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Medicare vs. Medicaid

There are significant differences between the two programs.
Medicaid is a hybrid program that receives some of its funding from the federal government and some from each state. Since each state runs its own Medicaid program, every state’s variation of Medicaid is unique. It is important to understand the nuances of how Medicaid works in your own state. Medicare is a federal program and its benefits are fairly uniform across the country.

Source of Funding

States and the federal government pay for the Medicaid programs out of their annual budgets. Taxes and other sources of revenue provide the funds that the state and federal governments use to pay for Medicaid.

Medicare’s funding comes from withholding from your paychecks, while you are employed. That withheld money is deposited into a trust fund that provides insurance to help pay the medical bills of eligible individuals.

Type of Program

Medicaid is an assistance program that helps people with low income, regardless of age and whether you have paid into the system. Depending on your income, you might have to pay a small co-pay, but there are no monthly premiums.

Medicare is an insurance program, not an assistance program. You are only eligible for Medicare, if you paid enough money into the program from the withholdings your employer took out of your paychecks for Social Security and Medicare taxes. Think of Medicare as health insurance that you pay for throughout your entire working life, but you do not start to access the benefits until you are 65. However, even then you continue paying monthly premiums, co-pays and deductibles.


Medicaid covers the elderly, people with disabilities, pregnant women, families and children who meet the low-income guidelines. Eligibility differs from state to state, so you might qualify in one state but not another.

To be eligible for Medicare, you must be at least 65 years old, (unless you have a disability), or have End Stage Renal Disease. Either you or your spouse must have worked for at least 10 years at a job that paid Medicare taxes to get Part A (hospital coverage), without having to pay a monthly premium. If the time worked was fewer than 10 years, you will pay a monthly premium for inpatient coverage (Part A).

There are some ways around having to pay the monthly premium for Medicare Part A. People with certain disabilities are exempted. If you are receiving or are eligible for Social Security or Railroad retirement benefits, you can also receive Part A premium-free.

Medicare does not care how much money you make for purposes of eligibility. Having a high income can affect the premiums you pay for Part A or Part B (outpatient care), but there is no limit to the amount of income you can have and still be eligible for Medicare. After all, you earned the right to get Medicare by paying Medicare taxes out of your paychecks for all those years.

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