Newfront has officially joined WTW, combining a technology-native approach with global expertise to better serve our clients. Read more

Health Coverage for Continuing Employees After an M&A Transaction

By Brian Gilmore | Published January 29, 2026

Question: After an M&A transaction closes, what health benefit options are available for those continuing employment with the new or acquiring entity?

Short Answer: The default approaches are either to immediately move the continuing employees to the buyer’s health plan or to continue coverage under the seller’s health plan for a transitional period. However, in some situations (particularly where the buyer does not acquire the seller’s health plan) the parties will consider a variety of health coverage alternatives for the continuing employees. Each of these alternatives comes with multiple potentially significant issues to consider.

One of the first employee benefits-related issues to address in any M&A transaction is whether the continuing employees (i.e., those who remain employed post-close) will join the buyer’s health and welfare plan—and, if so, when? Unless provisions in the purchase and sale agreement provide otherwise, the buyer generally has full discretion as to if/when the seller’s employees will be eligible for the buyer’s employee benefits plans.

There are two main default approaches for buyers to consider in most M&A situations:

  1. Continuing Employees Move Immediately to Buyer’s Health Plan
  2. Continuing Employees Remain with Seller’s Health Plan (Typically for a Limited Duration)

Default Approach #1: Continuing Employees Move Immediately to Buyer’s Health Plan

Buyers in an M&A transaction may choose to make their health plan available immediately upon closing for the population of the seller’s employees who are continuing employment. This has the primary advantage of quickly making the seller’s employees feel like part of the new buyer’s organization, while also avoiding the administrative hassle (and potential added costs) associated with maintaining two separate sets of plans.

The primary disadvantage to this approach is there are often benefits administration system and administrative challenges caused by so quickly onboarding a (potentially large) group of new employees onto the buyer’s health plan. There are many moving parts in the period surrounding the close, and adding a large benefit plan communication and enrollment lift can be more than both parties’ benefits teams are able to bear.

Additional potential disadvantages with immediate integration include:

  • The buyer’s health plan may not accommodate mid-year deductible and out-of-pocket maximum carryovers for the seller’s employees, which can cause additional employee costs and frustrations in the move.
  • Although there are corporate culture reasons to integrate plan benefits to quickly coalesce into one united entity, there may be demographic reasons that the buyer’s plan is not ideally suited to meet the needs of the seller’s population. For example, buyer’s plan may have regional HMOs that do not have service areas within the seller’s primary footprint, or simple coverage gaps that are exacerbated by the seller’s workforce.
  • The employer would have to work with the insurance carriers and/or stop-loss providers to determine whether the scope of the transaction is significant enough to trigger a mid-year re-rating or any other change in control provisions that might apply under the terms of the policy.

Default Approach #2: Continuing Employees Remain with Seller’s Health Plan (Typically for a Limited Duration)

Another common approach in an M&A transaction is to continue maintaining the seller’s health plan for some period post-close. This can be a strategy maintained into perpetuity, but more often it is used as a stop-gap measure to minimize disruption for the employees transitioning to the buyer’s workforce. Under this approach, seller’s employees can remain with the benefit plans they are comfortable with for some period, which has the critical advantage of allowing employees to keep their focus on work priorities in the key transition phase.

For example, this approach is commonly applied through the end of the plan year following the closing, thereby allowing the seller’s employees to transition to the buyer’s plan during its standard open enrollment period.

The only dispositive concern with this approach is in a situation such as a carve-out or spin-off where the “seller” group represents only a portion of the “seller’s” broader controlled group. In that situation, the entity that is carved out or spun off typically is not the plan sponsor of the health plan, and therefore the “seller’s” health plan will continue to be maintained by the “seller’s” parent entity for the ongoing employees that are not affected by the transaction.

Alternative Coverage Options for Seller’s Employees Continuing with Buyer

The buyer in an M&A transaction may not have a health plan in place to offer seller’s employees, or the buyer may just prefer to avoid immediately offering coverage to continuing employees under the buyer’s plan. This presents an issue where the buyer does not acquire the seller’s plan, often due to factors like only acquiring a piece of the seller’s broader business.

In these types of situations, the buyer will consider:

  1. Buyer Subsidizes COBRA Through Seller’s Health Plan for Continuing Employees During Transition Period
  2. Continuing Employees Maintain Active Coverage Through Seller’s Parent Entity During Transition Period
  3. Continuing Employees Seek Coverage on the Exchange During Transition Period

Summary

Employee benefits often are not at the forefront of the concerns in a corporate transaction, and they can be at risk of becoming an afterthought. The default approaches of moving the seller’s employees immediately to the buyer’s plan or continuing the seller’s plan for some duration before transitioning to the buyer’s plan are likely to be the smoothest ways to handle employee coverage in the post-close period. However, particularly in situations where the buyer does not acquire the seller’s plan, the parties may consider a variety of alternatives to address health coverage prior to moving to the buyer’s plan.

The Author
Brian Gilmore

Lead Benefits Counsel, VP, Newfront

Brian Gilmore is the Lead Benefits Counsel at Newfront. He assists clients on a wide variety of employee benefits compliance issues. The primary areas of his practice include ERISA, ACA, COBRA, HIPAA, Section 125 Cafeteria Plans, and 401(k) plans.