November 10, 2015 by Tony Novak
Employer terminates most of the employees covered under a small business group health insurance policy but offers a severance package states that the company will compensate or continue health benefits for six months after separation.
In this case which strategy is the lesser evil:
- Continuing the group health plan for post-termination employees (probably a violation of the insurer’s eligibility requirements)
- Paying for individual coverage (probably a violation of market reforms triggering a Section 4980D excise tax penalty)
- Negotiating with employees to buy out health benefits section of the employees’ severance package with a higher amount of cash.
- Unilaterally change the severance package.
#4 triggers legal questions that I can’t answer. What if an employee retaliates with a legal action? Would a defense based on these circumstances suffice? Or would the risk of cost of litigation defense sink this entire idea?
#1 seems most doable and at the lowest overall cost even with some risk.
#2 and #3 are likely going to be more expensive that the company prefers.
Any other thoughts?