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How Israel Got Universal Health Care 20 Years Ago, and Why It’s Working

Government-regulated competition, legislation that largely excludes the courts, and a ‘social lobby’ that backed even neo-liberal economic policy into covering 100 percent of the Jewish state’s citizens. Is there a lesson for the United States?

David Chinitz
September 28, 2017
Photo: Uriel Sinai/Getty Images
An Israeli man at the Hadassa Optimal clinic on February 5, 2012 in Tel Aviv, Israel.Photo: Uriel Sinai/Getty Images
Photo: Uriel Sinai/Getty Images
An Israeli man at the Hadassa Optimal clinic on February 5, 2012 in Tel Aviv, Israel.Photo: Uriel Sinai/Getty Images

Israel’s health system constitutes the most extensive and successful implementation of regulated (or as it known in the United States, “managed”) competition in the world. One-hundred percent of the population is entitled to comprehensive coverage provided by four competing health plans. Bernie Sanders, who talks about a single-payer system for the United States, would do well to point to the Israeli system as a model more closely adaptable to the American context.

If Israel is famous for having chronic problems when it comes to governance, the Israeli health care system is the exception that proves the rule. Under Israel’s 1995 National Health Insurance Law (NHI), entitlements to health services are defined and detailed in legislation, and have largely removed the courts—which have a long history of being the forum of last resort for everything from kosher food to women’s prayer at the Western Wall—from insinuating themselves into medical decision-making.

Uncharacteristically for both Israel and the Jewish people (“He who saves one soul, it is as if he has saved a whole world”), no health service, no matter how ostensibly urgent or life-saving, can be covered by NHI if there is not a defined source of finance to back it up. This means that only treatments included (with detailed medical indications) in the NHI “standard basket of services” are guaranteed to be covered. While the U.S. Affordable Care Act lists 10 major categories of “essential health benefits” (and de facto leaves detailed coverage determinations to states and the market), the Israeli law includes an appendix that is hundreds of pages long, detailing the drugs, tests, and treatments that are covered and the conditions under which a patient can sue if denied access.

Cost-wise, the Israeli system is considered parsimonious to the point of being underfunded. The country spends less than 8 percent of its GDP, and about US$2,600 per capita on health, beneath the Organization for Economic Co-operation and Development (OECD) average. The equivalent numbers for the United States in 2016 under Obamacare rules were 17.8 percent of GDP and US$10,345 per capita.

Given the difficulties Israeli governments have in making and executing tough decisions, one might wonder: “How did this happen?” Not surprisingly, it wasn’t planned. Israel’s health system backed into a corner of financial and substantive accountability that, as mentioned, is not typical. Of course, history and culture are key.

Israel’s health system began in the pre-state era with the creation of Kupat Holim Clalit (KHC, or General Sick Fund) by the Worker’s Party in 1912. Much like early Health Maintenance Organizations (HMO) and other prepaid health plans in U.S. company towns in the prairies, its purpose was to provide health services for worker communities in kibbutzim and other agricultural settlements associated with the Zionist labor movement. When the Histadrut (Labor Federation) was created in 1920, KHC became one of its main constituents, and dues for the two organizations were combined. With time and the characteristic political divisions of the Zionist enterprise, other sick funds were created to serve the needs of settlements and collectives associated with other political parties, such as the Herut Party of the revisionist Zionists. The wave of immigration known as the Third Aliyah (1919-1923), dominated by German Jews—including a relatively large number of physicians not interested in the more bureaucratic KHC—led to the creation of the Maccabi Sick Fund, which preserved more physician autonomy.

By the mid-1970s, there were four health funds in Israel. KHC dominated the health system, however, insuring over 80 percent of the population. The Histadrut, the Labor Party, and KHC formed a kind of iron triangle, with health-insurance membership dues, combined with Histadrut domination of industry, serving as the financial and economic backbone of the Labor Party.

When Israel’s first prime minister, David Ben Gurion, evinced a desire to nationalize the health system with the creation of the State of Israel, all of the sick funds, not the least KHC that was affiliated with his own political party, resisted. Since the newly created state included a Ministry of Health that was active in the direct provision of health, especially hospital services, a duplicative and competitive relationship between it and the sick funds, especially KHC, ensued. All attempts to reform the fractured system, even after the Likud Party replaced the Labor Party as the governing party, failed until 1994. In the meantime, Maccabi, which could select its membership, catered to younger and wealthier insurees, while KHC, which automatically insured any member of the Histadrut, was saddled with an increasingly older, sicker, and poorer population.

In the late 1980s chronic financial crisis, long queues for elective surgery and perceptions of inequality in access to health care led to the creation of a Judicial State Commission of Inquiry into the national health systems—the Netanyahu Commission, named for Justice Shoshana Netanyahu, who was the chair. To get an idea of the import of this move, consider that similar such commissions investigated how Israel was caught by surprise in the 1973 Yom Kippur War and the massacres in the Sabra and Shatilla refugee camps during the first Lebanon War. The supreme court had ruled that recommendations of such commissions must be at least considered by the government. The Netanyahu Commission recommended enactment of NHI, which would break the link between KHC and the Histadrut, which by 1994 had become financially unviable and was also perceived as corrupt and outmoded. When then-Labor Party member Haim Ramon, a supporter of NHI, was elected chairman of the Histadrut, the path was opened to pass NHI.

Aside from mandating coverage of the seven percent of the population that was uninsured at the time as well as allowing all citizens to choose whichever sick fund they wanted, NHI’s critical plank was to ensure that no citizen could be denied coverage on the basis of lack of funds. This key notion was manifested by the provision that all four sick funds would be obligated to provide a standard basket of services, the estimated cost of which would be covered by earmarked revenues. Instead of paying membership dues to the sick funds, citizens would pay a health tax of about 5 percent of their income that, combined with general government revenue, would cover the anticipated cost of the basket. Based on its share of the population, each sick fund, now under the modernized moniker “health plan,” would receive a risk-adjusted per capita payment from the government, which is expected to cover the cost for each health plan of providing the standard basket of services to its population.

The health plans contract for service provision from physicians, hospitals and other providers in a manner similar to U.S. managed care plans, especially HMOs. Thus, there are some limitations on choice of provider within plans, but citizens may move among plans every year without limitation. While the percentage of the population switching health plans is low (between 1 percent and 2 percent per year), the health plans work hard to keep their members and attract new ones. This competition is only over quality of service, because for the standard basket there is no premium payment.

Health plans also all offer supplemental policies that sometimes permit increased choice of provider, especially in various forms of private practice. Many health-system proponents argue that this leads to inequality of access across different populations, although more than 80 percent of the population holds supplemental policies—which are relatively cheap due to the large risk pools of the health plans, the smallest of which has over 700,000 members. About 40 percent of the population also holds private commercial health insurance, which is much more expensive and not guaranteed.

While much controversy over the inequity caused by the privatization of access to medical care exists in Israel—the areas in which private expenditure really dominates are long-term care, dental care, and mental-health care, despite the recent inclusion of the latter in the standard basket. Israel’s private expenditure as a percent of its national health expenditure is about 40 percent, which is higher than the OECD average—but most of the comparable countries provide public financing for long-term and dental care.

In general, the so-called social lobby in Israel highlights differences in waiting times derived from these avenues of private health insurance. However, data on the degree of such gaps, and certainly regarding their impact on health outcomes, are sparse and inconclusive. Overall, Israelis express high levels of satisfaction with, and trust in, their health plans, though when asked whether they are sure the system will be there for them if they need an expensive procedure, there is significant doubt. This response is certainly related to the marketing efforts of health-insurance companies, the constant drumbeat of the social lobby, and high-profile media coverage of patients confronted with the need for services (often of questionable effectiveness) not covered in the standard basket. Overall, queues for care in the public system for elective surgeries and appointments with physicians are similar to averages in the OECD.

Is the system working? Israel’s health indicators—such as life expectancy and infant mortality—are among the best in the world, though there are gaps among ethnic groups and socioeconomic classes. The latter are based less on limits in financial accessibility, or even geographical disparities in access to care, than on other factors, especially education level. The Ministry of Health and the health plans conduct programs of outreach and cultural competency aimed at closing these gaps—efforts that are proving successful but still have a way to go.

Since the inception of NHI, MOH and the social lobby have claimed that it is underfunded, with its budget falling further and further behind the age-adjusted growth of the population and medical-cost inflation. This stands in contrast to the annual adjustment alluded to above for the purpose of absorbing new technologies into the standard basket, which is considered broad and comprehensive by world standards. The difference in behavior toward adjustment according to index, namely population growth, aging, and medical inflation, on one hand, and increasing the budget for new technologies on the other, is interesting from a political economy perspective: There is no focused political lobby advocating for more generous indexing, whereas every medical technology has a drug company and disease support group pressuring on its behalf. Coverage determinations regarding new medical technologies are made by a public committee constrained by a budgetary increment that amounts to about 1.5 percent of the cost of the standard basket.

Impressively, the public trusts and accepts the decisions made by the committee, despite the fact that many technologies are not funded. The courts see themselves as bound by this explicit definition of the standard basket of services and the limits it imposes. On the other hand, they have responded to appeals to adopt higher percentage automatic adjustment of the health budget. Court rulings mandating the government to correct the underfunding of the health system are on the books, but not acquiesced to by the budget division of the Ministry of Finance, which promotes a neoliberal approach to social policy and, like all finance ministries, is jealous of the national budget. In general, the finance ministry keeps health plans and hospitals in a state of deficit funding, which it presents as encouraging “efficiency” in the delivery of health services. What deficit finance really does, however, is increase MOF control over the system, demoralize health providers, and undercut long-term planning and day-to-day management.

Notwithstanding MOF’s mistreatment, Israel’s health system not only ranks high but is comparatively advanced in seeking quality improvement. MOH operates sophisticated quality indicator programs for both community and hospital care. Health providers cooperate with these measurement programs and use them as a basis for continuous improvement. The long-standing institutional structure of the Israel health-care system, in which physicians and other providers work on salary and/or within large health systems that exert a certain amount of control over the practice of medicine, facilitate the impact of these quality indicator programs.

Another reason for these successes is Israel’s general culture of diffusion of and orientation to digital technology, which led to complete computerization of medical records since early in this century, far ahead of the United States, which is still struggling at a high cost to automate medical records. Medical-information systems enable improved medical decision-making, coordination of care, and overall quality. While not perfect, Israel’s relatively successful health-information and quality-improvement programs were based in large part on bottom-up initiatives of health plans and hospitals, as opposed to the top-down—and hugely expensive—efforts to create such programs in the United States.

Of course, as described, there is heavy regulation built into the system and carried out by the government in the Israeli system. Perhaps nothing can overcome the disaffection many Americans harbor toward government, even when the private market so clearly fails in the provision of health insurance in their country. But perhaps a closer look at the Israeli system could alter this attitude, if only a little bit. Given the federal/state balance of power built into the DNA of U.S. political culture, as well as the much larger scale of the country relative to Israel, the appropriate locus for consideration of lessons from the Israeli system is probably the individual states. It is one of the great ironies of the U.S. health care debate that Obamacare (which bears a similarity to the Israel system) was more or less the model installed by Mitt Romney in Massachusetts. Culture and existing governance of the health system in that state are distant from the Israeli context, but at least scale is similar, so that careful inspection of elements of the Israeli system could be worthwhile. In turn, that could be a model for other states.

Perhaps even more important, Israel itself should re-examine its health system, not only to shore up its gains and avoid tendencies, such as deficit financing, that could threaten it but also learn lessons of healthy policy management so desperately needed in other areas of public policy.

David Chinitz is Professor of Health Policy and Management in the School of Public Health of the Hebrew University–Hadassah Faculty of Medicine. He moved to Israel from the United States in 1981.

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