Rising health insurance costs are putting California employers in a tough spot. The bills keep climbing, and it’s not just inflation — it’s a perfect storm of post-pandemic pressures, regulatory shifts, and rising demand.
Companies across the state are grappling with these challenges, balancing rising premiums while offering competitive benefits to attract and retain talent. It’s not only about staying afloat. Instead, it’s about finding smart strategies to manage these costs without sacrificing the health and well-being of your team.
So, what’s behind these increases and how can you stay ahead? Let’s dig into the trends and find practical ways to manage the chaos.
Trends in Healthcare Insurance Costs for Employers
The cost of healthcare is a complicated matter. Various factors contribute to the costs. Let’s break down a few trends so you can understand why premiums are climbing and what these might mean for your business.
Rising Healthcare Costs and Inflation
Healthcare costs have been climbing steadily, and employers are feeling the pinch. In fact, a recent survey found that employer-sponsored health insurance premiums have increased by 7% in 2023 alone.
Plus, inflation has impacted nearly every aspect of healthcare — from hospital services to prescription drugs — driving up premiums. This is a huge pressure on small businesses.
Increased Healthcare Utilization Post-Pandemic
The pandemic changed how people use healthcare. Routine checkups and treatments were put off, which created a backlog of needs. Since restrictions were lifted, healthcare utilization has surged.
This spike has driven up costs, and pushed premiums even higher. When it comes to healthcare, employers aren’t seeing a return to normal. Instead, they’re dealing with delayed care, which often means more expensive treatments.
California-Specific Factors Contributing to Rising Premiums
California has its own challenges when it comes to healthcare costs. State-specific regulations, like mandated benefits and the requirements of the Covered California marketplace, add to the burden. These rules increase premiums for employers. Additionally, the high cost of living and rising wages in California further push up healthcare costs.
A 2023 report from the California Health Care Foundation shows that health insurance premiums in the state are consistently above the national average, making it tougher for businesses to manage costs. Employers must understand these factors and find ways to control their expenses in an already expensive environment.
Key Triggers Behind the Rising Costs
There are a few key reasons why healthcare premiums are climbing so fast. Let’s look at what’s driving these increases and how they impact employers.
Medical Inflation and Rising Cost of Care
Medical inflation is a major culprit. Hospital services, prescription drugs, and specialist care have all seen price hikes. It’s not just one part of the system—it’s everything. These rising costs get passed on to employers.
Regulatory Changes
Changes in healthcare regulations are also playing a big role. Federal and state-level adjustments, like those tied to the Affordable Care Act (ACA) and COVID-19 measures, add to the complexity. In California, SB 255 aims to improve healthcare cost transparency, but it also means more costs for employers to bear.
Increased Demand for Mental Health Services
Demand for mental health services has skyrocketed, especially after the pandemic. Employers are expanding mental health coverage to support employee well-being, which is great—but it comes at a price. These expanded benefits are adding to the premiums businesses are facing today.
How Employers Can Manage Rising Health Insurance Costs
Rising healthcare costs can be daunting, but employers have several strategies at their disposal to help keep premiums under control. It’s possible to reduce the financial burden of health insurance while still providing valuable benefits to your team.
(1) Utilize Alternative Health Plans
Not all health plans are created equal. Know the market, and know your choices.
Different options can make a big difference in managing costs. High-deductible plans or self-funded options might seem unconventional, but they offer unique benefits for businesses willing to step outside of traditional models.
- Explore high-deductible health plans (HDHPs) with HSAs: Lower monthly premiums combined with tax-advantaged savings accounts offer a win-win for employers and employees.
- Consider level-funded or self-funded plans: These plans give mid-sized employers more control over their spending and can reduce overall costs, particularly when claims are lower than expected.
- Educate employees on plan options: Provide clear guidance so employees understand how to maximize the benefits of their plan, especially when it comes to HSAs and preventative care.
(2) Wellness Programs and Incentives
Employee health plays a huge role in determining overall insurance costs. Investing in wellness initiatives can lead to fewer claims and healthier lifestyles.
When companies make it easy — and rewarding — for employees to take care of their health, they benefit financially in the long run.
- Introduce wellness incentives: Offering rewards for participation, such as premium discounts, motivates employees to engage in their health actively.
- Promote preventative care: Preventative care not only helps employees avoid major health issues but also contributes to lower long-term costs for everyone involved.
- Use data to personalize programs: Personalized wellness programs can address specific needs within your workforce, improving effectiveness and reducing absenteeism.
(3) Assessing Insurance Companies and Brokers
Choosing the right insurance partners is just as crucial as selecting the right coverage. A knowledgeable broker can be a powerful ally in finding cost-effective solutions that fit your specific needs. Also, regularly evaluating your options prevents you from overpaying in a dynamic insurance market.
- Work with an experienced broker: Brokers who understand your industry can help secure competitive rates tailored to your company’s needs.
- Negotiate for tailored plans: Customizing plans means you’re not paying for unnecessary coverage, helping to keep premiums down.
- Re-evaluate carriers annually: The insurance landscape shifts year to year, so regular evaluations help you stay competitive and get the most value for your money.
What California Business Owners Can Expect
The future of California health insurance will be tricky for business owners. Several anticipated federal and state regulations will impact health insurance in the coming years. This will affect both coverage and costs.
Here’s what to prepare for:
Anticipated State and Federal Regulations Affecting Health Insurance
The 2024 election will play a critical role in shaping future health policies. According to recent findings, healthcare costs and prescription drug prices are top issues for voters, with likely impacts on ACA, Medicare, and Medicaid reforms depending on the outcome.
Democrats tend to support expanding ACA benefits, while Republicans might favor increased privatization through Medicare Advantage plans. These political shifts could lead to changes in the availability of subsidies and the structure of employer health plans across the country.
For California specifically, the state plans to increase subsidies for ACA Marketplace coverage in 2025. This follows the extension of improved federal subsidies under the Inflation Reduction Act. These subsidies aim to make health insurance more affordable for small businesses, although uncertainties around policy challenges like DACA eligibility for federal subsidies still persist.
Will Costs Continue to Rise, or Will Employers See Some Relief?
Rising health insurance costs will likely persist, but there may be some relief depending on upcoming reforms. With potential federal actions to increase Medicare funding and state-specific initiatives to bolster ACA subsidies, California business owners could see some stabilization in health insurance costs over the next few years.
However, changes in federal rules — such as limits on short-term health insurance plan durations — may also impact the cost and availability of coverage options for businesses seeking flexible alternatives.
The Role of Technology and Telemedicine in Potentially Reducing Costs
Technology, particularly telemedicine, is expected to continue playing a key role in reducing healthcare expenses for employers. Making healthcare more accessible and convenient lowers costs associated with in-person visits and provides faster access to care.
Federal and state policymakers are increasingly interested in integrating technology into the healthcare system as a way to improve efficiency and reduce spending. Emerging technologies, like artificial intelligence and telehealth platforms, are also gaining traction as effective cost-saving tools, making it easier for employers to manage expenses while still providing quality care to employees.
Navigating the Future of Healthcare Costs
Healthcare is changing, and costs are rising — but that doesn’t mean employers have to be left behind. With the right strategies and a proactive mindset, you can better manage these challenges while still providing valuable benefits to your employees.
It’s all about thinking ahead and making informed choices to protect your business and your team.
Looking for Guidance? Talk to Terri Yurek
Health insurance requires expertise and a local touch. Working with an experienced broker like Terri Yurek helps you stay ahead of the curve, with tailored solutions for your business.
Connect with us today to learn how we can help you manage rising costs without compromising on coverage. Let’s talk!