Understanding Medicare and Medicaid: A Guide for Retirees

Throughout your retirement planning journey, you’ve likely heard the terms “Medicare” and “Medicaid” tossed around. While they boast similar names and can be used to help cover medical costs in retirement, they’re two very different programs—with very different features, functions, and eligibility requirements. 

Let’s look at what Medicare and Medicaid are and the role they may play in addressing your healthcare costs and needs throughout retirement.

What Is Medicare?

Medicare is a federal health insurance program for those 65 and older. However, it can be used by individuals under 65 with specific qualifying disabilities or conditions (such as End-Stage Renal Disease).

Medicare is a federal program paid for partly by payroll taxes, though participants also typically pay premiums.

What Is the Enrollment Process?

You’ll be eligible for an “initial enrollment period,” which lasts seven months—the three months before your birthday and the three months after. Once you sign up, your coverage will begin the first month you enroll.

If you neglect to sign up for Medicare once you hit 65, you may be hit with a late enrollment penalty—unless you currently receive similar coverage, say from an employer’s plan. 

If you don’t have a reason not to sign up, you’ll have to pay more monthly premiums each year you wait to enroll. The longer you wait, the higher the late enrollment penalty goes. Generally, you’ll pay an extra 10% each year you could have signed up for Medicare Part A or B, but you didn’t. 

You can enroll in or change your Medicare coverage during the general enrollment period, which happens every year between January and March. Depending on your circumstances, you may qualify for a particular enrollment period, enabling you to obtain coverage during a different part of the year while avoiding late enrollment penalties. 

The ABCs of Medicare: What’s Covered?

Once you enroll in Medicare, you’ll have two options for obtaining coverage: Original Medicare (Parts A and B) or Medicare Advantage. Let’s look at the different parts of Medicare and how they coincide with your options.

Part A (Hospital Insurance): This includes hospital visits, care received in a skilled nursing facility, hospice, and some additional at-home health care. Most people do not have to pay a premium for Part A if they or their spouse paid into Medicare (via payroll taxes) while working.

Part B (Medical Insurance): This includes doctor visits, outpatient care, some medical supplies, preventative services and screenings, and other basics. When purchasing an Original Medicare plan, it typically includes Part A (which may be premium-free) and Part B.

Part D (Prescription Drug Coverage): Part D offers prescription drug coverage for Medicare participants.

Part C (Medicare Advantage): Medicare-approved private companies can offer bundled plans that incorporate Parts A, B, and D together. Some Medicare Advantage plans also provide additional services, such as dental or vision coverage. 

Medigap: If you opt into Original Medicare, you can purchase supplemental coverage through Medigap policies. These can help cover extra costs like deductibles or coinsurance.

What Is Medicaid?

According to Medicare.gov, Medicaid is a “joint federal and state program that helps cover medical costs for some people with limited income and resources.” A big differentiator for Medicaid is that it can provide nursing home care and other personal care services to retirees who have depleted their resources.

Medicaid eligibility will vary by state but generally depend on the individual’s income and assets or resources. You do not need to be 65 or over to qualify for Medicaid, as it’s available to people of any age who meet the criteria.

Because Medicaid is managed through the state, you must contact your state’s Medicaid Agency to learn more about qualifying and applying for the program.

What Does Medicaid Cover?

Medicaid can help retirees cover out-of-pocket healthcare-related costs not covered by Medicare or other insurance. These could include Part A or B premiums, hearing aids, long-term care, prescription drugs, and glasses. 

Medicare vs. Medicaid: What’s the Difference?

Like Medicare, Medicaid can help retirees cover medical costs in retirement. However, it’s important to note that Medicaid is an assistance program—not an insurance plan like Medicare. People on Medicaid don’t pay premiums and aren’t subject to enrollment periods. There are typically no (or very little) out-of-pocket costs for Medicaid participants, and it only covers costs that other insurance plans won’t pay.

It’s important to emphasize that Medicaid is the last entity to pay a medical bill. Your healthcare provider will first bill your insurer, like Medicare, and any supplemental policies you may have. After those plans have covered what they will, Medicaid pays the remaining amount.

Finding Providers May Be Challenging

One thing to note about Medicaid is that some doctors limit the number of new Medicaid patients they allow to their offices—and some outright refuse Medicaid participants altogether. This, of course, can make it challenging for low-income retirees to receive high-quality healthcare.

The good news is that Medicare plans are more widely accepted (just make sure you’re looking for providers in-network). 

Comparing Cost

As we mentioned, Medicaid is an assistance program that will typically cost the participant nothing. 

If you’re enrolled in Medicare, however, you must pay monthly premiums, just as you would for private health insurance. While the third-party providers determine Medicare Advantage plan premiums, here’s what Original Medicare participants can expect to pay in 2024 (keep in mind it changes each year):¹ 

Part A (hospital insurance):

• Premiums: Typically $0
• Deductible: $1,632 per benefit period

Part B (medical insurance):

• Premiums: Starting at $174.70
• Deductible: $240

Remember that your Part B premiums may be higher if you receive a late enrollment penalty. Part B premiums are also adjusted for income, which may be higher for high earners. 

Concerned About Healthcare Costs in Retirement?

Unfortunately, longer life expectancies come with an increased risk of health challenges—which can be costly to address and manage. Working with your team of trusted financial professionals is essential as you prepare for retirement.

Together, you can find opportunities to address your future healthcare costs without jeopardizing your financial security. A health savings account (HSA), for example, effectively covers medical expenses tax-efficiently.

Let’s Navigate Your Options Together

If you’d like to learn more about reviewing your options and developing a comprehensive retirement income strategy, reach out to our team today.

^Sources:

^{1What does Medicare cost?}