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Severance Agreement Continuation of Health Benefits

When an employee is laid off or terminated, it can be a difficult and stressful time. However, a severance agreement can provide some financial security and peace of mind during this transition period. One important aspect of a severance agreement is the continuation of health benefits.

Under the Consolidated Omnibus Budget Reconciliation Act (COBRA), terminated employees have the right to continue their employer-sponsored health insurance for a limited time. This is typically up to 18 months, although some circumstances can extend it to 36 months. However, this coverage can be expensive since the employee must pay the full premium plus a 2% administrative fee.

To ease the burden of paying for health insurance while between jobs, many employers include a continuation of health benefits provision in their severance agreements. This provision allows the employee to continue their health insurance at the same premium rate they were paying while employed, or sometimes even a lower rate. Additionally, in some cases, the employer may even continue to subsidize a portion of the premium payments.

It’s important for employees to carefully review the continuation of health benefits provision in their severance agreement to understand the terms and limitations. For example, the provision may only apply for a certain amount of time, or there may be a waiting period before the coverage begins. In some cases, the coverage may be provided through COBRA instead of directly through the employer.

Employers should also consider the impact of offering continuation of health benefits on their business. Providing this benefit can be costly, and the employer may need to weigh the financial burden against the goodwill and loyalty it may engender from departing employees.

In conclusion, including a continuation of health benefits provision in a severance agreement can be a valuable benefit for both employees and employers. It provides peace of mind for employees during a difficult time and can help maintain good relations between the employee and employer. However, it’s important to carefully review the terms of the provision to ensure it meets the needs of both parties.