Health Insurance Premiums Are Climbing Faster Than Inflation, Squeezing Californians
Californians are grappling with a significant increase in health insurance premiums, which are rising at a rate exceeding inflation, placing an increasing strain on household budgets and small businesses.
Kirk Vartan, general manager at A Slice of New York pizza shops in the Bay Area, pays over $2,000 a month for a high-deductible health plan. Despite not being sick, he considers the cost “ridiculous.”
“It’s for the two of us, and we’re not sick,” Vartan said.
This is a common sentiment among millions of Californians struggling with the soaring cost of health coverage.
National Trend: Premiums Surge
Analysis from KFF Health News indicates that average monthly premiums for families with employer-provided health coverage in California’s private sector nearly doubled between 2008 and 2023, jumping from just over $1,000 to almost $2,000. This increase outpaced inflation by a significant margin. The trend is not confined to California, as premiums across the country rose at a similar rate over the same period.
Data also points to rapid premium growth in 2024.
The Burden on Small Businesses
Small-business groups are concerned that the situation could worsen if Congress fails to extend federal subsidies that make health insurance more affordable, particularly in individual markets like Covered California. Premiums on Covered California have jumped roughly 25% since 2022 – approximately twice the pace of inflation. However, nearly 90% of enrollees on this exchange benefit from state and federal subsidies, which help mitigate the high costs based on income.
Public Sector Employees Also Affected
Rising premiums are also affecting government employees and taxpayers. Premiums from CalPERS, which provides insurance to over 1.5 million public employees and their families, have risen about 31% since 2022. Public employers share the premium costs with their employees, with the rest being covered by workers.
Factors Driving Costs
Miranda Dietz, a researcher at the University of California-Berkeley Labor Center, highlights rising hospital prices as a major contributor. Hospital and nursing home costs rose about 88% from 2009 through 2024, exceeding the overall inflation rate. She also cited the high cost of administering the U.S. healthcare system.
“Insurance premiums have been going up faster than wages over the last 20 years,” Dietz noted. “Especially in the last couple of years, those premium increases have been pretty dramatic.”
Impact on Families and Businesses
The annual cost of family health insurance offered by private sector companies in California averaged about $24,000 in 2023, or roughly $2,000 a month, according to the U.S. Department of Health and Human Services. Employers covered about two-thirds of this cost, with workers contributing the remaining third. The employee share of premiums has grown faster in California than nationally.
Many small business owners turn to Covered California for health coverage because they don’t offer it to their employees.
“When an employee of a small business isn’t able to access health insurance with their employer, they’re more likely to leave that employer,” said Bianca Blomquist, California director for Small Business Majority, an advocacy group.
Vartan’s pizza shop employs about 25 people and operates as a worker cooperative. He said the business’s limited negotiating power left them with expensive plans that offered limited coverage compared to what employees could find on their own through Covered California. “It was a lose-lose all the way around,” he said.
Mark Seelig, a spokesperson for Blue Shield of California, pointed to the rising costs of hospital stays, doctor visits, and prescription drugs as factors driving premium increases. Blue Shield has initiated a program to potentially lower drug prices.
Rising Deductibles
Even for companies that do offer insurance, the percentage of employees’ plans with a deductible has risen significantly to 77% over the past two decades. For the average employer-provided family health plan, the 2023 deductible was approximately $3,200.
Delayed Care and State Efforts
Over the last 20 years, health insurance premiums and deductibles in California have almost tripled, from about 4% of median household income to about 12%, according to the UC Berkeley Labor Center. Consequently, some Californians are delaying or forgoing needed healthcare, including preventative services.
California aims to curb rising healthcare costs by setting spending growth caps. The state’s Office of Health Care Affordability has set a goal of 3.5% annual spending growth, aiming to decrease that to 3% by 2029. Non-compliance with spending targets could result in penalties, which might begin around 2030.
Dietz notes these caps may not make healthcare more affordable. Instead, they may help in preventing costs from rising as quickly.
This article was produced by KFF Health News, which publishes California Healthline, an editorially independent service of the California Health Care Foundation.
