Severance Agreement Cobra Payments

October 7th, 2021

Often, when an employer separates from an employee, they can offer to pay for a few months the coverage of the continuation of COBRA, so that the employee can remain insured without having to pay the substantial premiums related to COBRA. Historically, this has always seemed like a solid gesture by the employer and a “breeze” from the worker`s point of view. With the implementation of the Affordable Care Act (“ACA”), employees who part ways with their jobs now have another option – taking out insurance through the ACA`s “marketplace,” which can be less expensive. Because of the interdependence of potential time issues between choosing and maintaining cobra coverage and the ability to purchase insurance on the ACA`s “marketplace,” employers also need to think about typical employee separation and offering a severance package. Some employers subsidize COBRA with the best of intentions as part of their severance package. Can an employee pay their COBRA premiums before taxes on severance pay? If you do not make your COBRA payments on time, but within the additional period of this coverage period, it is possible that your coverage will be cancelled until the payment is received, and at that time, coverage will be restored. Employers have different options to consider, each with its own positive and negative aspects. For example, the severance pay program could indicate in Example 1 that coverage ends on the basis of the last day worked according to normal planning procedures. The program could provide that if the worker chooses COBRA coverage through normal planning procedures, the employer subsidizes the costs.

Another possibility would be to provide for the COBRA period to take place at the same time as the expanded subsidised coverage. Accordingly, COBRA notifications relating to the qualification event concerned should be provided. In the future, employers who have offered traditionally temporary COBRA benefits as part of a severance package should consider an alternative to reduce the risk of confusion and conflict due to ACA and COBRA timing issues. One of the ideas is for the employer to propose a “transitional payment” after tax corresponding to the amount of monthly COBRA premiums paid by the employer in favour of the worker. . . .

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