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A health insurance solution for employees in multiple states

April 9, 2020
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Many small and medium sized organizations have employees located across multiple state lines. This will become even more true if the trend to support a remote, distributed workforce continues. Providing good health insurance coverage for these employees can be challenging and complex.

An individual coverage health reimbursement arrangement (ICHRA) is a health benefits option that might solve this problem.

Health Insurance Challenges for Businesses with Employees in Multiple States

For employers with employees in multiple states, here are common health insurance challenges we hear about every day:

  • “Our company does not qualify for a group health insurance policy because of participation requirements or state-specific insurance regulations.”
  • “Our company has out-of-state employees who do not qualify for the company’s insurance plan, but the company would like to help with their insurance costs, as we do for other employees.”
  • “Our employees all say they have their own coverage and would prefer to keep it — especially if the company could contribute to the cost.”
  • “We tried the SHOP Marketplace, but there were simply too many multi-state hurdles to secure coverage.”

A Health Insurance Solution for Employees in Multiple States

There are a few options for organizations with employees in multiple states. However, the best one solves all of these challenges with a simple, effective benefits solution: a health reimbursement arrangement (HRA) offered to all or some of the organization’s employees. Employers can offer employees tax-free reimbursement of individual health insurance premiums — up to an allowance amount determined by the organization.

Reimbursing individual health insurance through an ICHRA is an effective solution for multi-state companies because:

  • The reimbursement plan may be offered to some or all employees based on location, job role, hours worked weekly, or participation (or non-participation) in the company’s group health insurance policy.
  • Different benefit allowances may also be offered based on the employee classifications list above. For example, employees in California could receive a different allowance amount than employees in New York. This allows organizations to provide equal levels of insurance to employees in states where premiums might cost more.
  • With a reimbursement plan, there are no minimum participation requirements.
  • With a reimbursement plan, there are no minimum contribution requirements.
  • Employees purchase and manage the plan of their choice, from local carriers and provider networks. This allows them to purchase an insurance plan that meets their current needs and life circumstances.
  • Reimbursement amounts issued through an HRA are tax-free to employees and tax-deductible to the company. To ensure compliance, and to make administration painless, most companies use HRA administration software.
  • Reimbursement amounts issued through a formal defined contribution plan are tax-free to employees and tax-deductible to the company. To ensure compliance, and to make administration painless, most companies use HRA administration software.
See how much offering an ICHRA will cost with our calculator

Example

A boutique marketing and design firm has 10 W-2 employees. Four managers are located in California with six associates working in Washington, Oregon, and Colorado.

After running into a dead end with purchasing a small group health insurance policy, the business decides to offer an ICHRA. Using employee classes, they offer $300/month to the four managers located in California and $250/month to the six associates working in Washington, Oregon, and Colorado. Note that it would also be possible for the firm to purchase a group plan in California and offer an ICHRA to employees outside of California.

In this example, each employee purchases coverage on their own via their state health insurance exchange, a broker, or directly from a carrier. This gives employees access to the specific doctors and level of coverage they prefer. Then, employees use their employer-funded HRA to get reimbursed for their premium, up to the amount available in their balance.

4 Simple Steps To Offer an HRA

This ICHRA approach is a bit different from group coverage but, in practice, is easier to implement, consisting of four simple steps:

  1. Determine which employees are eligible for the reimbursement program.
  2. Work with an HRA provider like PeopleKeep to create the plan and enroll employees.
  3. Educate employees on how the benefit works.
  4. Employees use HRA software to submit expenses and an administrator uses HRA software to reimburse employees and manage the benefit.

Interested in offering an ICHRA? Watch a demo of our software

Conclusion

Companies with employees in multiple states face challenges when it comes to offering employees health insurance coverage. One solution is to offer an ICHRA – also known as individual coverage health reimbursement arrangement – to some or all of the company’s employees. By reimbursing individual coverage premiums instead of paying directly for a more expensive group plan, the company can offer competitive and flexible health benefits to employees working in multiple states.

What questions do you have about health insurance solutions for employees in multiple states? What challenges or solutions have you come across? Leave a question or comment below.

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