Benefits planning

Healthcare bridge planning for executive severance: your options when coverage ends.

The day your employment ends, your employer-subsidized health insurance ends with it — usually at the end of that calendar month or sometimes on the last day of work, depending on plan terms. For most executives this is not a hardship, because a COBRA election or spousal plan is available. The issue is that the decision must be made on a fixed deadline, the cost can be substantial, and there are planning opportunities — particularly around HSA contributions and severance negotiation — that are lost once the window closes.

Option 1: COBRA continuation

COBRA lets you continue exactly the same group health plan coverage you had during employment, at your own expense.¹ The employer no longer subsidizes any portion of the premium.

When COBRA makes sense for executives

COBRA is usually the right default when: (1) you or a dependent has ongoing treatment, specialist relationships, or prescriptions that depend on the specific plan network; (2) you're in the middle of a claims year and have already met part of your deductible; (3) you're in the last stretch to Medicare eligibility and don't want to change plans; or (4) you've negotiated employer-paid COBRA into the severance agreement (see below).

Option 2: ACA marketplace coverage in 2026

Loss of job-based coverage is a qualifying event that opens a 60-day Special Enrollment Period (SEP) on the ACA marketplace.² This runs concurrently with — not after — your COBRA election window. You do not have to exhaust COBRA before enrolling in a marketplace plan.

2026 subsidy landscape: important change

The enhanced premium tax credits introduced by the American Rescue Plan Act (2021) and extended by the Inflation Reduction Act (2022) expired on December 31, 2025.³ For 2026:

• The 400% federal poverty level (FPL) income cap is reinstated. Households above approximately $62,600 (single) or $128,600 (family of four) using 2025 HHS poverty guidelines receive no premium tax credit.⁴
• Average unsubsidized marketplace premiums roughly doubled for affected enrollees compared to 2025 under the enhanced rules.
• The One Big Beautiful Bill Act (OBBBA, July 2025) also removed caps on excess advance PTC repayment — meaning if you underestimate income to qualify for a credit and income comes in higher, the repayment obligation is now uncapped.⁵

When the marketplace becomes worth evaluating

The marketplace is worth modeling against COBRA when: (1) your income in the coverage year (not just going forward) actually falls below 400% FPL after accounting for all sources; (2) the specific plans available in your area offer comparable network coverage at materially lower unsubsidized premiums than COBRA; or (3) you're transitioning to a low-income year in the 12–18 months following termination and want to model the subsidy math carefully. Given the OBBBA repayment cap removal, be conservative in estimating income if applying for advance credits — an income overshoot in the enrollment year creates a dollar-for-dollar repayment obligation at tax time.

Option 3: Spousal employer coverage

If your spouse or domestic partner has employer-sponsored coverage available, this is almost always the most cost-effective path. Loss of job-based coverage is a HIPAA special enrollment event — your spouse's employer plan must allow you to enroll mid-year within 30–60 days of the qualifying event (the exact window depends on the plan).⁶ Don't miss this window: unlike COBRA, there is no retroactive enrollment in a spousal employer plan.

Option 4: HSA maximization during the transition

If you are enrolled in an HSA-eligible HDHP — either through COBRA or through a new marketplace plan — you remain eligible to contribute to an HSA for each month you are enrolled. The 2026 limits are:

• Self-only HDHP coverage: $4,400 annual contribution limit.⁷
• Family HDHP coverage: $8,750 annual contribution limit.⁷
• Age 55+ catch-up: Additional $1,000 per year if you are 55 or older before the end of the tax year.⁷

An HSA is triple-tax advantaged: contributions are pre-tax, growth is tax-free, and withdrawals for qualified medical expenses are tax-free. During a severance transition, maximizing the HSA serves two purposes: (1) it reduces taxable income in a year when severance income pushes you into a high bracket, and (2) it builds a tax-advantaged reserve for healthcare expenses during the bridge period.

Option 5: Negotiating employer-paid COBRA in the severance agreement

This is the most financially meaningful healthcare lever in most executive negotiations — and it must happen before you sign. Once the separation is final, the company has no obligation to subsidize COBRA beyond what the standard plan rules require.

Commonly negotiated COBRA provisions in executive severance agreements include:

• Company-paid COBRA for a defined period: The employer continues paying its share of the premium (or the full premium) for 3, 6, or 12 months post-separation. This converts a $4,000/month out-of-pocket cost into $0 for the covered period.
• Healthcare stipend or reimbursement: Rather than continuing the group plan, some agreements provide a fixed monthly allowance to cover COBRA or marketplace premiums — more flexible for the executive and simpler to administer.
• Retiree medical benefit: Some plans and packages offer access to retiree medical coverage — often subsidized by the employer — for executives who meet age and service thresholds. This is rare but highly valuable if available, particularly for those bridging to Medicare.

Employment counsel typically drives severance agreement negotiation. But the financial modeling of which provision is more valuable (e.g., 6 months fully paid COBRA on a $5,000/month plan vs. a $2,000/month cash stipend) belongs to the financial advisor's role. Bring the modeling to the negotiation, not the general intuition.

Bridging to Medicare

Medicare eligibility begins at age 65. For executives who are 63 or 64 at the time of separation, the healthcare bridge is a finite problem — but it must be planned carefully:

• COBRA's 18-month maximum exactly covers a separation at age 63.5 through Medicare eligibility, if coverage begins immediately.
• If your COBRA ends before Medicare starts, you need a marketplace plan or other coverage to fill the gap. Missing the Medicare Part B enrollment window (3 months before to 3 months after your 65th birthday) triggers a permanent premium penalty unless you have qualifying employer coverage.
• If Medicare is 2+ years away, the cost-per-month of COBRA adds up. The tradeoff is: lower disruption (keep your exact current plan and network) vs. potentially lower cost on a marketplace plan — if one is available in your area at comparable network quality.

Short-term health plans: understanding the coverage gap

Short-term health insurance plans exist in many states and offer lower monthly premiums than COBRA. They are not ACA-compliant: they can exclude pre-existing conditions, impose annual or lifetime benefit limits, exclude prescription coverage, and cap total payout. For executives with meaningful health needs or assets at risk from a major medical event, short-term plans carry significant uncovered liability exposure. Use them only after understanding the specific exclusions in the policy — not as an assumed lower-cost substitute for COBRA.

Timeline: healthcare decisions in an executive exit

1. Before you sign the separation agreement: Confirm whether the agreement includes employer-paid COBRA, a healthcare stipend, or retiree medical benefit access. Negotiate if it does not.
2. On or before your last day: Confirm your exact coverage termination date (end of month vs. last day of employment — varies by plan). Ask HR for the COBRA election packet or when it will be mailed.
3. Within 30 days of separation: Determine whether spousal coverage is available and enroll if so — the spousal plan's SEP window may close before your COBRA window. Compare cost and network coverage.
4. Before day 60 from coverage loss or election notice: Decide on COBRA vs. marketplace. If electing COBRA, submit the election form. If enrolling in a marketplace plan, do so through healthcare.gov or your state exchange using the loss-of-coverage SEP.
5. In the same tax year as separation: Maximize HSA contributions if enrolled in an HDHP. The contribution reduces your taxable income in the year when severance income is highest.
6. Model the bridge-to-Medicare or bridge-to-employer-coverage timeline: Identify the month when new employer coverage or Medicare begins. Confirm COBRA or marketplace coverage runs continuously through that date — a coverage gap can create a new insurer's pre-existing condition waiting period.

See the full executive severance checklist for how healthcare planning fits alongside equity, deferred compensation, and cash runway. For the full package tax picture, see the severance tax calculator.