On March 19th, a small insurance company in Wabash, Indiana with the unlikely name Beauchamp McSpadden posted an announcement on Bitcoinforum that it would be the “first insurance company to accept Bitcoin.” Bitcoin (BTC), an open-source peer-to-peer (PTP) electronic cash system launched in 2009, has been in the news recently after its value soared in the wake of the Cypriot banking collapse upon speculation that it may provide a secure alternative to fiat currencies. As far as I can tell, no news agency has reported the Beauchamp McSpadden announcement, and a cursory look at their website suggests that it may have been premature. In any case, my interest was piqued, as I have been thinking for the past few months about how the current changes in the healthcare marketplace, driven by the Patient Protection and Accountable Care Act (ACA), might create an opportunity for a unique and profitable partnership between Insurance Companies, states and bitcoiners. In brief, the growth of BTC, the expansion of Medicaid and insurance mandate under ACA and the advent of state-level health insurance exchanges (HIX) creates a risk/benefit equation that is potentially favorable to all.
Although the majority of states have, for various reasons, elected to enact federal-level exchanges or partnerships, Minnesota is one of the 17 states to opt for a state-level exchange. One of the benefits of this arrangement is the opportunity to innovate in a manner that is consistent with the local business, political and economic environment. There are no hard data on the penetration of BTC in the Minnesota, and a quick online search reveals a very marginal uptake. However, the search also unearthed a newly formed interest group in the Twin Cities area, which may indicate a BTC using population poised to emerge. While BTC is currently in the news as a potential hedge against insecurity in the Central Banking sector, and perhaps poised on a bubble, I would argue that its survival depends on its broad adoption as a functional currency rather than as a commodity, such as precious metals. While the survival of BTC is by no means certain, the flow on effect of its recent turn in the headlines is a demonstrable increase in businesses that accept it and support its transmission.
Perhaps more than the enthusiasts at Beauchamp McSpadden realize, Bitcoin is ideally suited as a payment device for the annual (or semi-annual) insurance premium, and one that insurance companies would do well to adopt. This is because a health insurance premium is essentially a periodic financial outlay that hedges against medical risk. Ideally, this is a modest payment in exchange for the promise of avoiding a potentially much larger expense in the event of injury or illness. For a bitcoiner, the BTC expenditure on an insurance premium now represents protection for his health and the health of his Bitcoin over the next year. If either fails, he has gained rather than lost (from an economic perspective).
But what about the Insurance Companies? On the surface, there seems little reason to accept an “alternative” currency and the attendant risk. Indeed, if everyone started paying in BTC tomorrow, that would represent a significant risk. However, for a large insurer in a medium-sized statewide market such as Minnesota, the very small percentage of clients using BTC at the outset would expose them to miniscule risk, especially as BTC would not (at first) be used to pay for direct services, co-pays or deductibles. Moreover, the expansion of Medicaid under the ACA means that there is little likelihood that, either through bad luck or malice, an insurer would be exposed to a massive outlay (i.e. all of its heart transplants) on its BTC enrollees. In fact, the bitcoinner is statistically likely to be younger, more educated and healthier than the average enrollee—and perhaps only in the insurance market because under the ACA he now has to be.
Besides, the BTC as payment experiment could be jettisoned just as easily as expanded. And for it to work, the bitcoiner needs to see the expenditure as desirable and useful; that is to say, a good value. For the Insurance Company, BTC has to make competitive sense; it has to broaden its reach within the sector as a whole. And while predicting the future is a fool’s errand, one can imagine the potential branding impact for the successful early adopter. After the global economic crisis, Insurance Companies are not as often mentioned in a favorable light, much less alongside such hallowed brands as Samsung and Apple. Something as simple as adding (and advertising) a “pay with Bitcoin” option to the company’s website and/or smart phone app could create not just buzz, but also real brand loyalty among a highly desirable demographic.
Still, my guess is that, left to their own devices, big insurers will be slow to adopt BTC, seeing it as an uncertain business proposition, and an accounting and tax hassle to boot. This is where an enlightened “nudge” in the form of state involvement might play a role. For example, Minnesota could design one of the HIX selections with a “pay by BTC” option, then put supports in place to make it attractive to the company that supplies the specified product. This could be in the form of an offsetting tax credit for the first year. Even better, the state could promote “flow” of BTC by partnering with utility companies to subsidize favorable rates for electricity, sewage, gas and water paid by early-adopters of BTC. These supports may not even be necessary, but a show of government support in an age defined by partisan gridlock would mean quite a lot.
In the end, I do not imagine that the “cool” factor alone will lure any of the large insurers into the Bitcoin marketplace. In spite of the broader issues surrounding state vs. non-state currencies, it may soon simply be good business to bring Bitcoin into the fold of payment options available to insurance companies and their enrollees. After all, getting paid is what it’s all about.
No comments:
Post a Comment