Medicaid vs. Medicare: What Each Program Covers and How They Differ

Medicare and Medicaid pay for different kinds of care. Medicare is federal health insurance that pays for hospital care and a limited skilled nursing stay after a qualifying hospital stay, but it does not pay for long-term custodial care. Medicaid, run by each state within federal rules, is the main payer for long-term nursing-home care for people who meet its financial tests.

Most people facing this question have just heard something unsettling. A mother is being discharged from the hospital to a nursing home, or a husband with dementia can no longer be safely cared for at home, and someone at the facility has said that "Medicare will only cover so many days." The family is now trying to work out who pays after that, whether the savings a couple built over decades will have to go first, and why two programs with nearly the same name seem to work so differently.

This page sets the two programs side by side, with the focus on what matters most for long-term care: which program pays for which kind of care, and what each one asks of the person before it pays.

What Medicare Is and What It Covers

Medicare is a federal health insurance program, set out in the United States Code at 42 U.S.C. § 1395 et seq. It is run at the national level, so its core benefits do not change from state to state.

The hospital insurance part of Medicare, Part A, is described in 42 U.S.C. § 1395d. Under that section, Part A pays for:

• inpatient hospital services, up to 150 days in a spell of illness, reduced by certain days used in an earlier spell;
• post-hospital extended care services, meaning skilled nursing facility care, for up to 100 days during any spell of illness;
• home health services, within limits the section sets; and
• hospice care, in benefit periods the section defines.

A "spell of illness" (Medicare.gov calls it a benefit period) starts when a person begins receiving inpatient hospital or extended care services. Under 42 U.S.C. § 1395x(a), it ends once the person has gone 60 consecutive days without being an inpatient in a hospital or skilled nursing facility.

Medicare has other parts as well, covering doctor visits, private plan options and prescription drugs. This page does not cover those parts, Medicare's premiums or its enrollment rules. What matters here is the skilled nursing benefit, because that is where families first see where Medicare's coverage ends.

What Medicaid Is and What It Covers

Medicaid works on a different footing. It is a joint federal-state program, set out at 42 U.S.C. § 1396 et seq. Federal law sets the framework. Each state runs its own program, under its own agency and program names, with its own eligibility rules and covered services. California's program, for example, is called Medi-Cal. That is why long-term-care rules in Texas Medicaid planning look different from those in Illinois Medicaid planning or Colorado Medicaid planning.

Medicaid serves several groups, including low-income children and families, people with disabilities, and older adults. For long-term care its role is central. The federal Medicaid agency states on its Long Term Services & Supports page that "Medicaid is the primary payer across the nation for long-term care services." It covers those services in settings ranging from institutional care to community-based services.

On its Institutional Long Term Care page, the agency lists nursing facility care among Medicaid's institutional benefits. That care includes room and board. The same page notes that eligibility "may be figured differently for residents of an institution."

Unlike Medicare, Medicaid is means-tested. Eligibility turns on the person's income and assets. A countable asset is an asset the state counts toward its Medicaid asset limit. Other assets are treated as exempt under federal and state rules, and which assets fall into each group varies by state.

The Core Difference: Custodial Care vs. Skilled Care

This distinction explains most of the confusion families run into. Medicare pays for skilled care, and that coverage is capped at a set number of days. Medicaid pays for ongoing custodial care once the person meets financial eligibility.

Medicare's skilled nursing coverage comes with conditions. Its skilled nursing facility care page says the person needs a prior "inpatient hospital stay of at least 3 days in a row (starting the day you were admitted as an inpatient, but not including the day you leave the hospital)." Time spent under observation or in the emergency room before admission does not count, "even if you're there overnight." The same page says the person must need daily skilled care, such as intravenous medications or physical therapy, given by or under the supervision of skilled nursing or therapy staff.

The length of coverage is also fixed. Under 42 U.S.C. § 1395d, Medicare covers up to 100 days of skilled nursing care in a spell of illness. Under 42 U.S.C. § 1395e, a daily coinsurance applies to each day after the first 20 days, so from day 21 through day 100. From day 101 on, Medicare.gov states, "You pay all costs."

Custodial care is not covered at all. Medicare.gov's long-term care page states plainly: "Medicare doesn't pay for long-term care." It describes long-term care, also called custodial care, as help with everyday personal tasks such as dressing, bathing and using the bathroom. Medicare does not pay for that care in a nursing home or in the community.

Medicaid does pay for custodial nursing-home care, and in many states for home- and community-based care, for people who qualify financially. For a family whose parent needs that kind of help for months or years, Medicaid is usually the program that matters.

How Eligibility Works: Age and Disability vs. Income and Assets

Medicaid asks a question Medicare does not ask: how much does this person have? Each state sets income and asset limits within federal rules, so the figures depend on that state's current rules. Several state pages on this site, such as Kentucky Medicaid planning, set out one state's figures with their dates.

Eligibility groups also differ. Children and families face different income rules than an older adult seeking nursing-home coverage. And the federal agency notes that eligibility can be figured differently for people living in an institution.

For long-term care, Medicaid looks at what the person has now and also at what they gave away. Under 42 U.S.C. § 1396p(c)(1), a state must treat a transfer of assets for less than fair market value as a reason for a period of ineligibility for nursing facility and certain waiver services, if the person or their spouse made it on or after the look-back date. The look-back period is the window of time before the application that the state reviews. The statute text reads:

"The look-back date specified in this subparagraph is a date that is 36 months (or, in the case of payments from a trust or portions of a trust that are treated as assets disposed of by the individual … or in the case of any other disposal of assets made on or after February 8, 2006, 60 months) before the date specified in clause (ii)."

So for transfers made since February 8, 2006, the federal look-back is 60 months. Each state applies its own rules within that framework, and the statute lists exceptions under which a transfer carries no penalty.

When Someone Qualifies for Both: Dual Eligibility

A family member who has Medicare can also qualify for Medicaid. People in this position are often called "dual eligible." An older adult in a nursing home can have both programs at different stages of the same stay.

A common pattern follows the rules described above. After a qualifying hospital stay, Medicare may cover a skilled nursing stay within its day limits. If the person still needs care once the skilled need ends or the days run out, Medicaid may then cover ongoing custodial care, but only once the person meets the state's financial eligibility rules. Medicare.gov's skilled nursing page points to Medicaid as one program to ask about when a person has no qualifying hospital stay.

Medicaid can also help with Medicare's own costs. The federal Eligibility Policy page refers to "Medicare cost-sharing benefits paid on behalf of Medicare Savings Program beneficiaries." These are programs, run through Medicaid, that pay Medicare cost-sharing for certain people with limited means. Who qualifies, and which costs are paid, depends on the state's program.

How the two programs share a bill in a given state, and in what order, turns on detailed coordination rules this page does not set out.

What Neither Program Covers — and Where Long-Term Care Planning Fits

The gap most families meet is simple to state. Medicare does not pay for long-term custodial care. Medicaid does, but only after the person meets its financial tests. Between those two facts sits the question that brings many families to this site: what happens to the savings in the meantime.

Spend-down is the term for reducing countable assets to the state's asset limit in order to qualify. Medicaid also uses "spend down" in a second sense, for income. The federal Eligibility Policy page explains that in states with a medically needy program, a person whose income is too high can become eligible after incurring medical expenses that exceed the gap between their income and the state's medically needy income level.

Federal law shapes what planning is possible. The transfer rules in 42 U.S.C. § 1396p set the look-back and the penalty period, which is the time a person is ineligible for long-term-care coverage because of a transfer. For transfers made on or after February 8, 2006, the penalty starts on the later of the month of the transfer and the date the person is eligible and would otherwise be receiving institutional-level care, under 42 U.S.C. § 1396p(c)(1)(D)(ii). Trusts are reviewed too. The federal agency notes that a trust funded with the person's own money "can be considered available" for eligibility. Many families find these rules land at the hardest moment, when a decision about care is already being made.

After death, the federal agency's Estate Recovery page states that "for individuals age 55 or older, states are required to seek recovery of payments from the individual's estate for nursing facility services, home and community-based services, and related hospital and prescription drug services." What a state recovers from depends on that state's rules, as pages such as Oregon Medicaid planning describe for one state.

This page explains the difference between the two programs. It does not cover the detailed Medicaid eligibility rules, state-specific limits, spousal protections, or the planning choices that apply to a particular family. Those topics are covered in related content on this site.

If You'd Like to Talk Through Your Family's Situation

The point where Medicare's skilled nursing days end and Medicaid's financial rules begin is often where a family's real decisions start. A consultation on this topic usually covers the care setting and how long care may last, the state where the person lives, the assets in each spouse's name, any gifts or transfers inside the look-back period, and whether a spouse remains at home. For readers whose question is only about Medicare's own benefits or costs, this page and that program's materials may be enough for now.

To discuss these questions with an attorney, you can request a consultation about your family's Medicaid and long-term-care options through Medicaid Asset Protection Group.