The State Health Insurance Law, which defined the budget financing of the Health Services Basket, was legislated in 1994. Over the years, a significant gap developed between the cost of the basket as defined at the time the law was adopted and what is actually needed. The consequences can be seen in the quality of medical services and their accessibility, and they became even clearer during the pandemic when there was a concern that the health system would collapse.
A new study published by the Taub Center examines the cost update mechanism for the Health Services Basket under the responsibility of the health funds for the period since the law went into effect in 1995 and until 2020. It found significant gaps between the current budget and actual needs. There has been a cumulative erosion in the value of the Health Services Basket, and there is heavy dependence on the State Budget and on decisions made by frequently changing governments and their changing order of priorities. This has led to the growth of a large private healthcare market that has expanded significantly in recent years and that the Ministry of Finance is trying to constrain. The victims of this situation are Israeli citizens who are eligible for the Health Services Basket by law.
The State Health Insurance Law – 1994 defines the level of public financing allocated to ensure the provision of the basket of services specified in the law; however, there is a large gap between that definition and the actual size of the basket. Over the years, there has been considerable erosion in the budget allocation, and the existing update mechanism has not managed to close the gap. The erosion in the pricing of the basket reduces the quality of health services and their availability and exacerbates inequality in the system. A new study published by the Taub Center, carried out by Dr. Baruch Levi, Professor Nadav Davidovich and Professor Gabi Ben Nun, examines the erosion in the pricing of the basket and its various components, its alternative cost were its update mechanism anchored in law and the resulting wide-ranging economic and health effects.
The cost of the basket has been eroding consistently over the years and the current budget gap is in the billions of shekels
The updating mechanism for the cost of the basket is based on three indices: 1) The Healthcare Price Index, which includes components such as salaries in the healthcare system, the CPI, and the cost of building inputs. It does not directly include the prices of hospitalization services, a central component in the cost of the basket of services under the responsibility of the health funds. Over the years, the Ministry of Health developed an alternative index called the Healthcare Inputs Index, which fully includes the price of a day of hospitalization. Although revisions made over the years to the Healthcare Price Index brought it close to the Healthcare Inputs Index, a gap still remains between the budget and the actual cost. 2) The Demographic Index which relates to demographic changes in the population. Over the years, the update coefficient was lower than the rate of growth in the population. Only in 2014, as the result of a government decision, did it catch up to the actual growth rate. However, it does not fully compensate for the aging of the population, which in coming decades will accelerate such that by 2048 the proportion of the 65+ age group will be about 16% of the population. 3) The Technological Index, which relates to the development of new drugs and medical technologies. The existing mechanism to update the cost of the basket does not formally include the budget additions required to expand its content. Although additional budget for this purpose is added each year as decided by the government, the amount is significantly smaller than what is needed.
The cumulative difference between the actual and the alternative healthcare basket cost, NIS billion
Source: Baruch Levi, Gabi Bin-Nun and Nadav Davidovitch, Taub Center | Data: Ministry of Health
“In order to calculate the budget addition that is needed to cover the current deficit in the Health Services Basket, we need to focus on the Demographic Index and the Healthcare Price Index, which are intended to prevent the erosion of the basket. This is in view of the fact that the Technological Index changes each year according to technological progress and the specific needs of groups of patients,” explains Professor Nadav Davidovich, the Head of the Health Policy Program at the Taub Center. “We found a gap of almost 23% between the updated basket and the actual basket due to the erosion in the Demographic Index and a gap of about 10% between the existing basket and the alternative basket according to the Healthcare Price Index. This implies that the pricing of the basket has consistently been eroding over the years. Compared to other countries, public healthcare expenditure per capita in Israel is only about 60% of the average in the OECD countries.”
Healthcare expenditure is low in Israel. The result? Depends on what you look at
The Taub Center researchers found that if the basket had been updated each year according to the various indices recommended by health experts on various public committees, its cost would currently be more than NIS 85 billion (as compared to its actual cost of NIS 56 billion), a gap of more than 50%. As mentioned, the pricing of the basket has been eroded over the years, which is related to, among other things, the low proportion of public expenditure on healthcare from GDP in Israel – 4.8% as compared to 6.6% in the OECD.
“The aforementioned erosion, as well as the fact that the indices of expenditure, infrastructure and manpower are low relative to other developed countries, raise the question of how the healthcare system manages to achieve such impressive health outcomes, such as a high life expectancy and low infant mortality,” says Dr. Baruch Levi. “In theory, this points to the efficiency of the system and the possibility that there is no need for additional resources. However, it is known that in practice a high life expectancy is not necessarily an indicator of quality of life and does not reflect, for example, long queues. It also needs to be remembered that these indices reflect the average in the population and sometimes they conceal health gaps between various segments of the population. Moreover, although Israel excels in the prevention of mortality and life extension, in terms of loss of functioning and reduced functioning as a result of illness and handicaps, and in particular in terms of the increased incidence of diabetes, the picture is much less impressive and is even a cause for concern.”
“Another measure of the quality of care is recurring hospitalizations. In Israel, the rate of recurring hospitalizations after a stroke is one of the highest,” adds Professor Gabi Ben Nun. “This is related to, among other things, the low rate of hospital beds in Israel, the high hospital bed occupancy rate and the short length of stay due to the shortage of beds,” he explains.
Health problems are not found only among the elderly in Israel. About one-third of children and youth in Israel are overweight or obese and in this measure Israel is “ahead” of most European countries. Many of these young people have sedentary lifestyles and devote excessive time to television and video games. The rate of smokers among the young is also relatively high: Israel is ranked 12th among 40 countries. Since there is no formal program for health education in Israeli schools, these lifestyle habits are expected to lead to health problems later in these children’s lives, which will increase the burden on the Health Services Basket.
The update mechanism is dependent on the State Budget and on the decisions of frequently changing governments and we are paying the price
The deficit of the Health Services Basket has implications for the entire healthcare system, including hospitals and the hospitalization system. As a result of the system’s deficits, the State forces the health funds to sign “stabilization agreements” and requires them to meet equalization targets; however, these agreements perpetuate the distortions in the system and lead to economic uncertainty, which hinders the ability to plan for the long term. In 1997, as part of the Arrangements Law, the Ministry of Finance initiated the cancelation of employer contributions to their workers’ health insurance (the “parallel tax”) and the State increased its participation in the financing of the health system. This was based on a view that the Knesset and the Ministry of Finance are the ones who should determine the social and economic order of priorities in each budget year. Thus, instead of a designated and stable budget source that is linked to the rate of economic growth, there was a shift to non-designated sources that are dependent on the State Budget and government decisions each year. With the outbreak of the pandemic, this policy made a not insignificant contribution to the damage done to the economy, such that the main strategy of the Ministry of Health focused on protecting the hospital system from collapse by means of lockdowns and social restrictions.
The erosion of the basket has fueled a trend toward the commercialization and privatization of the healthcare system and has increased the revenue from supplementary insurance, medical tourism and private health services. In recent years, a private healthcare market has developed, sometimes at the expense of the public system, which has led the Ministry of Health and the Ministry of Finance to adopt measures to halt the phenomenon and reduce the level of private healthcare expenditure. This is being done through various measures, including larger budgets for the hospitals in order to shorten queues, improvement in the salaries of physicians working only in the public system, and others. Nonetheless, a fundamental change in the mechanism to update the cost of the Health Services Basket—with respect to both the method of updating and the total cost—is also advisable.
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.
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