Careful consideration should go into the development of any employee benefit, and a severance package is no exception. When creating a severance package, employers should take into account several issues, including COBRA.

In the United States, severance pay is not required, although the majority of companies choose to offer it. A good severance policy can be advantageous to an employer. When recruiting new talent, the severance package can be presented as an appealing benefit. When terminating employment, the severance package can encourage employees against speaking negatively about the employer or otherwise harming them.

When deciding on what to include in the severance policy, employers need to decide who qualifies for the package, how the amount will be determined, whether it will be paid in one lump sum or over a set period of time, and what it will include in addition to money. Some of these additional benefits may be connected to COBRA.

What Must Be Provided

Under COBRA, employees and their dependents must have the option of continuing health coverage for 18 or 36 months after a qualifying event, with the difference in length depending upon the nature of the qualifying event. This law applies to all employers with 20 or more employees.

The employer is required to offer continued health coverage, but the beneficiary can be required to pay for it. In fact, the employer can require the beneficiary to pay up to 102 percent of the premium cost, which includes a 2 percent administrative fee.

In addition to the federal law, many states have their own continuation requirements. 

What Can Be Provided

Employers must provide the health plan continuation mandated by COBRA. On top of these minimum requirements, employers may also opt to offer additional benefits to make the severance package more attractive.

One way to do this is to pay a portion of the premium, either the same portion paid during active employment or a new portion. Additionally, employers may choose to continue benefits not covered by COBRA, such as life insurance and disability insurance.

If employers decide to offer benefits not required by COBRA, the details should be explained clearly and in writing. For example, if an employer decides to continue paying a portion of the premium for three months, it should be made clear that COBRA continuation lasts longer, but that the beneficiary will be required to pay the full amount, possibly plus 2 percent.

Having a clear picture of future costs will be crucial to the beneficiary’s ability to make informed decisions regarding whether to accept COBRA or find a plan on the health insurance marketplace created by the Affordable Care Act. Learn more about COBRA administration solutions.