Should an employer contribute to COBRA costs for a former employee?

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April 15, 2014 by Tony Novak

While I am certainly sympathetic to employees who lose employer coverage, it is not a good idea under any circumstances for employers to contribute to a former employees health insurance costs unless that contribution is made as part of a formal well-documented employee benefit plan. It should never be done on a casual or arbitrary basis. Doing so would trigger a range of tax compliance issues, possible group insurance contract violation and raise the employer’s risk under employment law; all of these problems even aside the Affordable Care Act. That guidance (presumably the guidance that would be given by most employee benefit professionals) has not changed with Obamacare. Of course, an employer can offer severance pay that can be used by the employee to pay for expensive COBRA coverage. That is a safe and non-controversial way to accomplish the same goal.

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