What Medicare and Medicaid Really Cover (And What They Don’t)

As healthcare costs continue to rise and Americans plan for retirement, understanding what Medicare and Medicaid do—and perhaps more importantly, what they don’t—cover becomes essential to sound financial planning. At Financial Life Planning, we recognize that healthcare expenses represent one of the largest financial burdens in retirement, yet they’re often the least understood aspect of retirement planning.

Medicare vs. Medicaid in Plain English

• Medicare is a federal health insurance program for people 65+ and certain disabled individuals, covering hospital care (Part A), outpatient care (Part B), prescription drugs (Part D), and Medicare Advantage (Part C).
• Medicaid is a joint federal‑state safety‑net program that can cover health care and long‑term care for people with low income and very limited countable assets.
• In New Jersey, Medicaid can help pay for nursing home and home‑and‑community‑based long‑term care once strict income and asset eligibility rules are met.​
• Inpatient hospital care
• Skilled nursing facility care (up to 100 days per benefit period)
• Hospice care
• Some home health services

Medicare Coverage in 2026: What You Need to Know

While Medicare provides crucial coverage for many healthcare needs, it is not comprehensive health insurance – it’s deigned to cover specific medical services while leaving significant gaps that can cost thousands annually. 

What Medicare Covers

Medicare Part A (Hospital Insurance):

In 2026, the inpatient hospital deductible is $1,736 for each benefit period, with coinsurance of $434 per day for days 61-90 and $868 for lifetime reserve days.

Medicare Part B (Medical Insurance):

• Doctor visits and outpatient care
• Preventive services
• Durable medical equipment
• Mental health services
• Some home health care

The standard monthly premium for Medicare Part B enrollees is $202.90 for 2026, with an annual deductible of $283, and generally 20% coinsurance without a Medigap policy or Medicare Advantage plan.

Medicare Part D (Prescription Drug Coverage):

• Prescription medications
• Some vaccines

Medicare negotiated lower prices for 10 high-cost prescription drugs that take effect on Jan 1, 2026. Part D plans include an annual $2,100 cap on out‑of‑pocket prescription costs.

Medicare Advantage (Part C):

• All Part A and Part B services
• Usually includes Part D coverage
• Often offers additional benefits not covered by Original Medicare

Part C annual maximum in‑network limit in 2026 is $9,250, slightly lower than 2025.

What Medicare Does NOT Cover (Long‑Term Care Is the Big Gap)

Many retirees assume “Medicare will pay if I ever need a nursing home,” which is rarely true beyond short‑term rehab.

• Long‑term custodial care: Medicare does not pay for long‑term help with routine activities of daily living (bathing, dressing, eating) at home or in a facility. Custodial care averages $108,405 annually nationwide in 2026, a 4.2% increase from 2025.
• Skilled nursing facility limits: Medicare can cover up to 100 days of skilled nursing care per benefit period, but only after a qualifying three‑day hospital stay and only while you are improving under skilled care; after that, you pay the full cost.
• Most assisted living costs: Room, board, and custodial services in assisted living or memory care are generally not covered.​
• Non‑medical home help: Ongoing companion care, housekeeping, and supervision—often the bulk of long‑term care needs—are typically not covered by Medicare.

Financial context: With private‑pay nursing home costs in many regions already exceeding six figures per year, this gap becomes a central topic in retirement income planning, tax planning, and investment management for those in their 50s, 60s, and 70s.​

What Else Medicare Does NOT Cover

Despite its comprehensive nature, Medicare has significant coverage gaps that can lead to unexpected expenses:

1. Dental Care: Routine dental care, dentures, and most dental procedures are not covered.
2. Vision Care: Routine eye exams, glasses, and contact lenses are generally not covered.
3. Hearing Aids: Hearing evaluations and hearing aids, which can cost $2,000 to $6,000 a pair, are typically not covered.
4. Cosmetic Procedures: Any surgery or procedure performed solely for cosmetic reasons is not covered.
5. International Travel: With very limited exceptions, Medicare doesn’t cover healthcare received outside the U.S.
6. Alternative Medicine: Most alternative therapies like acupuncture (with limited exceptions for chronic back pain) and chiropractic services (beyond limited spinal manipulation) are not covered.
7. Personal Care Services: Help with shopping, meal preparation, and other household tasks is generally not covered.

Medicaid Coverage and Limitations in 2026

Medicaid serves as a critical safety net for millions of Americans with limited income and resources, including eligible low-income adults, children, pregnant women, elderly adults, and people with disabilities.

What Medicaid Covers

Medicaid typically covers:

• Inpatient and outpatient hospital services
• Doctor visits and preventive care
• Laboratory tests and X-rays
• Prescription medications (in most states)
• Long-term nursing home care
• Home health services
• Personal care services
• Transportation to medical appointments

Medicaid often provides coverage that Medicare doesn’t, particularly for long-term care services, which makes it invaluable for many seniors.

What Medicaid Does NOT Cover

While Medicaid is more comprehensive than Medicare in many ways, it also has limitations:

1. Non-Medical Care: Services not deemed medically necessary are generally not covered.
2. Certain Medications: Not all prescription drugs are covered, and coverage varies by state.
3. Private Rooms: Standard shared rooms are covered in nursing facilities, but private rooms generally require additional payment unless medically necessary.
4. Some Providers: Many healthcare providers don’t accept Medicaid due to lower reimbursement rates, limiting access to care.
5. Care Outside Your State: Generally, Medicaid doesn’t cover services received outside your state of residence.

Understanding Medicaid Eligibility and Spend-Down Requirements

Unlike Medicare, which is primarily age-based, Medicaid eligibility is means-tested—requiring both income and asset limits to be met.

Income Eligibility in 2026

For 2026, Medicaid eligibility for seniors (65+) and individuals with disabilities is typically limited to incomes no greater than $2,982 per month for Nursing Home Medicaid and Home and Community-Based Services (HCBS) Waivers.

For married applicants when only one spouse needs care, only the applicant’s income is counted toward this limit. Furthermore, the non-applicant spouse can receive a portion of the applicant’s income through the Minimum Monthly Maintenance Needs Allowance, with a maximum allocation of $4,066.50 per month in 2026.

Asset Requirements 

This is where financial planning becomes critical. This means you must have very nominal assets to qualify—essentially requiring you to spend down your life savings before receiving benefits. 

For 2026, many states limit countable assets to:

• $2,000 for individuals
• $3,000-$4,000 for couples (when both need care)
• Community spouse protections: In 2026, New Jersey’s “community spouse” (the healthy spouse at home) can typically keep about 50% of the couple’s assets, up to roughly $162,660, with a minimum floor around $32,532 if 50% would be lower than that.​

However, some states have different limits. In NJ, the limits are $4,000 for an individual and $6,000 for a couple.

Exempt Assets typically include:

• Your primary residence (with equity limits up to $700,000 in most states, higher in others)
• One vehicle
• Personal belongings and household items
• Burial plots and prepaid funeral contracts
• Life insurance with limited cash value

Countable Assets generally include:

• Cash and bank accounts
• Investments and retirement accounts
• Secondary properties
• Valuable collections
• Cash value of life insurance above certain limits
• Asset spend‑down: Extra assets can sometimes be converted to non‑countable items (home modifications, medical equipment, pre‑paid burial, paying off debt) or for formal agreements paying family members for caregiving services

Income Thresholds and Spend-Down Process

For nursing home Medicaid in 2026, the monthly income limit is $2,982 for single applicants. If your income exceeds this threshold, you must “spend down” the excess on medical expenses each month to qualify for coverage.

The spend-down process works like a deductible. For example, if your monthly income is $3,500 and the limit is $2,982, you must spend $518 monthly on medical expenses before Medicaid coverage begins. This creates a significant financial burden for many families. The “spend-down” process to qualify for Medicaid requires careful planning. Simply giving away assets can trigger the five-year look-back period, where Medicaid examines all asset transfers made within five years of application. Transfers for less than fair market value can result in penalty periods where Medicaid won’t cover care costs.

Financial Planning Implications

Understanding these coverage gaps and limitations is essential for comprehensive retirement planning. Here are key considerations:

1. Long-Term Care Planning: With Medicare not covering extended long-term care and Medicaid requiring significant asset spend-down, alternatives like long-term care insurance, hybrid policies, or dedicated savings should be considered early.
2. Health Savings Accounts (HSAs): For those still working, maximizing HSA contributions can provide tax-advantaged funds specifically for healthcare costs in retirement.
3. Medicare Supplement Insurance: Medigap policies can help cover many of Medicare’s cost-sharing requirements, though they add monthly premium costs.
4. Asset Protection Strategies: Legal approaches like irrevocable trusts, spousal transfers, and converting countable assets to exempt assets may help protect some resources while eventually qualifying for Medicaid.
5. Income Planning: Creating income streams that minimize impact on means-tested benefits can help maintain eligibility for valuable programs.

How Financial Life Planning Can Help

Navigating healthcare coverage in retirement requires specialized knowledge at the intersection of healthcare policy and financial planning. At Financial Life Planning, our Certified Financial Planner (CFP) can help you:

• Project likely healthcare costs based on your personal health history
• Integrate healthcare funding into your comprehensive retirement plan
• Develop strategies to address potential long-term care needs
• Create a plan that balances asset protection with quality of life
• Update your plan as healthcare policies and your personal situation change

Don’t leave your healthcare funding to chance. The decisions you make today about retirement healthcare can have profound implications for your financial security and the legacy you leave to your loved ones.

Take the Next Step

Healthcare planning is just one component of a comprehensive financial life plan. At Financial Life Planning, we understand the complex interplay between healthcare funding and your overall financial picture.

Schedule a free consultation with our Certified Financial Planner to learn how we can help you prepare for healthcare costs in retirement while protecting your assets and securing your future.

For additional reading on retirement, healthcare, and related topics, you can explore more Medicare‑focused articles at: https://www.flplanning.net/category/retirement.

Edward C. Goldstein, CFP®, MBA, President
CERTIFIED FINANCIAL PLANNER ™ Practitioner 
Financial Life Planning, LLC
10,000 Lincoln Dr. East, Suite 201
Marlton, NJ  08053
Phone: 856-988-5480
Fax: 908-292-1040