<PAGE>

                                                                    Exhibit 10.6

                        SEPARATION AGREEMENT AND RELEASE

     This Separation Agreement and Release ("Agreement") is entered into on
September 12, 2002 between Scott Halstead ("Employee") and eBenX ("Employer").

     WHEREAS, Employee is currently employed by Employer pursuant to an
Executive Employment Agreement dated April 22, 1999 (the "Employment
Agreement"); and,

     WHEREAS, Employee has tendered his resignation and Employer and Employee
have agreed to the terms and conditions on which Employee's employment with
Employer will end and the Employment Agreement will terminate, as provided
herein; and

     WHEREAS, Employee and Employer now wish to resolve by agreement all
outstanding issues, disputes, and claims between them;

     NOW, THEREFORE, in consideration of the mutual covenants set forth below,
it is agreed as follows:

     1.   Resignation of Employee.

          (a) Employer and Employee agree that Employee's resignation from
     employment by Employer will be effective October 5, 2002 and that the
     Employment Agreement will terminate on that date. Notwithstanding the
     foregoing, Articles 5.0 through 8.0 of the Employment Agreement shall
     remain in effect until such time as they terminate in accordance with their
     respective terms.

          (b) Commencing the date hereof, and through October 5, 2002, Employee
     shall provide only those services included in his duties which are
     specifically requested by Employer's President and CEO, or his designee.

<PAGE>

     2.   Severance.

          (a) Employer shall pay to Employee the amount of $225,000 gross,
     subject to all legally applicable deductions and withholdings, representing
     Employee's salary over a 12 month period, payable in accordance with
     Employer's normal payroll schedule beginning within twenty days following
     Employer's receipt of a copy of this Agreement executed by Employee.
     Employer shall continue to pay or reimburse Employee's premiums for current
     levels of health insurance coverage during the 12 month period of salary
     continuation. Employee's COBRA eligibility period shall not commence until
     October 5, 2003, on which date he will be sent COBRA notification.

          (b) In addition, Employee will vest in 100% of all unvested stock
     option shares. Unexercised stock option shares will terminate within 90
     days of Employee's termination.

          (c) All compensation under this Section 2 shall be deemed severance
     compensation and shall be in lieu of any compensation and other benefits
     otherwise due or payable upon termination of Employee's employment by
     Employer under the Employment Agreement or otherwise.

     3.   Release. As essential inducement to Employer to enter into this
Agreement, and as consideration for the foregoing promises of Employer, Employee
agrees as follows:

          (a) Employee, on behalf of himself and his heirs, agents, successors
     and assigns, hereby fully and completely releases and forever discharges
     Employer, its predecessors, successors, assigns, subsidiaries, parent
     companies and affiliates and all officers, employees, and agents of those
     persons and companies from any and all claims demands, actions, liability,
     damages or rights of any kind, whether known or unknown, arising out of or
     resulting from any

                                      -2-

<PAGE>

     matter, fact or thing occurring prior to the date of this Agreement,
     relating to Employer's hiring of Employee, Employee's employment with
     Employer, the Employment Agreement and/or the cessation of Employee's
     employment with Employer, including, without limitation, claims arising
     under or based upon Minnesota Human Rights Law; Title VII of the Civil
     Rights Act, 42 U.S.C.ss.2000e, et seq.; the Americans with Disabilities
     Act, 42 U.S.C.ss.12101 et seq.; the Age Discrimination in Employment Act,
     29 U.S.C.ss.621, et seq.; the Older Workers' Benefit Protection Act, 29
     U.S.C.ss.626(f); the Employee Retirement and Income Security Act, 29
     U.S.C.ss.1001 et seq.; or any other federal, state, or local laws, or any
     contract or tort claim whether legal or equitable, whether statutory or
     common law, arising from or relating to Employer's hiring of Employee,
     Employee's employment with Employer, the Employment Agreement and/or the
     cessation of Employee's employment with Employer.

          (b) Employee further agrees that Employee will not institute nor
     authorize any other party, either governmental or otherwise, to institute
     any administrative or legal proceedings against Employer, its predecessors,
     successors, assigns, subsidiaries, parent companies and affiliates and all
     officers, employees and agents of those persons and companies as a result
     of any claims or any kind or character which Employee might have against
     them arising from or related to any matter, fact or thing occurring prior
     to the date of this Agreement including, without limitation, Employee's
     employment with Employer, the Employment Agreement and/or the cessation of
     Employee's employment with Employer. However, nothing contained herein
     shall be construed to interfere with Employee's rights to file a charge
     with the Equal Employment Opportunity Commission, but this Agreement
     includes a release of Employee's right to file a court action or to seek
     individual remedies or damages in any Equal Employment Opportunity

                                      -3-

<PAGE>

     Commission-filed court action, and Employee's release of these rights shall
     apply with full force and effect to any proceeding arising from or relating
     to such a charge.


     4.   Indemnification of Employee. As essential inducement to Employee to
enter into this Agreement, and as consideration for the foregoing promises of
Employee, Employer agrees to honor its indemnification obligations to Employee
as fully set forth in Article IX of Employer's Bylaws, subject to all terms and
conditions set forth in Minnesota Statutes Section 302A.521.

     5.   Rescission and Acceptance.

          (a) Employee has been informed of Employee's right to rescind this
     Agreement by informing Employer of Employee's intent to revoke this
     Agreement within fifteen (15) calendar days following Employee's execution
     of this Agreement. If a notice of rescission is delivered by mail, it must
     be: 1) postmarked within the 15-day period; 2) properly addressed to:
     Richard J. Hughes, eBenX, 605 North Highway 169, Suite LL, Minneapolis, MN
     55441-6465; and 3) sent by certified mail return receipt requested. This
     Agreement shall not become effective or enforceable until this fifteen (15)
     day period has expired. No payments or benefits will be provided pursuant
     to this Agreement until at least sixteen (16) days after Employee has
     executed this Agreement.

          (b) Employee also has been informed that the terms of this Agreement
     shall be open for acceptance and execution by Employee for a period of
     fifteen (15) days during which time Employee may consider whether to accept
     this Agreement. Employee agrees that changes to this Agreement, whether
     material or immaterial, will not restart this acceptance period.

          (c) It is understood that, in the event a notice of rescission by
     Employee is timely delivered, pursuant to the terms of this Section,
     Employer may, at its discretion, either

                                      -4-

<PAGE>

     enforce the remaining provisions of this Agreement, or void the entire
     Agreement and require any payments made as of that date to Employee be
     immediately repaid by Employee to Employer.

     6.   Confidentiality. Employee and the Employer represent that they will
keep the terms of this Agreement strictly confidential except that Employee may
tell his immediate family, and Employee and Employer may disclose this
information to their respective legal counsel, and any financial or tax advisor
and any other agent or employee who needs this information in order to fulfill
their regular employment responsibilities. Those to whom such disclosure is made
shall be advised to hold the information in the strictest confidence. Employer
may disclose the terms of this Agreement and/or file a copy of this Agreement
with governmental authorities if and to the extent advised to do so by legal
counsel.

     7.   Non-disparagement: Employee shall not, publicly or privately,
disparage or otherwise make any derogatory statement (whether written or oral)
in respect of Employer or any of its subsidiaries or affiliates, its employees,
owners and affiliates, or the conduct of any of their respective business or
professional activities, except to the extent required by an order of a court
having jurisdiction or under subpoena from an appropriate government agency.
Employer shall not, publicly or privately, disparage or otherwise make any
derogatory statement (whether written or oral) in respect of Employee, except to
the extent required by an order of a court having jurisdiction or under subpoena
from an appropriate government agency. In the event that either party receives a
court order or subpoena, then such party shall use his or its best efforts to
consult with the other party prior to responding to any such order or subpoena.

     8.   Entire Agreement. This Agreement is full and complete and represents
the entire understanding and agreement between these parties with regard to all
matters contained herein.

                                      -5-

<PAGE>

There are no other agreements, conditions, or representations, oral or written,
express or implied, between these parties with regard to the subject matter
herein. This Agreement can be amended only in writing, signed by both parties
hereto.


     9.   Review of Agreement. The parties have read, considered, and fully
understand this Agreement, have had sufficient time to consider its terms, and
execute it knowingly, freely, and voluntarily. Both parties have had opportunity
to consult with their own independent attorneys or other advisors of their
choice. This Agreement does not constitute, nor shall it be construed as, an
admission of any obligation, wrongdoing, liability or fault of any kind on the
part of either party hereto nor on the part of any of the entities referenced
herein.

     10.  Acknowledgment. The undersigned have each read this Agreement and
understand all the terms fully and enter their signatures in order to signify
their understanding and voluntary agreement with all the terms and conditions
set forth herein.

Dated:                                       EMPLOYER

                                             EBENX, INC.


                                             By:
                                                 -----------------------------
                                                 Its:
                                                      ------------------------


Dated:
                                             ---------------------------------
                                             Employee


                                      -6-