For small business owners, keeping health insurance affordable for employees can feel like a moving target. Premiums change. Change in wages of employees. And every year, the IRS updates the Affordable Care Act (ACA) affordability thresholds that determine how much an employee may need to contribute just for self-health coverage. This means that if you do not change your company’s contribution, What employees pay for their health insurance can change from year to year.
Understanding how the ACA affordability calculation works, and how rising premiums factor into the equation, can help you make more informed decisions about your group health insurance.
What’s Changing for 2026
The ACA deductible limit for 2026 is 9.96% of an employee’s household income for self-only coverage — up from 8.39% in 2024. That means employees could pay more for their coverage in 2026 even if your company contribution amount doesn’t change.
What is the ACA deductible percentage?
The ACA established affordability standards for employer-sponsored health coverage. Each year, the IRS sets the maximum percentage of an employee’s household income that can be required to participate in self-only health coverage to be considered affordable under the ACA. The percentage has changed over time as the IRS adjusts it based on inflation and premium growth.
In 2014, the unemployment rate was 9.5 percent. Since then, the annual rate has reached a low of 8.39% in 2024. For 2026, the ACA’s tolerance limit is 9.96%. This means that an employee’s cost for self-only (employee-only) coverage cannot exceed 9.96 percent of their income. That amount is projected to increase to more than 10 percent in 2027, but the IRS has not yet formally announced the 2027 rate.
Bottom line: The employee contribution to costs may change in 2026 or 2027, even if the employer contribution policy does not change.
Premiums out of wages
Nationally, premiums are already outpacing workers’ wage growth. Over the long term, the gap has been substantial. A 2025 Study by Rice University Since 1999, health insurance costs have risen three times faster than workers’ earnings. Workers’ contributions to family health insurance premiums have increased by 308 percent. Total premiums increased by 342%. In contrast, wages increased by 119 percent in the same period.
For employers, this creates a challenging balancing act: How do you offer competitive health benefits without costing your employees or your business too much?
California premiums add another layer.
In California, premiums run even higher. So if you’re a California employer, you’re dealing with health insurance costs that are higher than the national average. According to the California Healthcare Foundation (CHCF), the average annual premium for employer-sponsored family coverage in California will reach $28,397 in 2025, compared to $26,993 nationally. For single coverage, the California average was $10,033, compared to $9,325 nationally.
And while these numbers are averages and not what every employer or employee pays, they illustrate the challenge California businesses face when budgeting for employee health benefits.
What percentage of premiums do California employees pay?
Employers typically cover a significant portion of their employees’ health insurance premiums, along with the rest for employees.
CHCF reports that, on average, California workers with employer-sponsored coverage will contribute 14% of their single coverage premiums and 27% of their family coverage premiums in 2025. The percentage may not change dramatically from year to year, but when the base premium increases, the dollar amount the employee pays may still increase. This distinction can cause confusion during open enrollment.
An employee may hear that the employer is still paying the same percentage of their premium, but see more deducted from their paycheck. Both can be true. That’s why clear communication is so important during open enrollment.
How a broker helps you balance cost and coverage
Managing group health insurance costs isn’t just about finding the lowest premiums. You may also want to consider the quality and breadth of coverage, the options available to employees, your company’s budget, and how your contribution strategy affects different employees. This is where an experienced health insurance broker can be valuable.
A broker can help you compare the broader market, explain how changing premiums may affect your employees, and evaluate different contribution strategies. An option worth exploring is a Defined contribution The point of view
With a defined contribution health plan, you establish a set amount or percentage that your business contributes to employee coverage. Employees can then use this contribution toward the health plan options available to them.
Questions to ask before your next renewal or open enrollment
Health insurance costs are not yet in place, nor are ACA rules that affect employee contributions. When you prepare for your next renewal or open enrollment, don’t just look at your renewal rate. Consider the big picture:
- How much will employees pay for self and family coverage only?
- How will the increase in premiums affect their salary deductions?
- Is your engagement strategy still working for your business and your employees?
- Are there ways to give employees more health plan choices without increasing your overall contribution?
- How can you make it easier for employees to understand costs and options?
You don’t have to figure it all out on your own. A health insurance broker can help you evaluate your options, understand the ACA’s affordability requirements, and create a benefits strategy that works for both your business and your employees.
Ready to explore your options
If you don’t already work with a broker, CaliforniaChoice can help you find one. Tell us a little about your business, and we’ll connect you with a CaliforniaChoice broker in your area who can help you compare your options and find the right one for your company. Find a broker.
