Unlike their larger peers, many smaller and mid-sized businesses are struggling to fill open jobs, according to the latest figures from the National Federation of Independent Business. A key reason? The rising cost of health insurance, which makes it harder to compete for workers.

The cost of an employer-sponsored health plan is on track to jump nearly 10% in 2026 — the largest increase in more than a decade. Such price hikes are a major reason why just 56% of small firms are able to offer health benefits — compared to 97% of large employers.

Fortunately, there is a way for many smaller and mid-sized firms — those with a few dozen to a few hundred employees — to break free of today’s volatile insurance market, afford quality health benefits, and compete effectively for the workers they need to grow and thrive. It’s called self-insurance.

In the past, only the largest employers had the means to self-insure — to cover employees’ health costs directly rather than relying on a conventional insurer. But that is no longer the case.

Today, a well-developed network of administrators and specialists helps smaller organizations adopt this model. And employers are increasingly taking advantage. Roughly one-third of mid-sized firms and one-sixth of small businesses now offer one or more self-insured plans.

The financial benefits of self-insuring can be significant. To begin with, employers who choose this approach maintain control of their healthcare dollars.

This means that companies, rather than their insurers, keep any earnings those dollars accrue before being sent out to pay health claims. Self-insured employers are also able to bypass premium taxes and the inflexible plan structures that traditional carriers often impose.

If an employer’s health costs in a given year are less than expected, then the company keeps what it would have sent to the insurance company. To guard against unanticipated, potentially catastrophic claims, employers can purchase “stop-loss” coverage to cap their liability.

But the advantages of self-insuring don’t end there. This coverage strategy can also provide companies with real insight into where their healthcare dollars are going — information they can then use to identify inefficiencies and savings opportunities that would have remained hidden in a traditional plan.

Consider something as routine as a colonoscopy. A self-insured employer reviewing its claims data may discover that the price it is paying for the procedure at one facility is far higher than what it costs at another provider across town.

A colonoscopy at a hospital outpatient department costs over $1,600, on average; the same procedure at an independent surgery center costs just over $1,100. What’s more, independent surgery centers often report lower infection rates and higher patient satisfaction scores than large hospitals.

In a traditional plan, employers never see this data. They get a bill — and little explanation.

With a self-insured plan, an employer can nudge beneficiaries toward the higher-value site of care by waiving cost-sharing at the independent surgery center. Both employers and employees benefit.

Claims data also allow employers to address health risks before they become medical crises. Nearly half of U.S. adults have high blood pressure. If claims data show employees with hypertension aren’t taking prescribed maintenance medications, a self-insured employer can step in with things like medication reminders, home-delivery programs, and health coaching that can make adherence easier.

Initiatives like these can help employers provide highly effective coverage at a cost considerably lower than what’s typically available in the fully insured market..

Indeed, studies consistently find that self-insured employers spend up to 10% less on healthcare benefits than employers that purchase traditional insurance — often while providing better coverage.

Sky-high coverage costs have left many small- and mid-sized businesses struggling to attract talent. But they don’t have to. For employers with sufficient scale, self-insurance offers a way to deliver better benefits at a lower cost — and compete more effectively for the workers they need.

Michael W. Ferguson is president and CEO of the Self-Insurance Institute of America (siia.org). He wrote this for InsideSources.com.