Although the purchase price is the main business term to negotiate in a business acquisition, the seller’s ability to maintain and pay for health insurance after closing is not far behind. With the steep escalations in health insurance cost and the current uncertainty of health care legislation, sellers are especially worried about continuing health insurance coverage. Unless a seller is at or close to Medicare age, health insurance is an issue a purchaser will have to deal with. There are two ways to deal with it. First, a purchaser can cover a seller under the purchaser’s group health insurance plan. The plan will require that covered employees work a certain number of hours per week. The seller must therefore meet that requirement. The second way to satisfy the seller’s health insurance need is to reimburse the seller for the seller’s own health insurance cost. If a seller desires to maintain existing group coverage, then the seller will need to remain employed with his or her existing company, obviously engaging in a business different from the business sold to the purchaser. Or, the seller could purchase private health insurance, which would likely be more expensive. If the purchaser opts for the reimbursement alternative, the purchase agreement should make clear exactly what cost components of the health insurance will be reimbursed (just premiums, or copays and deductibles in addition to premiums).
If you have any questions about this or any other M&A issue,
please contact Glenn Solomon at firstname.lastname@example.org or 443-738-1522.
ABOUT GLENN D. SOLOMON
Glenn D. Solomon is a principal at Offit Kurman and has provided counsel to businesses and business owners for more than twenty-five years. He has extensive experience in the purchase and sale of businesses, structuring ownership agreements, and advising companies in financial distress.
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