Press Release: The War on Corona and Its Funding in View of the National Health Basket

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The issue of the price of the war on the coronavirus to the Israeli public becomes more and more urgent daily. The price paid – the brunt of which is borne by the young adult population – is expressed in lost employment and wages and in significant changes in individual behavior and in the social order.

A new study by Taub Center researchers Prof. Dov Chernichovsky and Prof. Benjamin Bental evaluates the willingness of Israeli society to make economic sacrifices to prevent deaths, based on principles of solidarity embodied in the National Health Insurance legislation and on the economic criterion used for adopting new medical technologies into the Health Basket.

The principles of the National Health Insurance Law entail the subsidization, through taxes, of the non-working population – both children and elderly – by those who do work. Using the Health Basket Committee decisions, Taub Center researchers used the price of adopting new medical technologies (including medications) as an estimate of the value of a “year of life,” which currently stands at NIS 340,000 (2019 prices).

The Taub Center study uses these principles to deal with the complex and unavoidable moral and ethical question: how willing are we in financial terms to invest in the fight against the coronavirus? The answer is related to two perspectives: the value of a life potentially saved through extreme measures, and the intergenerational division of the economic burden in light of the coronavirus mortality distribution and the cost of its prevention by age groups.

The potential savings in lost life is calculated by the researchers according to the remaining years of life by age discounted appropriately. From these calculations, for instance, it is found that Israeli society is ready to invest more than NIS 10 million to save the life of a 5-year-old child, versus only NIS 2 million to save the life of an individual over 80 years-old.

If the worst case scenario were realized, the cumulative loss of life would be equivalent to 24% of Israel’s GDP

In order to estimate the expected mortality rate in the absence of any intervention, Taub Center researchers used two information sources regarding coronavirus-related death rates by age: those from Hubei province in China, and those from South Korea. “On the basis of these evaluations, we can also use updates to the Health Basket to estimate the equivalent financial value of preventing deaths,” explains Prof. Dov Chernichovsky. “With regard to the coronavirus, we assume that this value is derived from the loss of output due to economic closures on the one hand, and a decrease in mortality rates resulting from lowering infection rates and reducing the number of patients requiring intensive treatment on the other hand.”

According to the worst case scenario, in the absence of preventive measures, the infection rate reaches about 60% of the population. If the mortality rates were at the level of Hubei province, Israel would expect 84,000 deaths and a cumulative loss of life valued at more than 24% of the 2019 GDP. That is, Israel must be willing to invest up to 24% of GDP to prevent such an apocalyptic scenario.

Steps that will decrease the pressures on the health system and lower the mortality rates to the level of South Korea, while leaving infection rates at 60%, would save lives at a rate equivalent to about 14.9% of GDP, which is about NIS 210 billion or 1.8 months of labor across the economy. Every 1 percentage point reduction in the infection rate translates into a reduction of about 580 deaths, which is valued at a savings of about NIS 2.2 billion, or about 0.15% of GDP.

Using Bank of Israel estimates for estimated growth rates between 2020 and 2021, the damage to the economy as a result of the economic shutdown enacted to prevent a disastrous spread of the coronavirus is estimated to ultimately cost about 4.2% of GDP.

Thus, the claim that if no steps were taken the infection rate would be higher by about 10-12% and the mortality rate would be similar to that in Hubei province, must understand that the cost of the preventive measures taken stands at the criterion for the potential value of a life saved used in calculations of the price of adding new treatments into the Health Basket.

The young and healthy finance the elderly

The policy of social isolation to prevent the spread of infection lowers the mortality rate especially among the elderly, while the economic cost of lay-offs and loss of income is primarily borne by the working-age population. This situation is termed “intergenerational income transfer.”

Under normal circumstances, public financing of healthcare is about 4.5% of GDP, and includes budgets that are transferred to the health funds. The health funds receive their allocations according to the “capitation formula” which takes into account the anticipated cost of treatment on the basis of expected morbidity rates within each health fund’s insured population according to their age and gender composition.

The health tax that underwrites this is dependent on income and not on age or medical status. Thus, the healthcare system transfers revenues from those who have to those who don’t and between differing risk groups. The main transfer is between those of working-age (20-59) to children and the elderly, whose share in service use is particularly high.

In contrast, in the fight against corona, the bias of the subsidy benefits primarily the elderly and is the opposite of the norm where the major subsidy goes towards healthcare for the very young.

Thus, although there is an intergenerational relationship, in economic terms, the connection between those who pay and those who reap the benefits is not direct or immediate. This is likely to create a level of societal tension. It is important to minimize the damage the current crisis is causing for young adults not only in order to grow the GDP, but also in order to diminish this tension to the extent possible.

The Taub Center for Social Policy Studies in Israel is an independent, non-partisan socioeconomic research institute. The Center provides decision makers and the public with research and findings on some of the most critical issues facing Israel in the areas of education, health, welfare, labor markets and economic policy in order to impact the decision-making process in Israel and to advance the well-being of all Israelis. 

For details, or to arrange an interview, please contact Anat Sella-Koren, Director of Marketing, Communications and Government Relations at the Taub Center for Social Policy Studies in Israel: 050-690-9749.