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A Quick Overview of Medicare and Medicaid

The Basics of the Two Plans


Medicare and Medicaid are complex programs signed into effect in 1965. Here's an overview of Medicare and Medicaid.

Medicare is a complex social insurance program, signed into effect in 1965 by President Johnson.

Medicare is run by CMS (the Centers for Medicare and Medicaid Services) but the Social Security Administration determines a person’s eligibility. This latter also processes payments.

Who’s Eligible?

- Anyone over age 65 who has been a legal U.S. resident for five years or more.

- People with disabilities aged less than 65 may be eligible if they receive Social Security Disability Insurance (SSDI) benefits.

What benefits does Medicare offer?

There are four parts to Medicare insurance:

A: Hospital

This covers some hospital stays, tests and doctor’s fees. It may also cover convalescence stays in skilled facilities, hospice and home health care. There is no premium for this part.

B: Medical insurance

This coverage pays for some medically necessary services and products not covered by Part A, generally on an outpatient basis, such as physician visits. It begins once deductibles have been met and from there, typically covers 80% of approved services. Part B also covers some preventative services and it requires a monthly premium.

C: Medicare Advantage plans

Part C provides Part A, B and usually Part D coverage. It’s an alternative way for people to be insured.

Medicare Part C may provide consumers with care in their particular need area or their geographic area, with a better option in terms of the kind of care they’re going to get, explains Steven J.J. Weisman Esq., professor at Bentley University, Waltham Mass. and an elder care lawyer.

With Part C, he explains, patients give up some control over their insurance plan, and generally, in return they get a lower cost—in both payments and premiums.

Part D: Prescription drugs

The newest part to Medicare, Part D, came into effect in January 2006, and brought with it much confusion.

This part of Medicare is insurance run by an outside insurance company or other private company approved by Medicare. Patients can opt for one of two plans: Medicare Prescription Drug Plans (PDPs) or Medicare Advantage Plans. Under Part D, there are a number of different drug plans that the consumer selects from.

What’s important is checking that a plan covers the specific medications (or classes of medications) they require and one that has pharmacies nearby. Patients also need to consider the deductible in the plan they select.

There’s also infamous donut hole, or coverage gap, in which once a consumer’s payments have surpassed a certain amount, but not reached another amount, they are responsible for 50% of any costs.

Patients can switch plans annually.

What are the problems with Medicare?

The aging population: As the Baby Boomers come of (old) age, there are fewer workers paying into the Medicare program. These Baby Boomers are, of course, requiring more healthcare services, simply because of the volume of people. There’s particular strain on the parts of Medicare that pay for nursing homes.

Fraud: Medicare is vulnerable to fraud because only 5% of its claims are audited, according to The Government Accountability Office.


Medicaid is for eligible individuals and families with low incomes and resources such as low-income adults and their children, and people with certain disabilities. However, a low income does not automatically mean a person is eligible for Medicaid.

The fastest growing aspect of Medicaid is nursing homes, due to the aging of war veterans.

Medicaid was created in the same year as Medicare, 1965. The programs are run on a state-by-state basis, and indeed, some even have their own names for Medicaid. The Centers for Medicare and Medicaid Services (CMS) runs the state run programs.

Differences between Medicare and Medicaid


• About half of the funding is federal; the remainder comes from the individual states.

• It’s run on a needs basis and a person’s eligibility largely depends on their household income and assets.

• Covers more diverse services than Medicare. Covers pediatric care.

• Pays for long-term care in a nursing home indefinitely.


• This is a social insurance program that’s federally funded.

• Eligible people are 65 or older or under age 65 with certain disabilities.

• Pays for the first 100 days of long-term care in a nursing home and only fully for the first 20.

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