The shift to remote and hybrid work that occurred during the pandemic has permanently changed how many California businesses recruit and retain employees. Today, it’s common for companies based in Los Angeles or Sacramento to have employees in New York, Texas, or even in another country.
While there are certainly advantages to recruiting from across the country or the world, there are also some additional challenges, especially where employee benefits are concerned. Many remote employees have questions during interviews such as “can a California-based small group plan cover me?” or “If I can’t use your local HMO network, can I get adequate coverage?”
If you’re a business owner navigating the complexities of finding health insurance for small businesses with employees in multiple states, you’re not alone. JC Lewis is here to bring our decades of experience to the table. Let’s take a look at how health insurance works for distributed teams and how you can find coverage that works for you and all of your employees, regardless of where they are physically located.
The Remote Employer Decision Tree
Determining the right type of insurance plan for your remote team first requires you to look at your headcount, operational location, and other factors. This decision tree will help you narrow down the policies to those that are right for you.
Is your company physically headquartered in or do you have a primary business address in California?
NO: You don’t qualify for California small group health insurance.
YES: Where do your workers physically live and work?
All in California: Look at national PPO or regional HMO networks.
Some in California, some in other states: Do 51% or more of your eligible employees live in California?
YES: You qualify for a California small group plan with a national PPO/PPO-equivalent out of state network option.
NO: You may need a multi-state carrier arrangement, a PPO nationwide network, or an alternative reimbursement model such as ICHRA.
Two other factors to consider:
Are your out-of-state employees W-2 employees or 1099 contractors?
W-2 employees: They are eligible for your group health plan.
1099 contractors: They are ineligible for small group plans under California law.
Is in-network primary and specialist care available in an employee’s location (by zip code)?
YES: A standard national PPO or a wrap network is a good fit.
NO: You’ll need to look at broad PPO or individualized coverage.
Comparing Multi-State and Remote Health Coverage Strategies
When covering employees across different states, most California small businesses look at four different options:
| Type of Coverage | How It Works | Best For | Advantages | Limitations |
| California Group Plan with National PPO Network | Provided by a California carrier using a national network wrap for out-of-state employees. | California-based companies with at least 51% of employees living in CA and remote workers spread across the country. | Single monthly bill, consistent benefit tiers, nationwide physician and hospital access. | PPO premiums are typically higher than local HMOs. |
| Dual-Choice / Multi-Network Plan (On or Off Exchange) | Localized HMOs for CA-based employees plus national PPOs for out-of-state employees under a single group. | Businesses with many employees in California and some remote workers elsewhere. | Optimizes your budget by keeping local costs lower via HMOs while providing out-of-state coverage where needed. | Requires clear open enrollment instructions to ensure employees select the correct network for their region. |
| Individual Coverage HRA (ICHRA) | Employer provides tax-advantaged reimbursements (ICHRA) that allow remote workers to buy individual plans in their home state. | Businesses with employees spread across multiple states where group plan participation limits are hard to meet. | Eliminates state-by-state network management; employer sets a fixed contribution amount. | Employees must navigate individual state exchanges themselves; individual plan networks vary widely by location. |
| Broker-Guided Multi-State Sourcing | Business owners work with an independent broker to review carriers across state lines and customize a multi-state plan. | Growing mid-sized businesses that are expanding into new state markets with complex payroll needs. | Customized compliance review, side-by-side cost comparison, and ongoing support. | Requires upfront payroll and employee documentation across all operating states. |
Core Rules for California Employers with Remote Staff
There are several regulatory standards that California insurance carriers enforce when insuring out-of-state employees:
1. The 51% Principal Business State Rule
In order to qualify for a small group policy in California, you have to have at least 51% of your enrolled W-2 employees living or working in California. If most of your team lives outside of the state, insurance carriers will typically require the master policy to be written in the state where the highest concentration of employees live. The other option is that you will need to look at a specialized multi-state carrier.
2. The Risk of “Emergency-Only” Out-of-State Coverage
Many businesses make the mistake of putting their remote employees on a regional California HMO plan. These plans typically restrict coverage to emergency rooms only once an employee is outside of their local service area. This means your remote employees in other states who are on a California HMO will not have in-network coverage for their primary care physicians, specialists, or even lab work. Anything done outside of California that isn’t an ER visit will be considered out of network. The better option is to look at a PPO plan with a national network wrap. This will cover routine medical care for both in-state and out-of-state employees.
3. W-2 Status vs. 1099 Independent Contractors
Under California law, group health plans are only available for common-law W-2 employees. Anyone who is a 1099 contractor is strictly excluded from these policies, regardless of where they live or how many hours they work.
Optimizing Costs for Distributed Teams
Providing coverage to remote employees on nationwide PPO networks is often more expensive than providing coverage to local employees through California HMOs. However, there are a few ways you can keep premiums lower:
- Use a defined contribution model. Instead of paying a percentage of the plan an employee picks, you set a fixed monthly dollar amount, such as $500 per employee. The employee can then apply this amount to the plan they want, then pay any remaining balance via a pre-tax payroll deduction.
- Tiered Offerings. You could also offer a local HMO as the low-cost option for your California employees and offer a PPO option specifically for remote team members who live out of state.
Build a Remote Benefits Strategy That Works
Managing health benefits for your remote workers doesn’t have to be an expensive, complex task. By understanding the available options, you can select one that provides the coverage your team needs while fitting within your budget.
J.C. Lewis can help California employers compare whether a traditional group plan, carrier network strategy, or alternate benefits discussion makes sense for their employee footprint. Reach out today to book a consultation.
