Coverage Basics

Three Questions to Understand Any Program

When evaluating a health insurance program, it helps to ask three things:

• Who funds it? Is the money federal, state, or a mix? Does it come from taxes, premiums, or both?
• Who administers it? Does a federal agency run it directly, or do states oversee it within federal rules, or do private companies contract with government to manage it?
• Who delivers benefits? Does the government deliver benefits directly, or do private insurance companies and healthcare providers deliver them on behalf of the program?

These three questions unlock the differences between Medicare, Medicaid, Medicare Advantage, the Marketplace, and CHIP.

Medicare

Medicare is a federal health insurance program administered by the Centers for Medicare & Medicaid Services (CMS). It is primarily available to people age 65 and older, and also covers certain younger people with disabilities or end-stage renal disease (ESRD).

Medicare is funded primarily through payroll taxes (paid during working years), monthly premiums, and general tax revenue. Most beneficiaries are not required to do anything to enroll—eligibility is automatic at age 65 for those who have worked and paid Medicare taxes.

Medicare is organized into four parts:

• Part A (Hospital Insurance) covers hospital stays, skilled nursing care, hospice, and home health services.
• Part B (Medical Insurance) covers physician services, outpatient care, durable medical equipment, and other services.
• Part C (Medicare Advantage) is an alternative way for beneficiaries to receive Medicare benefits through private health plans. (Detailed below.)
• Part D (Prescription Drug Coverage) covers outpatient prescription medications.

Most beneficiaries enroll in Original Medicare (Parts A and B), which is administered directly by CMS and delivered through a fee-for-service network of providers. Others choose Medicare Advantage (Part C), which consolidates benefits into a single private plan.

Learn more at Medicare.gov.

Medicaid

Medicaid is a joint federal-state program that provides health coverage to low-income individuals and families. Unlike Medicare, which is entirely federal, Medicaid is administered by each state within broad federal rules set by CMS. This means eligibility requirements, covered services, payment rates, and enrollment processes vary significantly from state to state.

Medicaid is funded by a combination of federal and state general tax revenue. The federal government pays a fixed percentage of each state's Medicaid costs (the "Federal Medical Assistance Percentage" or FMAP), and the state funds the remainder.

Eligibility traditionally covered pregnant women, children, parents, seniors, and people with disabilities, but the income thresholds and specific rules differ by state. Following the Affordable Care Act, some states expanded Medicaid to cover a broader population of low-income adults; others did not.

In most states, Medicaid beneficiaries receive care through managed care organizations (MCOs)—private insurance companies that contract with the state to deliver benefits. In some states and for certain populations, beneficiaries use fee-for-service Medicaid, where the state pays providers directly. Many beneficiaries are in managed care arrangements that also bundle long-term services and supports or behavioral health.

Learn more at Medicaid.gov and through your state Medicaid agency.

Medicare Advantage (Medicare Part C)

Medicare Advantage is not a separate program; it is an alternative way for Medicare beneficiaries to receive their benefits. Instead of using Original Medicare (Parts A and B), a beneficiary can enroll in a private plan that contracts with CMS to provide all Part A and Part B benefits, plus additional benefits.

These private plans are typically HMOs or PPOs. They often include Part D (prescription drug coverage) bundled into a single plan and may offer supplemental benefits such as dental, vision, hearing, fitness programs, or other services not covered by Original Medicare.

Medicare Advantage beneficiaries pay a monthly premium (sometimes zero if the plan is a rebate plan) and still pay Medicare cost-sharing (copays, coinsurance, deductibles), though the amounts can differ from Original Medicare. Beneficiaries must use providers in the plan's network (except in emergencies or for out-of-area urgent care).

CMS pays Medicare Advantage plans a capitated monthly fee per beneficiary to manage all their Medicare benefits. The plans bear the financial risk if a beneficiary's care costs more than the capitation amount.

Learn more at Medicare.gov, specifically the Medicare Advantage pages.

Health Insurance Marketplace (ACA / Exchange)

The Health Insurance Marketplace, created by the Affordable Care Act, is a platform where individuals and small families can shop for and enroll in private health insurance coverage. The Marketplace operates in every state, either run by the state itself, by the federal government, or as a partnership.

Plans sold on the Marketplace are private insurance products offered by health insurance companies. They are not government-administered programs, but they are regulated by CMS and state insurance departments to meet certain standards.

The key feature of Marketplace coverage is financial assistance. Individuals and families with income below certain thresholds may qualify for premium tax credits (subsidies that reduce monthly premiums) and cost-sharing reductions (subsidies that lower deductibles, copays, and coinsurance). These subsidies are paid directly to the insurance company.

Marketplace plans are offered in four "metal tiers" that describe the level of cost-sharing. Bronze plans have the lowest premiums but higher patient cost-sharing. Silver plans are mid-tier. Gold and Platinum plans have higher premiums but lower patient cost-sharing. The metal tier is a conceptual way to compare the value of plans at a glance, not a measure of quality or network.

Enrollment on the Marketplace happens during an annual open enrollment period (usually fall/winter) or through special enrollment periods if certain life events occur (such as loss of coverage, birth, or marriage).

Learn more at HealthCare.gov.

CHIP (Children's Health Insurance Program)

CHIP is a joint federal-state program designed to cover uninsured children in families with income too high to qualify for Medicaid but who still need help affording coverage.

Like Medicaid, CHIP is administered by states within federal guidelines, and eligibility and benefits vary by state. Some states operate CHIP as a separate program; others combine it with Medicaid.

CHIP is typically offered at low or no cost to eligible families. Coverage includes preventive care, primary care, hospitalization, emergency services, dental, vision, and mental health services.

Each state sets its own eligibility limits and renewal periods. Enrollment is usually continuous or happens during designated periods.

Learn more at InsureKidsNow.gov or through your state Medicaid/CHIP agency.

Comparison at a Glance