The Economics of Standing Still in California Healthcare

A family health plan in California may soon cost more than $30,000 a year — roughly the price of a new compact car.

That comparison comes from a recent Los Angeles Times examination of employer health premiums. Between 2022 and 2025, the average family premium paid by California employers rose 24%, nearly twice the increase in consumer prices over the same period.

The number is dramatic. Its consequences are more ordinary and more damaging: smaller raises, higher deductibles, reduced hours, thinner coverage, slower hiring, and prices passed through to customers. Healthcare inflation does not stay inside healthcare. It moves through the entire economy.

The system is behaving as designed

It is tempting to look for one villain. The harder truth is that the system contains a collection of rational actors responding to the incentives in front of them.

Hospitals negotiate for higher reimbursement. Pharmaceutical companies defend the economics of their products. Insurers price for expected medical costs and risk. Employers try to preserve benefits without surrendering the rest of their operating budgets. Brokers and distributors compete within the products, processes, and compensation structures available to them.

Every organization protects revenue, earnings, and enterprise value. No leadership team begins January with a goal of producing less than it did the year before. That does not make the people leading these companies bad. It does make voluntary disruption difficult. The people benefiting from the current economics are rarely rewarded for dismantling them.

This is the conundrum: everyone can agree that the trajectory is unsustainable while every participant remains economically motivated to protect its position.

Meaningful change arrives when the economics of standing still become worse than the economics of moving.

Lever one: AI and automation

Artificial intelligence will not solve the price of hospital care or make an expensive drug inexpensive. It can, however, attack a different and pervasive cost: the enormous amount of mechanical work embedded throughout healthcare and insurance.

In narrowly defined clinical applications, AI can already identify patterns clinicians miss and flag certain conditions faster than traditional workflows. That does not eliminate the physician. It makes the combination of a capable clinician and a capable system stronger than either working alone.

The same principle applies to insurance operations. Census data is re-keyed. Documents are read and compared manually. Eligibility is reconciled across systems. Renewals are assembled through a chain of handoffs. Plan details are checked, routed, corrected, and checked again. Much of this work exists because the industry’s technology remains a generation behind the tools people use elsewhere — and because modernization is often deferred until competitive pressure makes it unavoidable.

Automating those tasks can lower operating costs, shorten cycle times, reduce avoidable errors, and return human attention to the work that requires judgment: advising, negotiating, solving exceptions, and serving people.

The point is not fewer humans making every decision. It is fewer humans spending their days moving information between systems.

Lever two: a broader product conversation

California also has a product opportunity. Funding and benefit strategies used extensively elsewhere in the country remain comparatively underutilized here.

For some healthier groups, when properly evaluated, underwritten, and matched to the employer’s risk tolerance, these approaches can create meaningful savings or richer coverage without increasing total spend. They are not universal solutions, and they should never be presented as such. Suitability, volatility, contractual details, and employee experience all matter.

But the relevant comparison should no longer be between this year’s familiar plan and next year’s more expensive version of the same plan. Employers deserve a wider field of choices and a clearer understanding of the tradeoffs among them.

Make affordability competitively valuable

Neither automation nor alternative funding will solve hospital consolidation, rising pharmaceutical costs, or every public-policy decision affecting premiums. But both can create competitive pressure.

That matters because an appeal to altruism will not move a system built to reward growth. A stronger mechanism is to make affordability, speed, transparency, and better coverage sources of growth themselves.

I say this as someone inside the industry and responsible for producing results within it. I am not interested in throwing stones at the companies, partners, or people who make the system run. I am interested in being honest about what causes systems to change.

The objective should not be to shame companies into accepting smaller profits. It should be to create products and operating models through which doing better for employers and employees also builds stronger businesses.

That may be California’s opening: use AI and automation to lower the cost of work, use broader product strategies to improve the economics of coverage, and let competition turn both from interesting ideas into market expectations.