The Differences Between Medicare and Medicaid: What Seniors Should Know

When it comes to healthcare in retirement, two programs—Medicare and Medicaid—often cause the most confusion in differentiating or choosing between them. 

Here’s the simple truth: Medicare is federal health insurance for people 65 and older (or younger with certain disabilities), while Medicaid is state-managed assistance for people with limited income and resources.

There! Easy as that. Medicare is based on age and work history. Medicaid is based on financial need. Some people do qualify for both, but most rely mainly on one or the other. Understanding how they differ—and where they overlap—can make a world of difference in planning for your health and your finances as you age.

Medicare: National Health Insurance for Seniors

Medicare is a federal program available nationwide, offering coverage to nearly every American over 65. If you worked and paid Medicare taxes during your career, you likely qualify automatically.

Medicare is divided into parts, each covering specific healthcare needs:

• Part A (Hospital Insurance): Covers hospital stays, skilled nursing facilities, hospice, and some home health services.

• Part B (Medical Insurance): Covers doctor visits, outpatient care, preventive services, and durable medical equipment.

• Part C (Medicare Advantage): Private insurance alternatives that bundle Part A and B, often with prescription and extra benefits.

• Part D (Prescription Drug Coverage): Helps pay for prescription medications.

  
  

Medicare offers great benefits, but it doesn’t cover everything. It won’t pay for long-term custodial care, most dental and vision services, or assisted living. That’s where Medicaid can play a major role, especially for seniors with increasing healthcare costs or those entering nursing homes.

Medicaid: State-Managed Support for Limited-Income Individuals

While Medicare is federal and uniform across the country, Medicaid is run by individual states. It’s a needs-based program designed to help people with limited income and resources afford medical care. For seniors, Medicaid can become especially important when long-term care enters the picture.

In most states, Medicaid helps cover:

• Nursing home care and personal assistance

• Home and community-based long-term care services

• Doctor visits, hospital care, and prescription drugs (for those who qualify)

  
  

In Illinois, seniors who need Medicaid—especially for long-term care like nursing homes or in-home assistance—generally qualify if their monthly income is around $1,300 for a single person or $1,760 for a married couple, with assets below about $17,500. 

Some things don’t count toward that limit, like your primary home (up to a certain value), a car, personal belongings, and small burial funds. 

If one spouse is applying and the other isn’t, the non-applicant spouse can keep a portion of income and assets to maintain their own financial security. Even if your income is above the limit, there are ways—like a Miller Trust or spend-down strategies—to help you qualify while protecting what you’ve worked for. 

Because the rules can be tricky, speaking with an elder law attorney or Medicaid planning professional can make the process a lot smoother.

Key Differences at a Glance

To put it simply:

• Medicare is for seniors and certain disabled individuals, no matter their income.

• Medicaid is for people of any age who meet specific income and asset limits.

• Medicare is federal; Medicaid is state-administered.

• Medicare covers medical care; Medicaid covers medical and long-term care.

  
  

Medicare keeps you healthy. Medicaid helps when you need extended care.

How the Two Work Together

Some individuals qualify for both Medicare and Medicaid, known as being “dual eligible.” In this case, Medicare pays first for covered services, and Medicaid fills the gaps.

For example:

If you have both, Medicare might cover your hospital stay and doctor visits, while Medicaid pays your remaining copayments or deductibles. Medicaid can also provide services that Medicare doesn’t, such as long-term nursing home care or personal assistance at home.

This overlap is especially important for seniors who live on fixed incomes and need comprehensive coverage. Dual eligibility can lower out-of-pocket costs significantly and ensure continuity of care across different settings.

How This Goes Beyond Legalities

The line between Medicare and Medicaid isn’t just governmental—it affects real-life decisions about care, finances, and family stability.

Many people assume that Medicare will cover all health-related expenses after 65, but this is a common misconception. Medicare provides essential coverage for hospital and medical care, but not for ongoing everyday activities (bathing, dressing, eating, using the bathroom, moving around, or taking medications), which is often the biggest cost in later life.

For instance, if someone develops dementia and needs daily supervision, Medicare would not cover that care. Medicaid, however, may (if the person qualifies financially). Without early planning, seniors might have to spend down their savings or sell assets to qualify.

That’s why Medicaid planning is a key part of elder law. By preparing in advance, families can structure finances in ways that protect assets while ensuring access to care when it’s needed.

Clearing Up Common Misunderstandings

Even though Medicare and Medicaid have existed for decades, false information persists. Here are a few that often trip people up:

• “Medicare covers long-term nursing home stays.”It does not. Medicare covers short-term rehabilitation after hospitalization, but ongoing custodial care must be paid out-of-pocket or through Medicaid.

• “You can’t have both Medicare and Medicaid.”You can—if you meet financial requirements. Many seniors rely on both programs for complete coverage.

• “Once I’m on Medicare, I don’t need to worry about Medicaid.”Not necessarily. Medicare doesn’t protect your assets if you ever need long-term care. Planning for potential Medicaid eligibility can save you and your family from financial hardship later.

Let’s Go Through An Example

Imagine Jane, a 72-year-old retiree. She’s on Medicare, which handles her routine doctor visits and prescriptions. Then Jane experiences a fall and requires months of rehabilitation followed by assisted living care.

Her Medicare covers the hospital stay and short-term rehab—but when she transitions to assisted living, those costs are out of pocket. As her savings start to wither away, Jane consults an elder law attorney who helps her apply for Medicaid. After qualifying, Medicaid steps in to cover much of her ongoing care costs, preserving what remains of her savings.

This kind of situation is common, and it shows why understanding these programs early makes a real difference.

Plan Before You Need It

Protect your health, your home, and your financial future.

At The Stewart Law Practice, we help seniors and their families sort out their futures and assets using these programs. Whether you’re preparing for retirement, exploring long-term care options, or helping a loved one apply for Medicaid, we’ll walk with you every step of the way, building a plan that fits your life perfectly.

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