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COBRA Continuation Coverage – Mergers and Acquisitions

October 30, 2023

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Business reorganizations, such as mergers and acquisitions, often raise liability issues regarding COBRA continuation coverage. These liability issues typically involve two sets of individuals:

Individuals who are receiving COBRA coverage under the seller’s group health plan at the time of the reorganization; and

Individuals whose employment status changes as a result of the reorganization.

Internal Revenue Service (IRS) regulations address the COBRA consequences of business reorganizations. As a general rule, if the selling entity maintains a group health plan after the transaction, it is responsible for providing the COBRA coverage. However, the specific rules that apply to a situation depend on a variety of factors, including whether the transaction is a stock sale or an asset purchase.

Also, the seller and buyer may contractually allocate COBRA liability as part of the transaction.

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