Health benefits for post-termination small business employees

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November 10, 2015 by Tony Novak

Situation:

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:

  1. Continuing the group health plan for post-termination employees (probably a violation of the insurer’s eligibility requirements)
  2. Paying for individual coverage (probably a violation of market reforms triggering a Section 4980D excise tax penalty)
  3. Negotiating with employees to buy out health benefits section of the employees’ severance package with a higher amount of cash.
  4. Unilaterally change the severance package.

My thoughts:

#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?

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