Difference between Medicare and Medicaid

Nearly 40% of Americans¹ have medical coverage through Medicare or Medicaid. Both are government-sponsored health insurance programs, but they serve different purposes and populations. Because their names are similar, individuals often mistake them for one another, especially among employees navigating employer-sponsored health benefits like health reimbursement arrangements (HRAs).

In this article, we'll cover the differences between Medicare and Medicaid. We'll also explain how each impacts HRA eligibility.

In this blog post, you'll learn:

• Who Medicare and Medicaid serve.
• The difference between Medicare Part A, Part B, Part C (Medicare Advantage), and Part D.
• How Medicare affects eligibility for the individual coverage HRA (ICHRA) and qualified small employer HRA (QSEHRA).

What is Medicare?

Medicare is a federal health insurance program primarily for people age 65 and older and individuals with certain disabilities.

This includes individuals under 65 with qualifying disabilities, and people of any age with end-stage renal disease (ESRD) or amyotrophic lateral sclerosis (ALS), also known as Lou Gehrig's disease.

Eligibility is based on age or medical status, not income. Most people become eligible at age 65 if they’ve paid Medicare taxes long enough through employment.

Medicare has four parts²:

• Part A: Medicare Part A is hospital insurance. It covers inpatient care, skilled nursing facility care, hospice care, and limited home healthcare. Most Medicare enrollees don’t pay any premiums for Part A coverage.
• Part B: Medicare Part B is medical insurance. It includes routine doctor visits, outpatient care, preventive services, and medical equipment. Enrollees do pay for Part B premiums. However, the government will often deduct this from Social Security or retirement checks.
• Part C: Medicare Part C, also known as Medicare Advantage, is an alternative to Original Medicare (Parts A and B). It combines hospital and medical coverage into one plan. Medicare-approved private insurance companies offer Medicare Advantage plans. Like traditional health insurance, enrollees pay their premiums to the carrier, and the amount can change year to year.
• Part D: Medicare Part D is prescription drug coverage.

Original Medicare doesn’t pay for everything. Many enrollees sign up for supplemental coverage, such as Medigap or Medicare Advantage plans, to manage out-of-pocket medical costs.

What is Medicaid?

Medicaid is a joint federal and state program that provides health coverage to individuals and families with limited incomes. While federal guidelines exist, each state sets its own eligibility rules and benefit structure.

Depending on your location, you can apply for Medicaid through your state or visit the Health Insurance Marketplace at HealthCare.gov.

Medicaid can cover:

• Low-income adults
• Children
• Pregnant women
• People with disabilities
• Seniors with certain incomes

Eligibility is primarily based on income and household size, and coverage details vary by state.

Medicaid typically covers³:

• Doctor visits and hospital stays
• Preventive and wellness services
• Maternity and newborn care
• Mental health and substance use treatment
• Long-term services, such as nursing home care

Because Medicaid is needs-based, beneficiaries usually pay little or nothing in premiums and have minimal out-of-pocket costs.

How Medicare affects HRA eligibility

Employers offer HRAs to help employees with their healthcare costs. With an HRA, an employer can reimburse an employee for individual health insurance premiums and more than 200 other eligible expenses.

Employees enrolled in Medicare can still benefit from certain HRAs, depending on the arrangement and their coverage.

Medicare and ICHRAs

Employers of any size can offer individual coverage HRAs (ICHRAs). As the name suggests, employees need individual health insurance to participate in an ICHRA.

To qualify for an ICHRA as someone eligible for Medicare, you need to have coverage through both Part A and Part B, or choose Part C. Relying solely on Medicare Part B doesn't meet the requirements for minimum essential coverage (MEC). Once you enroll in the benefit with qualifying coverage, your employer can reimburse premiums for all parts of Medicare, as well as Medigap. They can also reimburse you for other eligible medical expenses.

Medicare and QSEHRAs

Qualified small employer HRAs (QSEHRAs) are only for small employers. More employees can usually participate in QSEHRAs since they only require MEC, not individual health insurance coverage.

Employees enrolled in Medicare can also participate in a qualified small employer HRA (QSEHRA). Medicare generally qualifies as MEC when an individual has Parts A and B, allowing tax-free reimbursements. Your employer can reimburse your Medicare premiums and other eligible medical expenses.

How Medicaid affects HRA eligibility

Medicaid interacts with HRAs differently from Medicare, and eligibility can be more limited.

Medicaid and ICHRAs

While Medicaid provides MEC, it isn’t considered individual health insurance for ICHRA. That means employees enrolled only in Medicaid generally aren’t eligible to participate in an ICHRA. However, you can use your ICHRA allowance to buy a qualified individual health plan. Because enrolling in individual coverage may affect Medicaid eligibility, employees should consult their state Medicaid agency before participating in an ICHRA.

Medicaid and QSEHRAs

Since Medicaid meets MEC requirements, employees with this type of coverage can participate in a QSEHRA. Since Medicaid rules vary by state, employees should verify how QSEHRA participation could affect their benefits.

Medicare vs. Medicaid

Although both programs provide health coverage, they differ in important ways.

Conclusion

Medicare and Medicaid may sound similar, but they serve different populations and follow different rules. Knowing how these health insurance programs work with an ICHRA and a QSEHRA can help you make informed decisions and get the most value from your healthcare coverage.

References

1. CMS.gov: Medicare and Medicaid by the Numbers
2. Department of Health and Human Services: Who’s eligible for Medicare?
3. Medicaid.gov: Benefits