REALITY CHECK* – Healthy Israelis but an Unhealthy System
Author: Taub Center Staff Bulletin Articles

* Reality Check: A consideration of the facts, setting aside opinions, preconceptions, and beliefs
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In an international comparison of mortality and life expectancy rates, Israel’s healthcare system appears to be doing an impressive job. The infant mortality rate (3.1 per 1,000 births) is low relative to other countries with healthcare systems similar to Israel’s (based on competing health funds, like Belgium, France, Germany, the Netherlands, and Switzerland). Life expectancy at birth is also relatively high compared to those countries and stands at 82.5 years.

Nevertheless, looking to the future, it is evident that the healthcare system faces challenges in dealing with an aging population and its own inefficiencies.

Between 1995 and 2017, national expenditure on healthcare as a percentage of the country’s gross domestic product (GDP) grew only slightly, from 6.9% to 7.3% of GDP, while in the OECD it grew from 7.2% to 8.9% of GDP, and in those countries with similar healthcare systems to Israel it grew from 8.7% to 11%. While in general, countries are interested in keeping medical expenditures in check, the relatively low increase in expenditures in Israel is of concern for two reasons.

First, the aging of the population would seem to require an increase in expenditures. Second, healthcare prices have risen faster than prices in the rest of the economy; between 2011 and 2017, physician wages in the public sector increased by over 40% while wages increased by only 15% in the rest of the economy.
In addition, from 2011 to 2018, the price of private healthcare services went up more than twice the increase in the consumer price index (CPI): about 9% versus 4%. Taken together, we would have expected national health expenditures as a portion of GDP to rise, and given that they rose only slightly, this may be a sign of a worsening of service.

In general, national expenditure on healthcare is divided into two parts: public expenditure, financed by the state through the tax system and delivered by four health funds (kupot holim): Maccabi, Clalit, Meuhedet and Leumit, and private expenditure, financed by individuals through out-of-pocket expenditures and  the purchase of supplemental and/or commercial private insurance.

The National Health Insurance Law of 1995 was intended to ensure accessible medical services to all of the country’s residents on an equal basis. As the years have passed, though, and especially since the Economic Arrangements Law of 1997, there has been a decline in public financing along with a rise in private financing of healthcare which has undermined the equality principle in the law.

In fact, in Israel, the portion of public expenditure out of total healthcare expenditure has been falling, and in 2017,  stood  at 62.8% versus an OECD average of 73.4% and 78.2% in countries with similar systems.

Thus, individuals are are privately financing a greater portion of healthcare expenses in Israel than in other countries. As a result, there has been a consistent rise in the share of private expenditure on healthcare out of the average household budget: from 3.9% in 1997 to 5.7% in 2017.

The rise in private expenditure is partially a by-product of the unusual organization of the Israeli healthcare system, which has a problematic public-private mix at its core. In addition to public financing and optional private financing of healthcare services, individuals may purchase supplementary insurance services (known by the Hebrew acronym shaban) from their health fund in the public system.

About 80% of the population carry this type of insurance, which has a public character since it contains a cross-subsidy element; while monthly premiums differ based on age, there is no cost differentiation on the basis of health status. This supplementary insurance finances both treatments that are not included in the national health care basket of services and treatments that are provided through the public system but can be accessed more quickly or with greater physician choice when using supplementary insurance than they can when using only the public system.

The result is that the principle of equality laid out in the law is violated; as a result, a portion of those activities that should take place within the public system are shifted to a private system, and the funds from this insurance serve to fund the private system, alongside direct out-of-pocket commercial insurances. Perhaps even more acute than this public-private mix issue is a basic conflict that arises from the government’s various roles in hospitalization services.

The acute care (curative) hospitalization system runs for the most part as an “internal market” that began with the National Health Insurance Law in 1995. In this market, consumers receive the healthcare services they are entitled to, funded and regulated by the state, through the health funds. These health funds ensure medical services – whether through their purchase from public healthcare centers (hospitals) or by producing them themselves.

There are 58 hospitals in Israel (not including long-term care hospitals): 44 general hospitals, 12 psychiatric hospitals, and 2 rehabilitation hospitals. Of these, 19 are government-owned, 11 are privately-owned, 10 are under some form of public ownership or are owned by non-profit organizations, 12 are owned by the health funds (primarily Clalit Health Services), and 6 are owned by missions.

The result is that the system has built-in conflicts of interest. On the one hand, the state funds the health funds, which use some of these funds to purchase hospitalization services. In addition, it is responsible for regulating the hospitals, which requires it, among other activities, to be directly involved in both price setting for services sold to the health funds, and in setting quantities to be supplied to these funds at each price level.

Finally, it is the largest owner and supplier of acute care hospitalization services. Thus, in essence, the government competes with other hospitals that are dependent on it for budgeting and regulation. As a result, for example, budget constraints for government-owned hospitals may be “softer” than for other hospitals since deficits are more likely to be financed by the government. The conflicts of interest that result from this multiplicity of roles require addressing.

While Israelis enjoy relative good health at the moment, the healthcare service system is facing challenges from underfunding and basic systemic conflicts of interest that will persist unless there is a reckoning between the state’s role as financier, regulator, and service operator.