Employers Brace for Rising Health Insurance Premiums in California

Employers in California are preparing for the most significant increase in health insurance premiums in 16 years, projected to occur in 2027. This rise will push the average cost of family coverage above $30,000, comparable to the price of a new compact car.

According to a survey by PwC, health insurance companies anticipate a 9% surge in the cost of medical services and prescription drugs in 2027. This increase represents the highest rise since 2011. Insurers use these projections to calculate next year’s premiums, and many employers pass a portion of this cost onto workers.

Experts indicate that rising premiums are taking a toll on worker wages and take-home pay, while also leading to higher prices for goods and services. “These escalating costs are eroding the standard of living for many Californian families,” said Glenn Melnick, a USC professor of healthcare finance. He explained that when businesses allocate more funds to health insurance, less money remains for wages. Consequently, the rising premiums function much like a hidden pay cut for families.

Small-business owners are questioning their ability to continue providing health insurance for their employees. Christin Evans, owner of the Booksmith bookstore in San Francisco, noted a substantial 17% increase in her staff’s premiums this year. To cope, she reduced staff hours by closing the store earlier. “We have to absorb these costs,” she said, acknowledging that they cannot pay the desired wages or offer the level of customer service they wish to provide.

Approximately 17 million Californians receive health benefits through their employers, with these premiums increasing more rapidly in California compared to the national average. Between 2022 and 2025, family premiums for Californian employers rose by 24%, reaching $28,397, nearly doubling the 12.2% increase in consumer prices over the same period.

After 2025, hospital and pharmaceutical costs experienced even greater escalation. PwC’s annual survey indicated an expected 8.5% increase in 2026, later revised to 9%. A key factor driving up medical costs is aggressive pricing by hospitals. In recent years, health systems like UCLA and Cedars-Sinai have expanded by acquiring nearby hospitals, increasing their market dominance and reducing competition. Melnick explained that as these systems grow, they gain the power to dictate prices to insurance companies.

A spokesperson for Cedars-Sinai referenced a 2022 study indicating that prices at for-profit health systems rose more rapidly than at nonprofits like Cedars. The study, partially funded by Cedars, emphasized the health system’s growth in patient care access and medical innovation in Los Angeles.

The rising cost of prescription drugs is another contributing factor. Cancer drugs, which represent the most expensive category, amounted to $143 billion in spending by 2025, an annual increase of 12%, according to PwC. Spending on obesity medications also rose substantially, primarily on drugs such as GLP-1 medications like Ozempic and Wegovy, which increased by 81% last year alone.

Although manufacturers claim these obesity drugs can cut medical expenses by preventing conditions such as diabetes and heart disease, PwC notes that data proving these savings is currently lacking. The California Healthcare Foundation reports that unchecked growth in hospital, pharmaceutical, and doctor fees has significantly driven costs upward over the decades.

California employer premiums are also set to rise due to a tax hike on private plans, enacted by Gov. Gavin Newsom and lawmakers, to fund Medi-Cal and balance the state budget. The California Association of Health Plans estimates that this higher tax will add $100 per person, or $400 for a family of four, to premiums next year.

In addition to employer-sponsored plans, families purchasing through state marketplaces like Covered California may face increasing premiums. Some families experienced double-digit hikes this year owing to rising medical costs and the withdrawal of temporary federal subsidies during the pandemic.

To manage these growing expenses, some employers are modifying their health plans by raising deductibles and co-pays. This shift in cost burden affects workers directly. Mercer’s survey revealed that 22% of CFOs have had to halt hiring or initiate layoffs due to escalating health benefits costs, with 36% noting harm to wages and raises.

According to Candice Elliott, a human resources consultant, smaller businesses such as restaurants are increasingly challenged to afford these higher costs. Many businesses have slim margins between revenue and expenses, leading some to add customer fees or increase menu prices to manage rising premiums. “This impacts affordability for the consumer, further exacerbating inflation,” Elliott said.

Some businesses are even transitioning to more affordable bronze plans from silver ones, effectively reducing employees’ pay. Others are outsourcing jobs overseas, where labor costs are more manageable, yet still cover benefits unaffordable in the U.S.

Melnick noted that many workers are unaware of the lost income stemming from increased employer premiums. He advises people to review their W-2 tax form, specifically box 12 under “Code DD,” to see the portion of costs related to their premium. At USC, Melnick’s family premium amounts to $45,000. He warned, “The base is so high that even a small increase has a significant impact.” These annual increases, he adds, pose ongoing challenges for all involved.