Why a second state complicates a group plan

Insured health coverage is regulated by the states. Beyond the benefits a plan must include, state law governs the insurance contract, the rates and the consumer protections, so a small-group plan is written to one state’s rules. California’s small-group law applies to employers with 1 to 100 employees, most of whom work in California, counted with the federal full-time and full-time-equivalent method.

Other states draw their own lines. Colorado, for example, applies its small-group rules when the small employer’s primary business location is in Colorado, even for employees who live elsewhere. That is one state’s approach, not a national standard, which is why a team spread over three or four states raises questions a single-office business never meets.

One small-group plan for a multi-state team

The most familiar route keeps everyone on one group plan. HealthCare.gov’s guidance for a SHOP employer with workers in several states is to enroll in the state of its primary business site and choose a single plan with a multi-state or national provider network, so the people outside that state can still see doctors near home.

A plan sold as national can still have thin coverage in some areas. Before you commit, list the ZIP codes where your remote employees live and check the network directory for each one, including the hospitals and any specialists someone already relies on. A gap is far easier to deal with before enrollment than after it.

ICHRA, now also called a CHOICE Arrangement

An individual coverage HRA turns the question around. CMS describes the CHOICE Arrangement, previously called an ICHRA, as a health reimbursement arrangement that gives employees tax-free money to buy their own individual health insurance instead of joining a group plan, and the employer can extend it to family members. CMS lists a workforce spread across several states among the reasons an employer might use one.

It can reimburse individual coverage bought on the Marketplace or off-exchange, plus Medicare Parts A and B and Medicare Advantage. Short-term limited-duration plans and stand-alone dental or vision coverage do not qualify. The employer sets the contribution, with no required minimum or maximum, and can offer it to all employees or to certain classes on the same terms within each class. No employee can be given a choice between the group plan and the HRA, and class-size minimums can apply when some classes get a group plan instead.

Employees generally receive a written notice at least 90 days before each plan year, explaining how the HRA affects their eligibility for the premium tax credit. CMS publishes a model notice, model attestations and a lowest-cost silver plan look-up table for testing affordability. For employers subject to the employer mandate, affordability is measured against the lowest-cost silver self-only plan where the employee lives, with a safe harbor that allows the primary work site instead. CMS also notes that a broker or third-party administrator can help set one up and run it.

QSEHRA for employers under 50

The qualified small employer HRA is narrower. An employer can offer one only if it is not an applicable large employer and offers no group health plan to anyone. The IRS counts a stand-alone dental or vision plan, a health FSA or another HRA as a group health plan, so any of them rules a QSEHRA out. The employer funds it alone, with no salary reduction, on the same terms for every eligible employee.

The plan can leave out employees with under 90 days of service, those under 25, part-time and seasonal workers, staff under a collective bargaining agreement that covered health benefits, and certain nonresident aliens. Reimbursements are tax-free only when the employee has minimum essential coverage. Written notice is due 90 days before the year begins, with a per-employee penalty for missing it, and the annual limits are indexed each year.

PEOs and co-employment

A professional employer organization takes on payroll administration and employment tax reporting, usually for a fee tied to payroll. A certified PEO is one the IRS has certified under Internal Revenue Code section 7705, a voluntary program created by the Tax Increase Prevention Act of 2014. For federal employment taxes, a certified PEO is generally treated as the employer of the work-site employees it pays. An uncertified PEO does not automatically take on that liability, and the IRS cautions that the client can remain liable.

Under co-employment, the PEO shares employer duties rather than replacing you, and client employees are typically enrolled in the PEO’s master benefit plans. That arrangement is one way a small business can reach large-group style benefits. Using a PEO does not by itself remove your exposure if a worker is misclassified, so read the agreement closely.

The 50-employee line and the employer mandate

Under federal law, the employer mandate starts at 50. An employer averaging at least 50 full-time employees, counting full-time equivalents, in the prior year is an applicable large employer. To find full-time equivalents, cap each part-time person at 120 hours a month, add the hours together and divide by 120. Related companies under common ownership are generally counted together.

A business that grows past 50 during a year does not become an applicable large employer until January 1 of the next year, which gives you a window to plan. California’s own small-group count runs to 100, so a business with 50 to 100 full-time equivalents can be large under the federal ACA and still small under California insurance law. Have a tax professional confirm your count before you choose a route.

When an employee leaves

Continuation rules travel with the plan. Federal COBRA applies to private-sector group plans of employers with at least 20 employees on more than half their business days in the prior year, and generally lasts up to 18 months after a job ends. Cal-COBRA covers employers with fewer than 20 employees, with up to 36 months of continuation. For larger employers whose group policy was issued in California, it can extend federal COBRA to a combined total of up to 36 months.

Getting an introduction for a multi-state team

Fill in the quote form on this page with the states your employees work from and the headcount in each, and we will hand the request to a benefits partner that works with remote teams. Say whether you have a group plan now and whether you are weighing an HRA. Plans, pricing and who qualifies are for the partner and the insurer to decide.

A few useful answers

Common questions

Can one small-group plan cover employees in several states?

It can, when the plan’s network reaches where those employees live. HealthCare.gov’s guidance for SHOP employers is to enroll in the state of the primary business site and pick one plan with a multi-state or national network. Check the directory for every remote employee’s area first.

Is an ICHRA the same as a CHOICE Arrangement?

Yes. CMS now uses the name CHOICE Arrangement for the arrangement it previously called an individual coverage HRA, or ICHRA. It reimburses employees for individual health insurance they buy themselves.

Can an employer with a dental plan also offer a QSEHRA?

Not while the dental plan stays in place. The IRS treats a stand-alone dental or vision plan as a group health plan, and an employer offering any group health plan cannot offer a QSEHRA.

When does a growing company become subject to the employer mandate?

Status is based on the prior year’s average of full-time employees and equivalents. A small employer that passes 50 during a year does not become an applicable large employer until January 1 of the following year.

Does a PEO become the employer for tax purposes?

A certified PEO is generally treated as the employer for federal employment taxes on the wages it pays. An uncertified PEO does not automatically take on that liability, so the client can remain responsible.

Health Insurance for Remote Employees in Other States