My employer, who is the owner of the company, just terminated an employee. Our policy states he should lose his health plan effective August 1st. He wants to keep him on the plan until October 1st. Are there any issues with him doing that?

There's at least one court decision out there that would suggest that when the former EE then loses his coverage on 10/1 rather than 8/1 (the normal practice of the first day of the month after employment ends), the 10/1 loss of coverage would not be incident to the termination of employment. Ergo, no COBRA coverage. If your health plan is third-party insured, you might want to check with the third-party insurer to make sure that it will not take the position that COBRA does not apply--if the ER and this former EE are wanting COBRA to apply.

Also, considering that this former EE might be eligible for the COBRA subsidy, even the coverage for August and September might be more costly for the ER and former EE than if the former EE could go onto subsidized COBRA immediately.

Could the ER pay the former EE cash (whether or not with a tax gross-up) that represents the EE premium under COBRA for 2 months?