Medicare vs. Medicaid: The Essentials to Know in 2025

Medicare and Medicaid are the two cornerstones of public health insurance in the U.S., serving over 68 million and 71 million, respectively. But let’s face it – these programs can be as confusing as trying to read a doctor’s handwriting! That’s why I’m here to break it all down for you in a way that’s both clear and comprehensive.

In this article, we’ll explore the ins and outs of both Medicare and Medicaid. We’ll look at who qualifies for each program, what they cover, how they’re funded, and the overall differences between the two. Let’s dive in! 🙂

Medicare: A Closer Look

Medicare is a federal health insurance program primarily designed for individuals aged 65 and older, as well as younger people with certain disabilities or end-stage renal disease (ESRD). It consists of four main parts, each covering different aspects of healthcare:

• Part A (Hospital Insurance): This covers inpatient hospital stays, skilled nursing facilities, hospice care, and some home health services. Most people don’t pay a premium for Part A if they or their spouse paid Medicare taxes for a sufficient time while working.
• Part B (Medical Insurance): This includes outpatient care, physician services, preventive services, and durable medical equipment. Part B typically requires a monthly premium.
• Part C (Medicare Advantage): These are private insurance plans that bundle Parts A, B, and often D, offering additional benefits like vision or dental coverage. Medicare Advantage plans may have different costs and rules than Original Medicare.
• Part D (Prescription Drug Coverage): This covers outpatient prescription drugs through private insurers. It’s an optional benefit for everyone with Medicare, but if you don’t sign up when you’re first eligible, you may have to pay a late enrollment penalty.

Not sure what some of these terms mean? No problem! Just check out “The 5 Most Common Health Insurance Terms: Everything to Know“ for the full breakdown.

Who Qualifies for Medicare?

Medicare eligibility is primarily based on age and specific health conditions:

• Individuals aged 65 or older
• People under 65 with certain disabilities who have received Social Security Disability Insurance (SSDI) for 24 months
• Individuals of any age with end-stage renal disease (ESRD) or amyotrophic lateral sclerosis (ALS)

It’s important to note that while most people become eligible for Medicare at 65, you may need to actively enroll, unless you’re already receiving Social Security benefits.

Additional information: There’s no family plan in Medicare. Unlike private insurance, Medicare is entirely individual-based. Married couples must each enroll separately and pay their own premiums.

Medicare Coverage & Costs

The cost of each part of Medicare depends on a number of factors, including the individual’s income and the type of coverage they choose. For example:

• Part A, which covers hospitalization, is premium-free for most people who have worked and paid Medicare taxes for at least 10 years. For those who do not qualify for premium-free Part A, the cost is currently $471 per month.
• Part B, which covers medical services and supplies, has a standard monthly premium of $148.50 (although the actual amount that an individual pays may be higher or lower depending on their income) and an annual deductible.
• Part C (Medicare Advantage), an alternative to traditional Medicare, has varying premiums depending on the specific plan.
• Part D, which covers prescription drugs, has a monthly premium that also varies depending on the specific plan chosen.

Additional information: Starting in 2025, Medicare will implement a significant change: annual out-of-pocket drug costs will be capped at $2,000 for beneficiaries with Part D coverage. This change aims to reduce the financial burden on Medicare recipients, especially those with high prescription drug costs.

How Is Medicare Funded?

Medicare is funded through a combination of premiums, deductibles, and copayments paid by beneficiaries, as well as taxes paid by employers and employees.

How Do I Enroll in Medicare?

To sign up for Medicare, individuals can visit the Medicare website or contact the Social Security Administration. In general, people who are eligible for Medicare can sign up during their Initial Enrollment Period (IEP), which begins three months before their 65th birthday and ends three months after their 65th birthday. During this time, individuals can enroll in Medicare Part A and Part B. If they do not enroll during their IEP, then they may have to pay a penalty if they enroll at a later date.

Individuals who are already receiving Social Security benefits or Railroad Retirement benefits will be automatically enrolled in Medicare Part A and Part B at age 65. However, they will still need to actively enroll in Medicare Part D if they want coverage for prescription drugs.

It’s important to note that Medicare is not a “one size fits all” program, and individuals have the option to choose different coverage options depending on their needs and preferences. As a result, it’s a good idea for people to carefully research their options and consult with a Medicare representative or a licensed insurance agent before making a decision about their Medicare coverage.

Why Might Someone Not Enroll in Medicare?

1. They are not eligible for the program. For example, people who are younger than 65 years of age or who do not have a qualifying disability or end-stage renal disease may not be eligible for Medicare.
2. They are covered by another health insurance plan, such as a plan through their employer or a family member’s employer. In this case, they may choose to keep their existing health insurance coverage instead of switching to Medicare.
3. They don’t want to pay the premiums. Some individuals may feel that the cost is too high, especially if they are on a fixed income or believe they won’t use many healthcare services. In these cases, they may opt to delay enrollment or decline coverage altogether, even if it means facing late enrollment penalties later on.
4. They are not aware of the program or they do not understand how it works. In these cases, it may be helpful for them to learn more about Medicare and its benefits, as well as their eligibility for the program, in order to make an informed decision about their health insurance coverage.

5 Fun Facts About Medicare

1. Medicare is older than the internet. Medicare was signed into law in 1965 as part of President Lyndon B. Johnson’s Great Society program.
2. The name “Medicare” was chosen by President Johnson’s wife, Lady Bird Johnson.
3. The first Medicare card was given to Harry Truman. President Harry S. Truman and his wife Bess were the very first Medicare recipients, honored for Truman’s early efforts to create a national health insurance program.
4. Medicare originally covered only people who were 65 years of age or older, but it has been expanded over the years to include younger people with disabilities and end-stage renal disease.
5. The original Medicare program only had two parts: Part A, which covered hospitalization, and Part B, which covered medical services and supplies. Part D, which covers prescription drugs, was added in 2006.

Medicaid: A Lifeline for Low-Income Individuals

Medicaid is a joint federal and state program that provides health coverage to millions of Americans, including eligible low-income adults, children, pregnant women, elderly adults, and people with disabilities. Unlike Medicare, Medicaid is administered by states, following federal requirements, and funded jointly by states and the federal government.

Eligibility for Medicaid: State-Specific Guidelines

Medicaid eligibility varies significantly from state to state. While federal law requires states to cover certain groups of individuals, states have considerable flexibility in determining eligibility criteria. Generally, Medicaid serves:

• Low-income families
• Qualified pregnant women and children
• Individuals receiving Supplemental Security Income (SSI)

Additional information: The Affordable Care Act of 2010 allowed states to expand Medicaid coverage to nearly all low-income Americans under age 65. Eligibility for children is generally higher than for adults, with most states covering children up to at least 200% of the Federal Poverty Level (FPL).

Medicaid Benefits & Costs

Medicaid offers a wide range of health coverage services, often more comprehensive than Medicare. These typically include:

• Doctor visits and hospital stays
• Preventive care and screenings
• Prescription drugs
• Mental health services
• Dental and vision care (for children)
• Long-term care services and support

Notably, Medicaid is the largest payer for mental health services in the United States and primary payer for long-term care services like nursing home care and home and community-based services (HCBS), which are not typically covered by Medicare. In many cases, people use Medicaid to supplement Medicare, as individuals can be eligible for both programs simultaneously.

As far as cost goes, because Medicaid is administered by individual states, the specific benefits, eligibility requirements, and any associated costs can vary depending on where you live.

How Is Medicaid Funded?

As I mentioned earlier, Medicaid is funded jointly by states and the federal government. The federal government pays states for a specified percentage of program expenditures, called the Federal Medical Assistance Percentage (FMAP). FMAPs vary by state, with a statutory minimum of 50% and a maximum of 83%.

While states administer their Medicaid programs, they must meet federal requirements to receive federal funds. This structure allows for significant variation in Medicaid programs across the country, as states can tailor their programs to best serve their populations within federal guidelines.

How Do I Enroll in Medicaid?

To enroll in Medicaid, you must apply through your state’s Medicaid program, since eligibility and enrollment processes can vary by state. You can apply online through your state’s Medicaid website, by phone, in person at a local Medicaid office, or by mail.

Many states also allow you to apply through the Health Insurance Marketplace at HealthCare.gov, which will determine whether you qualify for Medicaid or another type of coverage based on your income and household size. Be prepared to provide personal and financial information, such as your Social Security number (SSN), proof of income, and details about your household. If you’re approved, your coverage may start immediately or be retroactive to cover recent medical expenses.

Final Thoughts

Whether you’re a patient trying to navigate your healthcare options or a provider working to support those in your care, understanding the fundamentals of Medicare and Medicaid is essential. These programs differ in who they cover, what services they provide, and how they are funded—details that can significantly impact access, affordability, and care decisions.

For patients, this knowledge can help avoid gaps in coverage or unexpected costs. For providers, it’s key to coordinating benefits, ensuring compliance, and advocating effectively within the system. In either case, a clear grasp of these programs helps support better health outcomes and more informed choices.

Conclusion

Great job on making it to the end of this article! I know learning about different insurances can be a headache, but this is super important information to know. Hopefully, this gave you a clearer picture of how these programs work and how they may be beneficial for you.

For more help with insurance, head on over to my “The Ultimate Guide to Choosing the Right Health Insurance Plan” article. In it, I talk about how deductibles, premiums, copays, and coinsurance work, plus how to choose between HMO, PPO, EPO, and other types of insurance plans. As always, stay healthy and keep learning! 😀