For small business owners, keeping health insurance affordable for employees can feel like a moving target. Premiums change. Employee wages change. And each year, the IRS updates the Affordable Care Act (ACA) affordability threshold that determines how much an employee can be required to contribute toward self-only health coverage. That means even if you don’t 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 affordability threshold for 2026 is 9.96% of an employee’s household income for self-only coverage — up from 8.39% in 2024. That means employees may pay more toward their coverage in 2026 even if your company’s contribution amount doesn’t change.

What Is the ACA Affordability Percentage?

The ACA established an affordability standard for employer-sponsored health coverage. Each year, the IRS sets a maximum percentage of an employee’s household income that can be required for their share of 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 affordability rate was 9.5%. Since then, the rate has changed annually reaching a low of 8.39% in 2024. For 2026, the ACA affordability threshold is 9.96%. That means an employee’s cost for self-only (employee-only) coverage cannot exceed 9.96% of their income. This amount is forecast to increase to more than 10 percent in 2027, but the IRS has not formally announced the 2027 rate yet.

Bottom line: an employee’s contribution to costs may change in 2026 or 2027, even if the employer’s contribution policy does not change.

Premiums Outpacing Wages

Nationally, premiums are already outpacing worker wage growth. Over the long term, the differential has been substantial. A 2025 study by Rice University found the cost of health insurance has grown three times faster than workers’ earnings since 1999. Workers’ contributions to family health insurance premiums increased 308%. Total premiums increased 342%. Wages, in contrast, increased by 119% in the same period.

For employers, this creates a challenging balancing act: How do you offer competitive health benefits without putting too much of the cost on your employees or your business?

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 Health Care Foundation (CHCF), the average annual premium for employer-sponsored family coverage in California reached $28,397 in 2025, compared with $26,993 nationally. For single coverage, the California average was $10,033, compared with $9,325 nationally.

And while those 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, with employees contributing the rest.

CHCF reports that, on average, California workers with employer-sponsored coverage contributed 14% of their single coverage premium and 27% of their family coverage premium in 2025. The percentages may not change dramatically from year to year. But when the underlying premium increases, the dollar amount an employee pays can still go up. That distinction can create confusion during open enrollment.

An employee may hear that the employer is still paying the same percentage of their premium, but see a higher deduction from their paycheck. Both can be true. That’s why clear communication during open enrollment is so important.

How a Broker Helps You Balance Cost and Coverage

Managing group health insurance costs isn’t simply about finding the lowest premium. You also want to consider the quality and breadth of the 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 could affect your employees, and evaluate different contribution strategies. One option worth exploring is a Defined Contribution approach.

With a Defined Contribution health plan, you establish a set amount or percentage that your business contributes toward employees’ coverage. Employees can then use that contribution toward the health plan options available to them.

Questions to Ask Before Your Next Renewal or Open Enrollment

Health insurance costs aren’t standing still, and neither are the ACA rules that affect employee contributions. As you prepare for your next renewal or open enrollment, don’t just look at your renewal rate. Consider the bigger picture:

• How much will employees pay for self-only and family coverage?
• How will premium increases affect their paycheck deductions?
• Is your contribution 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 the costs and options easier for employees to understand?

You don’t have to figure it all out yourself. A health insurance broker can help you evaluate your options, understand the ACA affordability requirements, and build 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 approach for your company. Find a broker.