Why Peer-to-Peer Insurance Might Be Right for You

It's the most wonderful time of the year — open enrollment and Obamacare signups. Health insurance never seems to get any simpler to manage, which can be doubly true if you're a small-business owner. But if you're not satisfied with marketplace options or commercial plans, there's a third way that could get you and your employees covered.

This is actually a segue: Remember Napster? Millennials of a certain age may have fond college memories of pirating mp3s and movies with the peer-to-peer file-sharing software and its many imitators. But peer-to-peer insurance isn't about copyright infringement. Not only is it totally above-board, but it's a new take on a very old way of pooling risk.

The premise is pretty simple. Regular health insurance companies spread risk by having hundreds of thousands of customers on the same plan. When you're sick or have an accident, you can afford treatment because healthy people are contributing to the plan even when they don't need health care. Peer-to-peer insurance lets you choose your pool; it's like having a health plan, but only for the people in your business.

One of the biggest differences from traditional insurance relates to premiums. Those payments disappear into the insurance company every month, whether you use your plan or not. But with P2P insurance, policyholders can actually recover excess premiums at the end of the year. If you're worried about catastrophic events, P2P also has you covered. While your small group manages your own risk together, if something happens that's too big for your pool to handle, a reinsurer has your back.

Right now in the United States, the startup Lemonade is the best place to organize P2P plans. Other companies offer the service in different countries. So-called "microbusinesses," those with 10 or fewer employees, might be the best candidates for P2P insurance. Obviously do your due diligence and compare all your options carefully, but any free-market devotee will tell you that more customer choice means better choices for you.