UBI and Health Care: What's Wrong With Murray's Approach

 

Bryan Caplan

How would a Universal Basic Income handle health care?  Normally, UBI advocates just say, "separate issue" and move on.  But not the great Charles Murray.  His In Our Hands: A Plan to Replace the Welfare State proposes two regulations to tackle the problem head on.

Regulation #1. UBI recipients must purchase health insurance. 

Regulation #2. "Legally obligate medical insurers to treat the population, of all ages, as a single pool."  Health insurance is still private and competitive.  But if an insurer wants to cut its price, it must cut it for everyone.

On the surface, it's ingenious.  Most UBI advocates exclude health care because health insurance premiums vary tremendously from person to person.  But if health insurers have to charge a uniform premium, this problem seems to go away.  Averaging over everyone, premiums would be well below Murray's proposed UBI of $10,000 per year.  Everyone could therefore afford to comply with the mandate.  Maybe you shouldn't even call it a "mandate"; it's just a rule you have to follow to collect your UBI.

The problem: As long as health insurance remains private and competitive, health insurers compete on quality as well as price.*  Since their elderly and sick customers are losing ventures, there's an obvious incentive to selectively cut their quality so they take their business elsewhere.  In Murray's world, no insurer wants to be known as a geriatric specialist.  Instead, prudence urges them to lavish services on the young and healthy.  Physical fitness programs.  Free contraception, delivered by drone for no extra charge.  That kind of thing.

How severe would the problem be?  Very.  The cost of insuring a 91-year-old is far higher than the cost of insuring a 21-year-old.  If the law forces firms to charge both the same rate, firms will desperately search for ways to repel the aged and attract the young.  Blasting "today's hottest music" over the P.A. system is only the beginning.

Of course, the government could impose a comprehensive system of quality regulation to prevent this kind of thing.  But given the immense cross-subsidies, enforcement would have to be both encyclopedic and draconian.  The UBI aspires to simplify the welfare state, but ends up piling a whole new strata of regulation on top of the status quo.  What's the point?

I'm a huge Charles Murray fan.  In Our Hands is my favorite book on the UBI.  But his elegant effort to fold health care into the UBI fails.

* This is a key part of Murray's vision: Like me, he advocates supply-side health-care reforms like ending medical licensing and allowing contractual limits on medical liability.