Medicare vs Medicaid: Cost Basics

CareCostIndex

Medicare and Medicaid sound similar but are two very different programs run by different agencies under different rules. Confusing them — and assuming one will behave like the other — is a common source of painful billing surprises.

The one-paragraph summary

Medicare is a federal health insurance program for people 65 or older, certain younger people with disabilities, and people with end-stage renal disease. Eligibility is based on age and work history, not income. Most enrollees pay premiums, deductibles, and coinsurance — Medicare is insurance, not free healthcare.

Medicaid is a joint federal–state program that provides health coverage to people with low income and limited resources. Eligibility is primarily income-based, varies by state, and the benefit package is usually more comprehensive (with lower or no cost-sharing) than Medicare.

Medicare: the four parts

Part A — Hospital insurance. Covers inpatient hospital stays, skilled nursing facility care (limited), hospice, and some home health. Free for most enrollees with a qualifying work history (they or their spouse paid Medicare payroll taxes for 40 quarters = 10 years). 2026 inpatient deductible: $1,676 per benefit period.
Part B — Medical insurance. Covers physician visits, outpatient care, preventive services, durable medical equipment, and some home health. 2026 standard premium: $185/month (higher for high-income enrollees via IRMAA). Annual deductible around $257, then 20% coinsurance on most services with no out-of-pocket cap.
Part C — Medicare Advantage. Private plans that bundle Parts A and B (and usually Part D) with additional benefits, often in exchange for network restrictions and prior-authorization requirements. About half of Medicare enrollees are now in Advantage plans.
Part D — Prescription drug coverage. Private plans. 2026 out-of-pocket drug spending is capped at $2,100 for the first time (under the Inflation Reduction Act), a meaningful reduction from prior years.

Unlike ACA-compliant commercial insurance, traditional Medicare (Parts A and B) has no annual out-of-pocket maximum. A serious illness can expose an enrollee to unlimited 20% coinsurance. That’s why the majority of traditional-Medicare enrollees buy a Medigap (Medicare Supplement) policy to cover the gaps, or enroll in Medicare Advantage (which does have a capped OOP max, typically around $8,850 for 2026 in-network).

Medicaid: coverage and costs

Medicaid is state-administered. The benefit package is set by the state within a federal framework. All states must cover core services (hospital, physician, lab, pregnancy care, kids’ services). Most states also cover dental, vision, and long-term services and supports to some degree.

Cost-sharing for Medicaid enrollees is sharply limited by federal rules: most states charge modest copays ($3–$5 for a doctor visit, up to $8 for non-preferred drugs) and some charge nothing. Aggregate out-of-pocket cost cannot exceed 5% of family income. That makes Medicaid, where available, the most affordable U.S. health coverage.

Medicaid eligibility — the ACA expansion factor

The Affordable Care Act expanded Medicaid to adults earning up to 138% of the federal poverty level (FPL). Forty states and D.C. have adopted the expansion; ten have not. In non-expansion states, many low-income adults without children are in a “coverage gap”: earning too much to qualify for traditional Medicaid but too little to receive ACA marketplace subsidies. If you are in one of those states and uninsured, Medicaid eligibility specific to your category (pregnant, disabled, parent of minors, aged) may still apply, and county health departments can assess eligibility.

Dual eligibility

About 12 million Americans are “dual eligible” — enrolled in both Medicare and Medicaid. Typically these are low-income Medicare enrollees whose Medicaid picks up Medicare’s premiums and cost-sharing. The Medicare Savings Programs (QMB, SLMB, QI) are the formal mechanism. If you’re a Medicare enrollee with income under roughly 135% of FPL, you may qualify even if you don’t think of yourself as a “Medicaid person” — state Medicaid offices and State Health Insurance Assistance Programs (SHIPs) can screen you for free.

What Medicare does not cover (but Medicaid often does)

Long-term custodial care (nursing home longer than 100 days, assisted living).
Most dental care in traditional Medicare (some Advantage plans include limited dental).
Most vision care (routine eye exams, glasses) in traditional Medicare.
Hearing aids in traditional Medicare.
Non-emergency transportation.

Medicaid is the largest payer of nursing home care in the United States. Before enrolling in a skilled nursing facility, the interaction between Medicare (short-term post-acute) and Medicaid (long-term custodial) is worth understanding carefully — usually with help from a certified elder-law attorney.

The cost figures on CareCostIndex procedure pages usually include a “Medicare” column — that is the Medicare-allowed rate, not what an individual enrollee pays out of pocket. After deductible and 20% coinsurance (or with a Medigap plan), the actual enrollee payment is usually much less. Medicaid does not have a column on most of our pages because Medicaid-allowed rates vary widely by state and are typically lower than Medicare, with most of the cost borne by the program rather than the enrollee.

What to do if you think you qualify

For Medicare: eligibility starts 3 months before your 65th birthday. Enroll during your Initial Enrollment Period to avoid Part B late-enrollment penalties that last for life.
For Medicaid: apply through your state Medicaid agency or through healthcare.gov. There is no enrollment window; you can apply any time. Retroactive coverage of up to 3 months is available in many states.
For dual-eligible screening: your local SHIP office provides free, unbiased help. Find yours at shiphelp.org.

Reviewed by CareCostIndex Editorial Team · Last reviewed: 2026-04-16