Rising Health Insurance Costs in California: Impacts on Employers and Employees

Rising Health Insurance Costs in California Impact Employers and Employees

Health insurance costs for California employers have surged significantly, outpacing inflation over the past three years. This increase places financial pressure on both workers and small businesses. According to a November survey by health information organization KFF, more than 17 million Californians receive health coverage through their employers. The survey revealed that the average annual premium for a family plan now stands at $28,400, marking a 24% increase compared to a 14% wage growth and a 12% inflation rate nationally.

Factors Driving Premium Increases

Several factors, including industry consolidation and increased usage of weight-management drugs like Ozempic, contribute to accelerated growth in premiums post-COVID-19. These dynamics impact both families and businesses, although leading health insurers in the state continue to report profitability. Regulatory compliance requirements also play a role in these cost increases.

Beyond rising premiums, many employees in California face higher out-of-pocket expenses. As companies allocate more resources to health plans, there is less available for wages and other benefits. Studies suggest that disproportionate increases in healthcare costs have historically affected salary growth adversely.

Employer Obligations and Financial Impacts

Under the Affordable Care Act, companies with at least 50 full-time equivalent employees must provide health insurance meeting specific affordability and care standards, sharing the premium costs with employees. On average, employers contribute about 75% of family plan premiums and 85% of single plan premiums. This regulatory compliance adds to operational costs, especially for small businesses.

In the small business sector, such as independent retailers, health insurance costs represent a major operational expense. For instance, a small bookstore in San Francisco reports significant premium increases for employee healthcare benefits, predicting further rises in the coming years. This places additional burden on risk management strategies for small business owners.

Survey Insights and Future Implications

Between January and July 2025, KFF conducted interviews with 460 employee benefit managers across California to assess these trends. They noted that while insurance costs increased during the pandemic's peak years, delays in care and inflation have elevated prices further. Legislative changes, such as a separate minimum wage for healthcare workers in California, have also contributed to rising expenses.

The survey also highlighted an increase in the number of workers facing deductibles, adding to their financial burdens. Concerns about plan affordability persist, particularly for those reliant on employer-sponsored insurance. In the broader market, the expiration of Affordable Care Act tax credits will likely lead to significant premium increases for individual health insurance enrollees in California.

Profitability Amidst Rising Costs

Despite challenges, leading insurers in California have maintained robust financial performance, with some reporting substantial profits. This underscores the complex interplay between rising healthcare costs and industry profitability. These developments highlight ongoing challenges in balancing affordability and coverage quality within the health insurance sector.