Your Group Plan Is Overcharging Dallas to Subsidize Denver

A single group plan prices off one blended rate, so employees in low-cost states quietly subsidize employees in high-cost ones. ICHRA fixes that by letting you set a defined contribution that tracks local market pricing, geography by geography. Get the class design and ERISA paperwork right, and a scattered multi-state cost problem turns into a budget you can actually control.

Why does one group plan overcharge a multi-state team?

Because it prices off a single blended rate, and healthcare doesn't cost the same everywhere. Every employee pays into the same pool, whether they live in Austin or Boston.

According to the Peterson-KFF Health System Tracker, the number, types, and relative affordability of individual market plans vary significantly across states and even across rating areas within the same state. A blended group rate ignores all of that.

So you overcharge employees in low-cost markets, overpay as an employer, or both. Usually both.

What does ICHRA actually do for a multi-state workforce?

It replaces one blended rate with a defined contribution you set per employee. You can vary that amount by geography. A geographic class set at the state level or broader carries no minimum class size requirement, though a class drawn tighter than a state can trigger one if you also offer a group plan to another class.

The Peterson-KFF brief confirms employers can vary ICHRA amounts by class, by family structure, by age within a 1:3 ratio, and by geographic location tied to ACA rating areas. So your allowance can flex by location, age, and family size at once.

Say California employees get $600 a month and Texas employees get $500 a month. Those illustrative figures track local pricing, not an average that helps nobody. Each employee shops their own state's individual market with an allowance sized for it.

How does ICHRA fix cross-subsidization?

It converts an unpredictable blended renewal into a fixed, geo-calibrated contribution. The hidden transfer between locations goes away.

Here's what quietly happens inside most multi-state group plans. Low-cost geography employees subsidize high-cost geography employees. The employer absorbs the blended renewal hit every year without ever seeing the breakdown by location.

With ICHRA, a Dallas allowance and a Denver allowance each reflect their own market. You stop paying Denver rates for Dallas headcount.

Within any single class, you owe every employee the same terms. Adjustments are still permitted for age and for number of dependents, per the Peterson-KFF brief. So the contribution stays fair inside a class while still tracking geography across classes.

Does ICHRA solve the one-size network problem?

Yes. Each employee picks the plan that fits their local market instead of your compromise carrier.

Remote-first companies know this pain. You picked a national PPO so everyone has access, but that network is mediocre everywhere instead of excellent anywhere. You pay for national reach most employees never use.

With ICHRA, a Seattle employee can choose a tight local HMO with strong hospital relationships. A Nashville employee chooses something else. Nobody is stuck with one carrier decision made for the whole roster.

A hybrid model is allowed too. You can offer a group plan to one class, like headquarters staff, and ICHRA to another, like remote or out-of-state teams. One rule holds firm: ICHRA and a group plan are mutually exclusive per class, so you can't offer an employee a simultaneous choice between the two.

What should you do before your next renewal?

Start by pulling your roster by state and rating area, then map where the blended rate is overcharging you. That single view usually tells you whether geographic classes are worth it.

Adoption backs the case. The HRA Council reports small-business, non-ALE ICHRA adoption up 52% among its founding members in its latest ICHRA and QSEHRA report. This isn't a fringe idea anymore.

Then set the structure up clean. Geographic classes, contribution schedules, age and family-size adjustments, and a compliant ERISA written plan document all have to work together, or the savings evaporate in liability.

Frequently asked questions

How many geographic classes can an ICHRA have?

There's no cap on the number of geographic classes. A class set at the state level or broader carries no minimum class size requirement, but a class drawn tighter than a state can trigger one if you also offer a group plan to another class. For the class buckets and the size rules that apply to other class types, see our guide to ICHRA employee classes and size rules.

Can I offer a group plan and an ICHRA at the same company?

Yes, as long as no single class gets both. You can put headquarters staff on a group plan and remote or out-of-state staff on an ICHRA. What you can't do is give one employee a simultaneous choice between the two, because they're mutually exclusive per class.

Does ICHRA get me out of ERISA?

No, an ICHRA is a group health plan under ERISA, and it needs a compliant written plan document available to employees on request. Notices, affordability testing, and substantiation still apply. Our breakdown of the ICHRA compliance stack walks through what stays on your plate after you leave the group market.

How is this different from just funding coverage myself?

An ICHRA is a formal defined-contribution arrangement, not an informal cash handout. It sits in the same family as other funding choices you can compare in our funding models overview. The structure is what makes the reimbursements tax-advantaged and the design defensible.

Will employees actually get comparable coverage on the individual market?

In most rating areas, yes, and often with more plan choice than a single group carrier offers. Peterson-KFF notes that options and affordability vary by state, so results depend on where your people live. That's exactly why calibrating the allowance to each market matters.