The Multi-State Challenge
With about 22% of the American workforce now working remotely, small businesses increasingly have employees scattered across multiple states. This creates a real headache for benefits, especially health insurance.
Health insurance is regulated at the state level. A plan that works great for your team in Texas might have a terrible network in Oregon. Some carriers don’t even operate in certain states. And if you’re a small business with 2 employees in California, 3 in Florida, and 5 in your home state, finding one plan that works well for everyone is genuinely difficult.
The good news is there are several approaches that solve this problem. The right one depends on your team size, budget, and how much administrative complexity you’re willing to handle.
Option 1: ICHRA (Most Flexible)
An Individual Coverage HRA is often the best fit for remote teams. Here’s why: instead of trying to find one group plan that works everywhere, you give each employee a fixed monthly allowance to buy their own health insurance on their local market.
An employee in Nashville shops the Tennessee marketplace. An employee in Portland shops Oregon’s. Everyone gets coverage that works with local doctors and hospitals, and you reimburse them the same amount regardless of where they live.
The benefits for remote teams specifically: it works in all 50 states, there’s no network problem because employees choose local plans, and you can set different allowance amounts by employee class (including by geographic region, which lets you adjust for cost-of-living differences in healthcare).
The downside is that employees have to shop for their own insurance, which some people find stressful. Partnering with an ICHRA administration platform can help with the enrollment process.
Option 2: National Group Plan
Some carriers (UnitedHealthcare, Aetna, Cigna, Blue Cross Blue Shield’s national network) offer plans with provider networks that span most of the country. If your team is spread across states where these carriers have strong presence, a single national plan can work.
This is the simplest approach administratively. One plan, one carrier, one renewal. But simplicity comes at a cost. National plans tend to have higher premiums than local plans, network quality varies significantly by region, and employees in smaller markets may find limited provider options.
National group plans work best when your remote employees are in major metro areas where large carriers have robust networks. They’re less ideal for employees in rural areas or states where the dominant carrier isn’t your national plan provider.
Option 3: PEO
A Professional Employer Organization pools your employees with thousands of others across the country, giving you access to multi-state benefits without having to manage it yourself. The PEO handles health insurance enrollment, compliance with each state’s requirements, and benefits administration.
For very small businesses (under 20 employees) with team members in multiple states, a PEO can be the most practical option. You get a professionally managed benefits package without having to become an expert in multi-state compliance.
The tradeoffs are the co-employment arrangement (the PEO becomes the employer of record for benefits purposes) and the per-employee fees ($150 to $250 per month on top of insurance premiums).
Option 4: State-by-State Plans
If you have clusters of employees in specific states, you can offer separate group plans in each state. An employee in California enrolls in a California-based plan, and employees in New York enroll in a New York plan.
This approach gives employees the best local network access and often the most competitive rates in each market. But it’s the most complex to administer. You’re managing multiple carriers, multiple renewals, multiple compliance requirements, and multiple sets of plan documents.
State-by-state plans make sense for larger companies with 10+ employees in each state. For a small business with one or two people per state, the administrative burden usually isn’t worth it.
Beyond Health Insurance
Health insurance is the biggest multi-state challenge, but other benefits need attention too.
Retirement plans (401k, SIMPLE IRA) are federally regulated, so they work the same regardless of where employees are located. No state-by-state complexity here.
FSAs and HSAs are also federally governed, though a few states (like New Jersey and California) tax HSA contributions differently. Make sure your employees in those states understand the state-level tax implications.
PTO policies may need to comply with state-specific laws around sick leave, paid family leave, and vacation payout at termination. States like California, Colorado, and New York have specific requirements that override your general company policy.
Workers’ compensation insurance is state-regulated and you typically need a policy in each state where you have employees. This is another area where a PEO can simplify things significantly.
State Registration and Compliance
An often-overlooked issue: if you have employees in a state, you likely need to register as an employer in that state, withhold state income taxes, pay into the state’s unemployment insurance fund, and comply with local labor laws.
This isn’t directly a benefits issue, but it impacts your ability to offer benefits and your overall cost of having remote employees. A payroll provider or PEO can handle multi-state tax withholding and compliance filings.
Making the Decision
For most small remote teams, ICHRA is the most practical starting point. It solves the network problem, gives you cost control, and scales naturally as you hire in new states. Pair it with a Section 125 plan for pre-tax treatment of employee contributions, and add a retirement plan that works nationally. Understanding FSA vs. HSA vs. HRA options helps you choose the right approach for your distributed team.
If you want someone else to handle the complexity, a PEO bundles everything together, including multi-state compliance.
If you have enough employees concentrated in specific states, state-by-state group plans offer the best coverage but require more administrative work.
Bottom Line
Remote work doesn’t have to mean giving up on benefits. The tools exist to offer competitive health insurance and other benefits to a distributed team. The key is choosing an approach that matches your team’s size and geographic spread rather than trying to force a traditional single-state solution onto a multi-state reality.
