As we work through the ways the US could pay for a system like UBI, please keep in mind the suggestions we make look at the macro picture. We take big numbers, play with them, and get to a place where the US could literally just give people money to use as they see fit. This though-exercise is NOT meant to suggest specific policies or trade-offs within each area but is meant to show that such a program would be affordable, in terms of GDP.
With that out of the way, let us look at the waste involved in the US health insurance system as our first source of revenue for a UBI program. The US spent $4.9 trillion, about 17% US GDP for 2024, on health care. This amounts to just over $13,400 per person, which is just shy of twice the Organization for Economic Cooperation and Development (OECD) average of $7,400. For reference, the OECD includes most of the industrialized, advanced economies of Europe, North America and East Asia (except China). Our point here is that these other nations spend about half what the US does on health care and get the same, or better, results in terms of life expectancy, infantry mortality, quality of care, and other measures. One of the biggest contributors to that higher-than-average cost comes from private, and non-competitive (monopolistic) health insurance.
Americans as individuals spent $1.4 trillion on private health insurance last year (2024), while private businesses spent $894 billion, and $382 billion categorized as ‘other private revenue.’ This total, $2.5 trillion, includes everything from employer contributions to health insurance, copays paid to providers, and everything in between. At the same time, the federal government spends $ 1.6 trillion (according to the CBO), on healthcare, and state and local governments some $ 760 billion, for a total of $2.4 trillion. That’s a lot of numbers, so let’s lay it out there and be clear, Americans spend more on health insurance, as individuals and businesses, than all three levels of government. And the government could spend less if they were legally allowed to negotiate drug prices paid by Medicare and Medicaid, but let’s stick to the broad view.
IF the USA spent the OECD average on healthcare, we would save some $2.25 trillion annually and probably wouldn’t be any worse off for it. Remember, that figure is LESS than the $2.5 trillion we spent last year on private insurance. But let us assume, for whatever reason, that America MUST spend more on healthcare than other rich countries. We have to be # 1, after all. What would that look like? Germany and Switzerland spend just over 11% of GDP on health care, which is, checks math, 64% of US spending. So even if all we did was reduce healthcare spending to put us in line with the Germans or Swiss, we would bring US spending down to $3.2 trillion and save $1.8 trillion. Thats a lot of numbers but pay attention to the breakdown; that $1.8 trillion in savings is suspiciously close to the amount ($1.4 trillion) referenced earlier that Americans currently spend on private health insurance. It’s almost as if private health insurance doesn’t actually contribute anything to the provision of health care in the US, but just serves to make it more expensive…
How could we go about saving that much money AND take care of citizen’s health care needs? It’s quite straightforward; eliminate the age requirement for Medicare, making it available to everyone. Any that would be really expensive, wouldn’t it? In terms of the overall economy, no, it really wouldn’t be. If your target is $3.2 trillion in health care spending, and we already spend $2.4 trillion on government programs like Medicare and Medicaid, while simultaneously spending $2.5 trillion on private health insurance, then we just need to split the difference by diverting about $700 billion that would otherwise get spent on private health insurance into the Medicare/Medicaid fund, and dumping the remaining $1.8 trillion into the UBI fund.
Because employers spend some of that $1.8 trillion on private health insurance, we assume at least some of that savings would go back to businesses who pay a portion of health insurance plans. Let’s assume 25% of the savings go back to businesses, and the other 75% go to people. What would those savings look like? Assuming the higher end level of spending is in line with Germany, the savings that would flow to each and every American comes out to $4,090 for every man, woman and child each year, or $340 per month.
And how would such a program be carried out in practical terms? The money that would have otherwise been spent on health insurance gets chucked into a collective fund, let’s call it the UBI fund since we aren’t feeling particularly creative, and assume everyone gets paid out from that. This system would have two benefits in terms of wealth transfer: 1 - higher-income earners don’t spend that much more on health insurance than lower-income people, so the transfer of wealth between the lower quintiles should be minimal, and 2 - it provides a payout to everyone regardless of employment status, thus providing income to the young, elderly, unemployed and to those employed but lacking insurance.
Over time this system might get phased out, as people would rather get paid the money their employer would have spent on healthcare contributions directly, then sending it to a UBI program. Perhaps most importantly, it would free Americans from feeling that they have to stay in a job because it provides health insurance. The latter would force companies to compete for more mobile labor with higher wages. How such a system would evolve or even get phased out as Americans grew accustomed to a single-payer system is a bit beyond the scope of what we want to discuss as far as UBI goes. Our point is straight-forward; there’s enough money sloshing around in the healthcare bucket to both pay for medical services AND put money in every American’s pockets.
Next time, we will look at two other money sinks that could get drained into the metaphorical UBI bucket: military spending and capital gains.