Health premiums for California employers will cost the equivalent of a new car by 2027

Employers are bracing for what could be the largest increase in health insurance premiums in 16 years by 2027, driving the average cost of coverage for a family in California to more than $30,000 — the price of a new compact car.

Health insurance companies expect the cost of medical services and prescription drugs to increase by 9% by 2027, according to a new survey by PwCthe highest increase researchers have found since 2011. Insurers use those expected medical expenses to calculate the price of premiums for the coming year. Many employers require employees to pay a portion of those costs.

Experts say the rising cost of employer premiums is driving down workers' wages and take-home pay, while driving up the prices of goods and services in California and across the country.

“It's going to destroy the standard of living for a lot of California families,” said Glenn Melnick, a USC professor of finance.

Melnick said that if employers are forced to spend more money on health insurance, less money is available for wages. The higher costs, he said, equate to reduced wages for working families.

High costs also have small business owners wondering if they can continue to pay for health insurance for their employees.

This year, premiums for workers at Booksmith, an independent bookstore on Haight Street in San Francisco, have jumped 17%, said Christine Evans, the store's owner. Next year can bring even more pain. The monthly salary for four employees is $3,250.

To try to cope, Evans said, he cut staff hours by closing the store early.

“We have to feed you,” he said. “We're not paying the wages we want to pay or delivering the customer service we'd like to deliver.”

Seventeen million Californians receive employer health benefits. Those premiums were rising faster in California than the national average.

Between 2022 and 2025, the average household wage for employers in the state increased 24% to $28,397, according to research by KFF and the California Healthcare Foundation. That was nearly double the 12.2% increase in consumer prices during those years.

Hospital, drug and other medical expenses will increase rapidly after 2025.

PwC's annual survey of insurance companies last year found an expected increase of 8.5% by 2026, which its researchers later revised to 9%.

The main driver of rising medical costs, according to experts, is the prices charged by hospitals. In recent years, some health systems, including UCLA and Cedars-Sinai, have expanded by buying nearby hospitals and expanding their clinics, becoming more active in the community and reducing competition.

Melnick said the expansion of some health plans into larger organizations means they “can tell the insurance companies what the price is going to be.”

A spokesperson for Cedars-Sinai pointed to a 2022 paper that found that prices for for-profit health systems rose faster than those for nonprofit systems like Cedars. This paper was sponsored in part by Cedars.

“Cedars-Sinai Health System's growth in recent years has increased access to the highest levels of patient care and innovative medical techniques in the Los Angeles region,” a spokesperson said.

UCLA did not respond to requests for comment.

Another factor is the rising cost of prescription drugs. Spending on cancer drugs, the most expensive category, will reach $143 billion by 2025, an annual increase of 12%, a PwC survey found.

National spending on obesity drugs, including GLP-1 drugs like Ozempic and Wegovy, rose 81% last year, PwC said. A 30-day supply of medication lists for more than $1,000.

Ozempic injection pen.

(Christina House/Los Angeles Times)

Gallup said this month its survey found that 11% of US adults now they are taking GLP-1 weight loss drugs.

Manufacturers of obesity drugs say the drugs can reduce medical costs by preventing other costly conditions such as diabetes and heart disease, but the data has yet to show such a reduction, PwC said.

Researchers at the California Healthcare Foundation say a big part of the problem is that hospital operating costs, prescription drug prices and physician fees have been allowed to grow unchecked for decades.

The base is balanced in last year's report that 25 cents of every dollar spent in California – more than $73 billion each year – goes to nothing to help patients. Instead it goes to excessive profits for suppliers, administrative red tape and other waste, the foundation found.

California renters' premiums are expected to increase next year for another reason: Gov. Gavin Newsom and lawmakers they agreed in June to raise taxes in private programs to help cover the cost of Medi-Cal, which covers medical expenses for the poor, and to help balance the state budget.

California Assn. of Health Plans said insurers will add taxes to next year's premiums. The trade group estimates that the higher tax will cost each insured person $100 next year or $400 for a family of four.

The higher tariffs still have to be approved by the Trump administration. Republicans in the state Assembly wrote a letter to the administration this month, asking officials to deny the request.

Researchers also expect a jump in premiums for families without employer insurance who buy policies in state marketplaces like Covered California. Some of those families have faced double-digit increases this year due to rising medical costs and the end of enhanced federal funding that was approved by Congress as a temporary measure during the pandemic. Nearly 400,000 Californians have dropped their Obamacare plans this year as rates rise.

To deal with higher premiums, some employers are changing the design of their health plans to shift more costs to employees by raising deductibles and co-pays.

Those high out-of-pocket costs are just the beginning of the fallout. Twenty-two percent are chief financial officers tested by Mercer in February he said the high cost of health benefits forced them to stop hiring or lead to layoffs. 36 percent of those executives said rising premium costs hurt wages and employee raises.

Candice Elliott, a human affairs consultant in Santa Cruz, said small businesses like restaurants are struggling to find ways to cover higher costs.

Many restaurants, Elliott said, already have a small ratio between revenue and expenses. When premiums went up, he said, some restaurants added money to customers' bills to help cover workers' health costs. Others have increased menu prices.

“That affects the consumer's purchasing power,” Elliott said. “It makes inflation bigger.”

Some small businesses have moved away from so-called silver plans into lower-cost copper plans, he said, which pay less in monthly workers' compensation. “It's a decrease in wages,” he said.

Some hire workers overseas, Elliott said. “You can pay a southerner half of what you pay an American and still give them a good standard of living and benefits that are unattainable in the US,” he said.

Melnick, the USC professor, said many workers don't realize how much money they're losing as their employers' premiums go up. He tells people to look at their last year's W-2 tax form, where employers are required to report employee compensation expenses in box 12, under “Code DD.”

He said the USC premium for his family of four is $45,000.

“The base is so high that even a small increase has a big impact,” he said. The continued annual increase, he said, is “bad news for everybody.”