Employers in California face a significant rise in health insurance premiums in 2027, the largest increase in 16 years. The average cost of family coverage could exceed $30,000, akin to purchasing a new compact car. Health insurance companies project a 9% surge in medical services and prescription drug costs, based on a PwC survey. Insurers calculate premiums using these forecasts, with many employers requiring employee contributions.

Experts highlight that rising employer premium costs are diminishing employee wages and take-home income, driving up prices of goods and services in California and nationwide. Glenn Melnick, a USC professor specializing in healthcare finance, warns that increased spending on health insurance leaves less money for wages, acting as a hidden pay cut for families.

Small-business owners question their ability to maintain health insurance coverage for workers. At The Booksmith in San Francisco, owner Christin Evans reports a 17% premium hike for employees, forcing reduced staff hours and early store closures. “We have to absorb it,” Evans explains, unable to provide desired wages and customer service.

Approximately 17 million Californians receive employer-sponsored health benefits, with state premiums rising faster than the national average. From 2022 to 2025, California saw a 24% increase in average family premiums, outpacing the 12.2% rise in consumer prices. Medical costs for hospitals, pharmaceuticals, and other services accelerated post-2025.

PwC’s annual survey last year predicted a similar 8.5% premium increase in 2026, later revised to 9%. Hospital pricing significantly contributes to rising medical costs, with major health systems like UCLA and Cedars-Sinai expanding dominance by acquiring hospitals and expanding clinics, reducing competition. Melnick notes that such systems can dictate price to insurers.

The growth of Cedars-Sinai Health System has increased access to top patient care and medical innovation in Los Angeles, a spokesperson stated, referencing a 2022 paper highlighting faster price increases in for-profit systems compared to nonprofits.

UCLA did not comment on the findings. The escalating cost of prescription drugs also plays a role. Spending on cancer drugs, the most expensive category, reached $143 billion in 2025 according to PwC, marking a 12% annual increase. Obesity drug expenses, including GLP-1 drugs like Ozempic, surged 81% last year, with a 30-day supply costing over $1,000.

Drugmakers suggest these medications could lower medical expenses by preventing costly conditions like diabetes, though PwC indicates data does not yet confirm this. Researchers at the California Healthcare Foundation highlight unchecked growth in hospital operations, drug prices, and physician fees as major issues. A 2022 report estimates $73 billion annually in California goes towards excess provider profits, administrative waste, and other non-patient expenses.

The pending premium hike for California employers is linked to legislation signed by Governor Gavin Newsom, which raises taxes on private plans to fund Medi-Cal and balance the state budget. The California Association of Health Plans anticipates this will add $100 per person or $400 for a family to the next year’s premiums, subject to approval from the Trump administration. State Assembly Republicans requested a halt to the proposal.

Premium increases are also expected for families purchasing coverage on marketplaces like Covered California, affected by rising medical expenses and expiring federal subsidies. This year, higher costs prompted nearly 400,000 Californians to drop Obamacare policies.

Employers are modifying health plans to pass increased costs to employees, raising deductibles and co-pays. A Mercer survey found 22% of CFOs stopped hiring or undertook layoffs due to high benefit costs. Over a third reported adverse impacts on wages and raises.

Human Resources Consultant Candice Elliott points out that small businesses, especially restaurants with tight budgets, have added fees to customer bills or raised menu prices to manage costs, further affecting affordability and inflation.

Some small enterprises switch from “silver” to less costly “bronze” plans, shifting premiums to employees. Others hire overseas workers, where payment and benefits remain more cost-effective. Melnick advises workers to check their W-2 tax forms for their employer premium cost, often surprising in magnitude. The ongoing annual increases adversely affect everyone, he warns.