Why California Health Premiums Are About To Explode

Many California employers are likely to grapple with surging healthcare premiums in 2027, according to experts.

Employers across the Golden State are currently staring down the barrel of the largest health insurance premium cost hike in 16 years, with the cost of average family coverage projected to reach $30,000 in 2027, the Los Angeles Times reported Thursday. Analysts warned the Daily Caller News Foundation that some California employers may soon be forced to raise prices, cut employee hours and shift a higher share of the premium costs onto employees amid soaring healthcare costs.

“The passage of H.R.1 one year ago (Trump’s One Big, Beautiful Bill) closed a loophole that California had been using to fuel the expansion of its disastrous Medi-Cal system,” California Policy Center CEO Will Swaim told the DCNF in a statement. “About 20 years ago, searching for more cash for Medi-Cal, California imposed a very high tax on California’s Medi-Cal Managed Care Organizations (e.g., Orange County’s CalOptima Health, the San Francisco Health Plan and the Central California Alliance for Health). The red flag for people like you and me was that the MCOs loved the tax – and who wants to be taxed more?”

In November 2024, California voters greenlit Prop 35, which made the Managed Care Organization (MCO) tax permanent, “subject to continued federal approval, and dedicating the resulting revenues to specified Medi-Cal program purposes beginning in 2025,” according to the state’s Department of Health Care Services (DHCS).

“The MCOs loved the tax because they actually benefit from a scam: California declares MCO tax revenue as part of the state’s financial contribution to Medicaid (which, of course, we call Medi-Cal),” Swaim added. “Per federal law, Washington matches that money, increasing by two times the amount of money California can spend on Medi-Cal programs run by the MCOs that are the very same organizations who (a) paid the MCO tax and (b) then received the bulk of state and federal Medicaid money for providing Medi-Cal services.”

“It is – or rather was – legalized money-laundering,” Swaim asserted. “California taxes its Medi-Cal MCOs to qualify for federal matching funds that allow the state to spend more and more on Medi-Cal. But commercial insurers [such as] Kaiser Permanente, Blue Shield of California [and] Cigna Healthcare continued to pay a much lower tax. H.R.1 made that illegal.”

Surging healthcare costs across California are partly being driven by big hospital systems, costly cancer and obesity drugs, and a recent health insurance tax to fund Medi-Cal, according to the LA Times.

California state lawmakers recently greenlit a newly revamped health tax that would drive up costs for Californians with private insurance to help safeguard billions of dollars in federal Medi-Cal funding, CalMatters reported in June. If the Trump administration approves it, the move could increase annual healthcare premiums by roughly $400 for a family of four in the state, per the outlet.

California’s Department of Finance did not respond to the DCNF’s request for comment.

Swaim also told the DCNF that “instead of dropping California’s money-laundering scam on American taxpayers, Newsom took the path of least resistance and raised taxes on private insurers too.” He added that “all Californians will suffer.”

Health insurance premiums for covered employees in California are notably higher than the national average, according to KFF. The average annual single coverage premium in California is $10,033, compared to the national average of $9,325, per KFF’s estimates.

Meanwhile, the average annual family premium in California is $28,397, while the national average in the U.S. is $26,993, according to KFF.

“Small businesses will feel these [cost] increases almost immediately,” Pacific Research Institute President and CEO Sally Pipes told the DCNF. “Unlike large corporations, local and small businesses often operate on thin margins and have less bargaining power with insurers. When premiums rise, they have limited options. They may raise prices, reduce employee hours, shift more of the premium onto workers, or switch to more limited coverage plans.”

“The next round of increases is likely to show up in employees’ payroll deductions and benefits, even if their employer does not drop coverage altogether,” Pipes continued.

Pipes suggested that some California business “may ultimately decide that coverage no longer pencils out” due to the projected higher healthcare costs next year.

“Surging premiums will act like a tax on hiring and wages,” she explained. “They will leave small-business owners, workers, and consumers with fewer dollars in their pockets. That is why expanding Short Term Limited Duration Plans is so important as they give consumers affordable options. President [Joe] Biden destroyed this option.”

A Gallup survey released in June found that an estimated 2.8 million more Americans said they were unable to afford healthcare in 2025 compared to in 2024.

Additionally, Swaim claimed that small business owners in California will “have to adjust very quickly” over the next year.

“They’ll likely raise employee premium contributions and raise deductibles,” Swaim said. “Where legally permissible, they’ll offer fewer covered benefits; some employers will drop health coverage altogether.”

“There’ll be other knock-on effects: Businesses will have less cash for raising wages,” he added. “They’ll reduce hiring and perhaps turn to multiple independent contractors to handle tasks previously handled by a few employees. They’ll defer critical capital maintenance – and cut spending – on equipment, buildings, etc.”

Swaim warned that this “will depress” California’s “entire” economy, also noting that “a drooping economy produces lower tax revenue.”

“Supported by government employee unions, state legislators and local governments will respond with their favorite tool: tax hikes,” Swaim explained. “If they do that, those tax hikes will depress economic growth, and that (to repeat myself) will dampen tax revenue.”

A PricewaterhouseCoopers (PwC) report released in June expects that medical costs across the nation will increase 9% in the employer market and 8.5% in the individual market in 2027. Next year’s projected increases are partly being driven by rising provider reimbursement pressure and soaring pharmacy spending, per PwC’s report.

“California lawmakers should avoid new taxes, mandates, and regulations that make private health care coverage more expensive and less available to patients,” Pipes told the DCNF. “Employers and workers ultimately pay those costs.”

“Instead, lawmakers should focus on meaningfully lowering healthcare costs rather than simply shifting them onto employers and workers,” she added. “Increasing competition among hospitals and insurers, making prices more transparent, and ensuring that savings negotiated by middlemen reach patients are all good places to start.”