How Pension Income and Retirement Account Withdrawals Can Impact Unemployment Benefits
How Pension Income and Retirement Account Withdrawals Can Impact Unemployment Benefits As the economy continues to slow, unemployment claims continue to rise at historic rates.
How Pension Income and Retirement Account Withdrawals Can Impact Unemployment Benefits
As the economy continues to slow, unemployment claims continue to rise at historic rates. Due to this expected increase in unemployment, the CARES Act included provisions for Coronavirus related distributions which give people access to retirement dollars with more favorable tax treatment. Details on these distributions can be found here. With retirement dollars becoming more accessible with the CARES Act, a common question we are receiving is “Will a retirement distribution impact my Unemployment Benefits?”.
Unemployment Benefits vary from state to state and therefore the answer to this question can be different depending on the state you reside in. This article will focus on New York State Unemployment Benefits, but a lot of the items discussed may be applied similarly in other states.
The answer to this question also depends on the type of retirement account you are receiving money from so we will touch on the most common.
Note: Typically, to qualify for unemployment insurance benefits, you must have been paid minimum wage during the “base period”. Base period is defined as the first four quarters of the last five calendar quarters prior to the calendar quarter which the claim is effective. “Base period employer” is any employer that paid the claimant during the base period.
Pension Reduction
Money received from a pension that a base period employer contributed to will result in a dollar for dollar reduction in your unemployment benefit. Even if you partially contributed to the pension, 100% of the amount received will result in an unemployment benefit reduction.
If you were the sole contributor to the pension, then the unemployment benefit should not be impacted.
Even if you are retired from a job and receiving a pension, you may still qualify for unemployment benefits if you are actively seeking employment.
Qualified Retirement Plans (examples; 401(k), 403(b))
If the account you are accessing is from a base period employer, a withdrawal from a qualified retirement plan could result in a reduction in your unemployment benefit. It is common for retirement plans to include some type of match or profit-sharing element which would qualify as an employer contribution. Accounts which include employer contributions may result in a reduction of your unemployment benefit.
We recommend you contact the unemployment claims center to determine how these distributions would impact your benefit amount before taking them.
IRA
No unemployment benefit rate reduction will occur if the distribution is from a qualified IRA.Knowing there is no reduction caused by qualified IRA withdrawals, a common practice is rolling money from a qualified retirement plan into an IRA and then accessing it as needed. Once you are no longer at the employer, you are often able to take a distribution from the plan. Rolling it into an IRA and accessing the money from that account rather than directly from the retirement plan could result in a higher unemployment benefit.
About Rob……...
Hi, I’m Rob Mangold. I’m the Chief Operating Officer at Greenbush Financial Group and a contributor to the Money Smart Board blog. We created the blog to provide strategies that will help our readers personally, professionally, and financially. Our blog is meant to be a resource. If there are questions that you need answered, please feel free to join in on the discussion or contact me directly.
Medicare Supplemental Plans ("Medigap") vs. Medicare Advantage Plans
As you approach age 65, there are a lot of very important decisions that you will have to make regarding your Medicare coverage. Since Medicare Parts A & B by itself have deductibles, coinsurance, and no maximum out of pocket
As you approach age 65, there are a lot of very important decisions that you will have to make regarding your Medicare coverage. Since Medicare Parts A & B by itself have deductibles, coinsurance, and no maximum out of pocket protection for retirees, individuals fill in those cost gaps by enrolling in either a Medicare Supplemental Plan or Medicare Advantage Plan. Most retirees have no idea what the differences are between the two options but I would argue that making the right choice is probably one of the most important decisions that you will make as you plan for retirement.
Making the wrong decision could cost you thousands upon thousands of dollars in unexpected medical and prescription drug costs in the form of:
Inadequate coverage
Paying too much for Medicare insurance that you are not using
Healthcare that is provided outside of the plan’s network of doctors and specialists
Expensive prescription drugs
Insurance claims that are denied by the insurance company
Original Medicare
Before we jump into the differences between the two Medicare insurance options, you first have to understand how Original Medicare operates. “Original Medicare” is a combination of your Medicare Part A & Part B benefits. Medicare is sponsored and administered by the Social Security Administration which means that the government is providing you with your healthcare benefits.
Medicare Part A provides you with your coverage for inpatient services. In other words, health care services that are provided to you when you are admitted to the hospital. If you worked for more than 10 years, there is no monthly premium for Part A but it’s not necessarily “free”. Medicare Part A has both deductibles and coinsurance that retirees are required to pay out of pocket prior to Medicare picking up the tab.
Medicare Part B provides you with your outpatient services. This would be your doctor’s visits, lab work, preventative care, medical equipment, etc. Unlike Medicare Part A, Part B has a monthly premium that individuals pay once they enroll in Medicare. For 2020, most individuals will pay $144.60 per month for their Part B coverage. However, in addition to the monthly premiums, Part B also has deductibles and coinsurance. More specifically, Part B has a 20% coinsurance, meaning anything that is paid by Medicare under Part B, you have to pay 20% of the cost out of pocket, and there are no out of pocket maximums associated with Original Medicare. Your financial exposure is unlimited.
Filling In The Gaps
Since in most cases, Original Medicare is inadequate to cover the total cost of your health care in retirement, individuals will purchase Medicare Insurance to fill in the gaps not covered by Original Medicare. Medicare insurance is provided by private health insurance companies and it comes in two flavors:
Medicare Supplemental Plans (Medigap)
Medicare Advantage Plans (Medicare Part C)
Medicare Supplemental Plans (“Medigap”)
We will start off by looking at Medicare Supplemental Plans, also known as Medigap Plans. If you enroll in a Medicare Supplemental Plan, you are keeping your Medicare Part A & B coverage, and then adding a Medicare Insurance Plan on top of it to fill in the costs not covered by Part A & B. Thus, the name “supplemental” because it’s supplementing your Original Medicare benefits.
There are a variety of Medigap plans that you can choose from and each plan has a corresponding letter such as Plan A, Plan D, Plan G, or Plan N. See the grid below:
When you see a line item in the chart that has “100%”, that means the Medigap plan covers 100% of that particular cost that is not otherwise covered by Original Medicare. For example, on the first line you see 100% across the board, that’s because all of the Medigap plans cover 100% of the Medicare Part A coinsurance and hospital costs. As you would expect, the more each plan covers, the higher the monthly premium for that particular plan.
Medigap Plans Are Standardized
It's very important to understand that Medical Supplemental Plans are “standardized” which means by law each plan is required to covers specific services. The only difference is the cost that each insurance company charges for the monthly premium.
For example, Insurance Company A and Insurance Company B both offer a Medigap Plan N. Regardless of which insurance company you purchased the policy through, they provide the exact same coverage and benefits. However, Insurance Company A might charge a monthly premium of $240 for their Plan N but Insurance Company B only charges a monthly premium of $160. The only difference is the cost that you pay. For this reason, it's prudent to get quotes from all of the insurance companies that offer each type of Medigap plan in your zip code.
Some zip codes have only a handful of insurance providers while other zip codes could have 15+ providers. Instead of spending hours of time running around to all the different insurance companies getting quotes, it’s usually helpful to work with an Independent Medicare Broker like Greenbush Financial Group to run all of the quotes for you and identify the lowest cost provider in your area. In addition, there is no additional cost to you for using an independent broker.
Freedom of Choice
By enrolling in a Medicare Supplemental Plan you're allowed to go to any provider that accepts Medicare. You do not have to ask your doctors or specialists if they accept the insurance from the company that is sponsoring your Medigap policy. All you have to ask them is if they accept Medicare. When you access the health care system, the doctor’s office bills Medicare. If Medicare does not cover the total cost of that service but it’s covered under your Medigap plan, Medicare instructs the insurance company to pay it. The insurance company is not allowed to deny the claim.
This provides individuals with flexibility as to how, when, and where their health care services are provided.
Part D – Prescription Drug Plan
If you enroll in a Medigap plan, you will also need to obtain a Part D Prescription Drug plan which is separate from your Medigap plan. Part D plans are sponsored by private insurance companies and carry an additional monthly premium. Based on the prescription drugs that you are currently taking, you can select the plan that best meets your needs and budget.
Medicare Advantage Plans
Now let's switch gears to Medicare Advantage Plans. I will start off by saying loud and clear:
“Medicare Supplemental Plans and Medicare Advantage Plans are NOT the same.”
All too often we ask individuals what type of Medicare plan they have and they reply “a Medigap Plan”, only to find out that they have a Medicare Advantage Plan. The differences are significant and it's important to understand how those differences will impact your health care options in retirement.
Medicare Advantage Plans REPLACE Your Medicare Coverage
Most people don’t realize that when you enroll in a Medicare Advantage Plan it DOES NOT “supplement” your Medicare Part A & B coverage. It actually REPLACES your Medicare coverage. Once enrolled in a Medicare Advantage Plan you are no longer covered by Medicare.
There are pluses and minuses to Medicare Advantage Plans that we are going to cover in the following sections. Remember, your health care needs and budget are custom to your personal situation. Just because your coworker, friend, neighbor, or family member selected a specific type of Medicare Plan, it does not necessarily mean that it’s the right plan for you.
Lower Monthly Premiums
The primary reason why most individuals select a Medicare Advantage Plan over a Medicare Supplemental Plan is cost. In many cases, the monthly premiums for Advantage Plans are lower than Supplemental Plans.
For example, in 2020, in Albany, New York, a Medicare Supplemental Plan G can cost an individual anywhere between $189 to $432 per month depending on the insurance company that they select. Compared to a Medicare Advantage Plan that can cost $0, $34, all the way up to a few hundred dollars per month.
Time Out!! How Do $0 Premium Plans Work?
When I first started learning about Medicare Advantage Plan, when I found out about the $0 premium plans or plans that only cost $34 per month, my questions was “How does the insurance company make money if I’m not paying them a premium each month?”
Here is the answer. Remember that Medicare Part B monthly premium of $144.60 per month that I mentioned in the “Original Medicare” section? When you enroll in a Medicare Advantage Plan, even though you are technically not covered by Medicare any longer, you still have to pay the $144.60 Part B premium to Medicare. However, instead of Medicare keeping it, they collect it from you and then pass it on to the insurance company that is providing your Medicare Advantage Plan.
But wait…..there’s more. Honestly, I almost fell out of my seat what I discovered this little treat. For each person that enrolls in a Medicare Advantage Plan, the government issues a monthly payment to the insurance company over and above that Medicare Part B premium. These payments to the insurance companies from the U.S government vary by zip code but in our area it’s more than $700 per month per person. So the insurance company receives over $8,400 per year from the U.S. government for each person that they have enrolled in one of their Medicare Advantage Plans.
Plus, Advantage Plans typically have co-pays, deductibles, and coinsurance that they collect from the policyholder throughout the year.
Don’t worry about the insurance company, they are getting paid. For me, it just sounded like one of those too good to be true situations so I had to dig deeper.
Insurance Companies WANT To Sell You An Advantage Plan
Since the insurance companies are receiving all of these payments from the government for these Advantage Plans, they are usually very eager to sell you an Advantage Plan as opposed to a Medicare Supplemental Plan. If you go directly to an insurance company to discuss your options, they may not even present a Medicare Supplemental Plan as an option even though that might be the right plan for you. Also be aware, that not all insurance companies offer Medicare Supplemental Plan which is another reason why they may not present it as an option.
Now I’m not saying Medicare Advantage Plans are bad. Medicare Advantage Plans can often be the right fit for an individual. I’m just saying that it’s up to you and you alone to make sure that you fully understand the difference between the two types of plans because both options may not be presented to you in an unbiased fashion.
HMO & PPO Plans
Most Medicare Advantage Plans are structured as either an HMO or PPO plan. If your employer provided you with health insurance during your working years, you may be familiar with how HMO and PPO plans operate.
With HMO plans, the insurance company has a “network” of doctors, hospitals, and service providers that is usually limited to a geographic area that you are required to receive your health care from. If you go outside of that network, you typically have to pay the full cost of those medical bills. There is an exception in most HMO plans for medical emergencies that occur when you are traveling outside of your geographic region.
PPO plans offer individuals more flexibility because they provide coverage for both “in-network” and “out-of-network” providers. Even though the insurance plan provides you with coverage for out-to-network providers, there is typically a higher cost to the policy owner in the form of higher co-pays or coinsurance for utilizing doctors and hospitals that are outside of the plan’s network. Since PPO plans offer you more flexibility than HMO plans, the monthly premiums for PPO are typically higher.
Non-Standardize Plans
Unlike Medicare Supplemental Plans, Medicare Advantage plans are non-standardized plans. This means that the benefits and costs associated with each type of plan are different from insurance company to insurance company. Insurance companies also typically have multiple Medicare Advantage plans to choose from. Each plan has different monthly premiums, benefit structures, drug coverage, and additional benefits. You really have to do your homework with Medicare Advantage Plans to understand what's covered and what's not.
Medicare Advantage plans include prescription drug coverage
Unlike a Medicare Supplemental Plan which typically requires you to obtain a separate Part D plan to cover your prescription drugs, most Medicare Advantage plans include prescription drug coverage within the plan. However, there are some Medicare Advantage plans that don't have prescription drug coverage. Again, you just have to do your homework and make sure the prescription drugs that you are currently taking are covered by that particular Advantage Plan at a reasonable cost.
Changes To The Network
Since Medicare Advantage Plans incentivize individuals to obtain care from “in-network” service providers, it’s important to know that the doctors, hospitals, and prescription drug coverage can change each year. This is less common with Medigap Plans because the doctor or hospital would have to stop accepting Medicare. The coverage for Medicare plans runs from January 1st – December 31st. The insurance company is required to issue you an “Annual Notice of Change” which summarizes any changes to the plans cost or coverage for the upcoming calendar year.
The insurance company will typically send you these notices prior to September 30th and if you find that your doctors or prescription drugs are no longer covered by the plan or covered at a higher rate, you will have the opportunity to change the type of Advantage Plan that you have during the open enrollment period which lasts from October 15th – December 7th each year.
Thus, Medicare Advantage plans tend to require more ongoing monitoring compared to Medicare Supplemental Plans.
Additional Benefits
Medicare Advantage plans sometimes offer additional benefits that Medicare Supplemental Plans do not, such as reimbursement for gym memberships, vision coverage, and dental coverage. These benefits will vary based on the plan and the insurance company that you select.
Maximum Out of Pocket Limits
As mentioned earlier, one of the largest issues with Original Medicare without Medicare Insurance is there is no maximum out of the pocket limits. If you have a major health event, the cost to you can keep stacking up. Medicare Advantage Plans fix that problem because by law they are required to have maximum out of pocket limits. Once you hit that threshold in a given calendar year, you have no more out of pocket costs. The maximum out of pockets limits vary by provider and by plan but Medicare sets a maximum threshold for these amounts which is $6,700 for in-network services. Notice it only applies to in-network services. If you go outside of the carriers network, there may be no maximum out of pocket protection depending on the plan that you choose.
Most Medigap plans do not have maximum out of the pocket thresholds but given the level of protection that most Medigap plans provide, it’s rare that policy holders have large out of pocket expenses.
New York & Connecticut Residents
When it comes to selecting the right type of Medicare Plan for yourself, residents of New York and Connecticut have an added advantage. For most states, if you choose a Medicare Advantage plan you may not have the option to return to Medicare with a Medigap Plan if your health needs change down the road. Most states allow the insurance companies to conduct medical underwriting if you apply for Medicare Supplemental insurance after the initial enrollment period and they can deny you coverage or charge a ridiculously high premium.
In New York and Connecticut, the insurance laws allow you to change back and forth between Medicare Supplemental Plans and Medicare Advantage Plan as of the first of each calendar year. There are even special programs in New York, that if an individual qualifies for based on income, they are allowed to switch mid-year.
While this is a nice option to have, the ability to switch back and forth between the two types of Medicare plans, also makes Medicare Supplemental Plans more expensive in New York and Connecticut. Individuals in those states can elect the lower cost, lower coverage, Medicare Advantage plans, and if their health needs change they know they can automatically switch back to a Medicare Supplemental Plan that provides them with more comprehensive coverage with a lower overall out of pocket cost.
The Plan That Is Right For You
As you can clearly see there are a lot of variables that come into play when trying to determine whether to select a Medicare Supplemental Plan or Medicare Advantage Plan in retirement; it’s a case by case decision. For clients that live in New York, that are in good health, taking very few prescription drugs, a Medicare Advantage plan maybe the right fit for them. For clients that plan to travel in retirement, have two houses, like the flexibility of seeing any specialist that they want, or clients that are in fair to poor health, a Medicare Supplemental Plan may be a better fit.
Undoubtedly if you live outside of New York or Connecticut the decision is even more difficult knowing that people are living longer, as you age your health care needs become greater, and you may only have one shot at obtaining a Medicare Supplemental Plan
No Cost To Work With Us
As independent Medicare brokers we are here to help you navigate the Medicare enrollment process and to obtain the Medicare insurance plan that is right for you. Our goal is to make the process easy, make sure all of your doctors and prescription drugs are covered by your plan, select a plan that meets your budget, and provides you with ongoing support.
The best part is it costs you nothing to work with us. If Insurance Company ABC is offering a Medicare Advantage that cost $0 per month, it’s going to be $0 per month whether you go directly to the insurance company or work with us as your independent broker. As a Medicare broker, we are compensated by the insurance company that issues you the insurance policy and that cost is not passed on to you.
Feel free to contact us at 518-477-6686 for a free consult or we would be more than happy to run quotes for you.
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About Michael……...
Hi, I’m Michael Ruger. I’m the managing partner of Greenbush Financial Group and the creator of the nationally recognized Money Smart Board blog . I created the blog because there are a lot of events in life that require important financial decisions. The goal is to help our readers avoid big financial missteps, discover financial solutions that they were not aware of, and to optimize their financial future.
