The War on Coronavirus and Its Financing by the Israeli National Health Insurance
Author: Dov Chernichovsky, Benjamin Bental
May 14, 2020
This study evaluates the willingness of Israeli society to make economic sacrifices to prevent deaths from coronavirus. How much should Israel invest in the war on the coronavirus? Answering this question is important not only because of the size of the investment but also due to the intergenerational division of its burden in light of the virus’ mortality profile.
Employing the accepted approach for making Health Basket Committee decisions, Taub Center researchers use 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).
Estimated value of loss of life as a share of GDP
Given Bank of Israel growth estimates, the damage to the economy as a result of the economic shutdown to prevent the spread of the coronavirus is estimated to cost about 4.2% of Israel’s GDP.
The researchers compare this to the potential cost of mortality from the virus. Using the health basket valuation for a year of life, the researchers evaluate the GDP value of the loss of years of life as the result of mortality from coronavirus according to different scenarios. Another way to understand this is as the GDP value of saved years of life as a result of preventing mortality from coronavirus.
- Under an extreme scenario, in the absence of preventive measures, the coronavirus infection rate could reach about 60% of Israel’s population. If the mortality rates were similar to those in the Hubei Province of China, Israel would expect 84,000 deaths and a cumulative loss of life valued at more than 24% of the 2019 GDP.
- Decreasing the pressures on the health system and lowering 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 as a savings of about NIS 2.2 billion, or about 0.15% of GDP.
Intergenerational social tension
In general, due to the way it is structured, the Israeli healthcare system transfers income between differing risk groups. Under normal circumstances, the main transfer is from those of working-age (20-59) to children and the elderly, whose consumption of healthcare services is particularly high. However, during the coronavirus pandemic, the transfer goes almost solely to the elderly.
Under normal circumstances
Even before the coronavirus outbreak there was an intergenerational transfer of income as a result of the National Health Insurance Law.
- The capitation mechanism, by which public health expenditure is allocated to the health funds, does take into account health fund members’ age and gender, which reflects the expected cost of healthcare in each group.
- In contrast, the health tax that finances public health spending does not depend on age or gender, but rather on income.
- Therefore, Israel’s healthcare system transfers income not only from high earners to low earners, but also between various risk groups according to age and gender.
During the coronavirus outbreak
- Due to the large-scale effect of the epidemic on the older community, the intergenerational transfer is significantly greater than the transfer during normal times.
- In normal times, the intergenerational transfer can also be viewed as “insurance” by the young, since they can expect to reap the same benefits in the future when they are elderly. In contrast, the coronavirus epidemic is assumed to be a rare event that those of working-age are paying for now with little expectation of reaping future benefits, which can lead to significant intergenerational tension.
The economic damage from coronavirus predicted from Bank of Israel growth estimates – a loss of 4.2% of GDP – is significantly less than the value of the lives saved under extreme scenarios, which could reach up to about 24% of GDP in the worst-case scenario.
However, if the level of infection reaches only 10% of the population (instead of 60%, as in the worst-case scenario), the human life lost would be valued at about 3.8% of GDP – lower than the 4.2% loss as a result of the economic closure.
Assuming the mortality rate experienced in the Hubei Province of China, any intervention-free infection rate above 10-12% of the Israeli population would render the economic costs of containing the coronavirus a “worthwhile” investment in terms of GDP.
Additionally, minimizing the cost to the younger population is important not just in order to increase GDP, but also to reduce intergenerational tensions in society.