Health insurance costs spike for businesses, workers after pandemic

The cost of employer-sponsored health insurance in California rose at twice the pace of inflation over the past three years, squeezing workers' paychecks and small businesses alike.

More than 17 million Californians have health insurance through their job, according to a survey released in November by the health information group KFF. The average cost of premium payments for an employee's family plan rose 24% to $28,400 a year, the survey found. Meanwhile, the national inflation rate was 12%, and wages grew by 14%, KFF wrote.

Health insurance premiums have risen year after year for decades. But costs spiked after the start of the COVID-19 pandemic, driven by industry consolidation, increasing use of Ozempic and similar weight-loss drugs and other factors, according to KFF. Together, these forces are putting pressure on families and businesses, while some major health insurance providers in California continue to post profits.

"People are paying more and more, it's taking up more and more of their family budgets, and they're getting less," said Miranda Dietz, who leads UC Berkeley Labor Center's health program.

Along with rising premiums, more California employees also face increasing out-of-pocket costs. Workers bear indirect costs, too, Dietz said. As businesses spend more on health plans, they spend less on wages and other benefits, she said. She cited a study that concluded the average family with employer-sponsored health insurance would have earned nearly $9,000 more in 2019 if the cost of care hadn't increased disproportionately since the late 1980s.

Under the Affordable Care Act, businesses with at least 50 full-time equivalent employees must offer health insurance coverage that meets affordability and care requirements, or face fines. Workers and businesses split the cost, and in practice, businesses shoulder most of the burden: employers pay about three-quarters of a family plan premium, on average, and about 85% of single plans, according to KFF.

At the independent bookstore Booksmith in San Francisco's storied Haight-Ashbury neighborhood, owner Christin Evans said four of her employees qualify for health benefits. She said she covers the full cost of her workers' Kaiser Permanente care — one of her "top expenses" of doing business.

Her costs are rising, she said, by about 17% — to $3,250 each month in 2026 from $2,776 in 2025. Last year, premiums rose 7.5%, she said.

"Many small business owners will likely decide to cut benefit offerings and reduce wages," said Bianca Blomquist, director of the advocacy group Small Business Majority California, in an email. "While some entrepreneurs may even close up shop and go work for someone else, mainly so they can access quality health insurance."

Faced with high health insurance costs, owners could be unable to make other investments in their businesses, she said.

Matthew Rae, associate director of KFF's health care marketplace program, led the California survey. Between January and July 2025, KFF oversaw interviews with 460 employee benefit managers at companies based in California or with workers here.

In an interview, Rae pinned part of the cost spike on the pandemic, which officially ended in May 2023. During the worst days of the pandemic, in 2020 and 2021, insurance costs grew slowly as patients delayed serious care, he said.

Then "pent-up" need for care arrived, inflation nationally drove up prices and health care workers fought for better pay and benefits, Rae said.

In California, Gov. Gavin Newsom signed a law in 2023 setting separate minimum wages for health care employees, which reached $24 per hour at hospitals with 10,000 or more full-time employees this year. (The state's general minimum wage is $16.50 per hour.)

Meanwhile, more Californians began using expensive GLP-1s such as Ozempic or Wegovy to manage diabetes and lose weight, Rae said. The hospital industry became more consolidated nationally, he said, which contributes to rising costs by reducing competition. More than 400 hospital and health system mergers were announced from 2018 to 2023, KFF said.

Meanwhile, some of California's biggest insurers are posting profits.

An analysis by the Center for Media and Democracy, a Wisconsin-based nonprofit watchdog, found Kaiser Permanente put $27 billion into reserves in the last four years. The Oakland-based health giant reports several billion dollars of profit each quarter. Elevance Health, the publicly-traded parent company of Anthem Blue Cross, reported $1.2 billion in profit in the third quarter of 2025, up from $1 billion the year prior, the Wall Street Journal reported.

While health plan premiums rose for workers and employers over the past three years, the quality of the insurance declined. The KFF survey found that 75% of workers now have a deductible, up from 68% three years ago.

According to the UC Berkeley Labor Center, less than half of Californians in the private sector had a deductible 20 years ago. Rae said that it can strain workers and their families.

"There's a lot of worry about the affordability of plans for even people who are working," or who have a family member who is, Rae said. "You're pushing people past their assets, because the deductibles are too high."

At the same time, changes are happening outside of the employer-based health insurance market. The new KFF data arrived in November as public health experts and patients began to brace for a big shake-up in the individual health insurance market: the expiration of Affordable Care Act tax credits that have benefited enrollees since 2021. In California, monthly premiums for those plans will double on average, according to Covered California, the state's Affordable Care Act marketplace.

Self-employed freelancers and contractors, in particular, can expect major price spikes when the credits expire at the end of December. But small business owners and their workers make up half of all Affordable Care Act enrollees nationally, said Blomquist, of the small business advocacy group.