limited to US citizens and to lawfully present immigrants who have lived in the United States for at least 5 years. States have the option of eliminating the waiting period for lawfully present pregnant women and children.² States receive federal funding that covers part of the cost of running Medicaid programs. To receive this funding, states must cover certain core groups of low-income individuals. These include:

• Children through age 18 in families with income below 138% of the federal poverty level (FPL; eg, children in a family of three with income below $29,974 would qualify);
• Pregnant women with income below 138% of the FPL;
• Certain parents or caretakers with very low income;
• Most seniors and persons with disabilities who receive cash assistance through the Supplemental Security Income (SSI) program.²

States have the option of covering populations beyond these minimum guidelines and receive federal funds for doing so. Such populations include pregnant women, children, and parents with income that exceeds the federal specified minimum thresholds, as well as seniors and people with disabilities not receiving SSI and with income below the FPL and persons whose income exceeds the state’s regular Medicaid eligibility limit but who have high medical expenses that reduce their disposable income below the eligibility limit. Along with the Children’s Health Insurance Program (CHIP), Medicaid covers more than a third of all children and more than 50% of all low-income children.

Signed into law in 2010, the Affordable Care Act (ACA) makes Medicaid available to a greater number of uninsured adults by creating a new eligibility group of nondisabled adults younger than 65 with income below 138% of the FPL. Under the ACA, states receive additional federal funds for implementing this expansion; so far 39 states and the District of Columbia have expanded Medicaid.³ Under the ACA, expanding Medicaid and setting up state exchanges or partnerships that enable people to select and purchase their own plan directly from insurers reduced the number of uninsured persons in the United States. The number of nonelderly adults without health insurance declined from 46.5 million in 2010 to less than 27 million in 2016, but the number of uninsured has increased each year since then, with 27.9 million lacking health insurance coverage in 2018.⁴ Being uninsured makes it less likely that a person will receive care and more likely that he or she will have poor health status.⁵

Dual Eligibility
More than 9 million low-income seniors and people with disabilities are enrolled in both Medicare and Medicaid, and are said to be “dual eligible.” Persons who qualify and enroll in both programs can receive full Medicaid benefits or receive assistance with Medicare premiums or cost sharing. “Dual eligibles” must meet certain income and resource requirements and be entitled to Medicare Part A and/or Part B and either full Medicaid or one of the Medicare Savings Programs: Qualified Medicare Beneficiary (QMB) program, Specified Low-Income Medicare Beneficiary (SLMB) program, Qualifying Individual (QI) program, and Qualified Disabled Working Individual (QDWI) program. For dual-eligible beneficiaries, Medicare functions as Medigap insurance, filling in gaps in the Original Medicare coverage (Part A and Part B). For example, a person with an individual monthly income of $1,804 or less and countable resources less than $7,860 would fulfill the income and resource criteria for the QMB program. In this program, Medicaid pays for Part A (if any) and Part B premiums, deductibles, coinsurance, and copayments for Medicare services furnished by Medicare providers to the extent consistent with the state’s Medicaid plan.⁶

How are the programs funded?

Medicare
Part A is financed primarily through a payroll tax of 2.9% of earnings paid by employers and workers. Part B is funded through general revenues, premiums paid by beneficiaries, and interest, with premiums automatically set to cover 25% of spending. Part C is not separately financed. Part D is financed through general revenues, beneficiary premiums, and state payments for dual-eligible beneficiaries.

Medicaid
Medicaid is paid for through a partnership between the federal government and the states, with the federal government providing matching funds to states for the costs of covered services furnished to eligible individuals. The federal match rate is based on a state’s per capita income, so that poorer states receive larger amounts.

Conclusion

NPs care for Medicaid and Medicare beneficiaries on a daily basis, and understanding these programs is essential for success on the certification exam and in practice. More important information on professional issues is covered in the Fitzgerald Nurse Practitioner Certification Exam Review & Advanced Practice Update course and in my book Nurse Practitioner Certification Exam Prep, 6th Edition.

Quiz correct answers: 1. B; 2. D.

References