When a job ends, the immediate loss of employer-sponsored health insurance is a major concern. Whether a severance agreement includes continued medical coverage is complex, depending heavily on the specific company’s policy rather than a general legal mandate. While severance offers a financial cushion, the inclusion of health insurance benefits is determined by internal agreements and the terms of separation. Understanding the distinction between mandatory continuation options and voluntary employer subsidies is key.
Severance Packages and Health Benefit Continuation
Severance is generally defined as a cash payment provided to an employee upon termination, intended to ease the financial transition to new employment. Health insurance continuation is a distinct benefit companies may choose to bundle with monetary compensation. This benefit is often presented in one of two ways. An employer might continue paying the premium for the existing group health plan for a set period, keeping the former employee on the company’s coverage. Alternatively, some companies offer a lump-sum cash amount intended to offset the future cost of purchasing independent health coverage.
Understanding Your COBRA Rights
The right to continue health coverage is governed by the Consolidated Omnibus Budget Reconciliation Act (COBRA). This federal law mandates that most private-sector group health plans sponsored by employers with 20 or more employees must offer continuation coverage following qualifying events, including job termination. COBRA ensures that separating employees and their dependents can maintain the exact same group health benefits they held while employed. This is a continuation of the existing coverage, and the employer cannot alter the plan’s terms or benefits. Receiving the COBRA election notice is a standard legal procedure after termination, granting the employee a specified time frame to enroll.
When Employers Pay Health Insurance Premiums
The direct payment of health insurance premiums by a former employer is a voluntary benefit, often called a COBRA subsidy or paid continuation. This provision is not required by federal law and is included as a negotiated term within the severance package. When a company agrees to this, it typically pays the full premium that would otherwise be the employee’s responsibility under COBRA for a specific, predetermined length of time. Subsidies commonly last for a duration tied to the number of weeks or months of severance pay, frequently ranging from three to twelve months. This employer payment is a significant financial benefit because it temporarily shields the individual from the substantial monthly cost of continuing the group plan. The employee must be prepared to assume the full cost once the temporary subsidy period expires.
The High Cost of COBRA and Coverage Duration
The expense of COBRA continuation often surprises individuals accustomed to having their employer cover a large portion of the premium. When electing COBRA, the former employee is responsible for paying the entire premium amount, including the portion the employer previously paid. Furthermore, the law permits the employer to charge an additional two percent administrative fee on top of the total premium. This structure means the monthly cost can be substantially higher than the employee’s previous payroll deduction, frequently amounting to hundreds or even thousands of dollars. The maximum duration for COBRA is typically 18 months following termination of employment, though it can extend to 36 months for dependents in certain circumstances, such as death or divorce.
Exploring Health Coverage Alternatives
For individuals facing the high cost of unsubsidized COBRA, several viable alternatives offer more affordable coverage. Losing job-based health insurance triggers a Special Enrollment Period (SEP), allowing the individual 60 days from the loss of coverage to enroll in a new plan through the Health Insurance Marketplace (HealthCare.gov). This SEP allows enrollment outside of the standard annual window. Many separating employees qualify for substantial premium tax credits based on their expected annual income. These credits can significantly reduce the monthly premium, often making Marketplace coverage less expensive than COBRA. Individuals with very low income may also qualify for Medicaid, particularly in states that have expanded their programs. Comparing Marketplace options against the full cost of COBRA is essential for securing continuous, affordable coverage.
Reviewing and Negotiating Severance Health Terms
Upon receiving a severance package, a careful review of the health benefit language is necessary before signing any agreement. The specific clauses will dictate whether the company is offering a paid continuation benefit, a cash payout, or simply the mandatory COBRA election notice. If the initial offer does not include a health subsidy, or if the duration is too short, the employee has an opportunity to negotiate for better terms.
Negotiation strategies often involve requesting an extended period of paid COBRA coverage, such as extending a three-month subsidy to six months. Alternatively, an individual may request a lump-sum payment equivalent to the cost of several months of COBRA premiums, providing greater flexibility. Coordinating the timing of the health benefit is also important, ensuring the paid continuation period aligns with the start of new coverage or the application for unemployment benefits. Consulting with an employment attorney or benefits advisor can help maximize the value of the health portion of the severance agreement.