Jacob Witkowski CPA

Lessons From Israel’s Experience with its National Health Insurance Law and Possible Implications for the U.S. Affordable Care Act

 

Jacob Witkowski CPA

Dr. Jacob Witkowski in Israel. photo credit: Chet Cooper

The key elements and objectives of Israel’s National Health Insurance Law (hereinafter – “the Israeli Law”), which has been in effect since January 1, 1995, are by and large similar to those of the U.S. Affordable Care Act (hereinafter – the U.S. Act”). There are however some fundamental structural differences between the laws which are worth pointing out (refer also to the Appendix).

The experience which has been gained since the Israeli Law first went into effect 19 years ago, including its addenda and amendments over the years, may be enlightening to policymakers and all other interested parties in the United States.

(1) A comparison of the major principles underlying both laws:

Prior to the enactment of the Israeli Law, around 95% of Israeli citizens were insured by four different HMOs, and some under private healthcare plans as well. The four HMOs, which were nonprofit organizations, collected membership fees on a sliding scale based on income and family status. There were certain periods in which employers also paid a special health tax for their employees. The collection process was inefficient and the HMOS had a long history of deficits. They were constantly at the government’s doorstep seeking funds to cover those deficits. There were even allegations that some of the money they collected was funneled to other purposes, particularly in the case of two HMOs that were closely associated with trade unions. The HMOs could deny membership to applicants after reviewing their medical history and were allowed to exclude preexisting conditions from their coverage. On occasion, they also imposed a waiting period on benefit claims. All the HMOs offered a similar package of services, some of which were outsourced, including healthcare in the community, hospitalization, medication, home visits, etc.

The current Israeli Law is universal and compulsory, and every Israeli – without exception – is covered by it. To quote the law itself: “Health insurance shall be based on principles of justice, equality and mutual assistance.” The four HMOs can no longer deny someone membership based on his age or exclude preexisting conditions from their coverage. Switching from one HMO to another is also seamless. The HMO membership fees – now in the form of a progressive health tax – are collected by the National Insurance Institute (Israel’s Social Security Administration) based on monthly reports filed by employers for their workers or by the insured themselves (self-employed persons). It is generally agreed that the collection process is more efficient and less costly than it was before the law went into effect.

The money is distributed among the four HMOs in the following manner:

Once a year, the government determines the overall budget for the services provided under the Israeli Law. The budget increases annually due to inflation, the growth in the population and new medications and technologies that are added to the existing package of services. Based on the data received from the National Insurance Institute, the government then transfers the difference between the total budget for that year and the amount of health taxes collected from citizens by the National Insurance Institute. After receiving the supplement from the government, the National Insurance Institute divides all the money among the four HMOs. Apart from distributing the money according to a capitation formula that takes into account the number of enrolled members as well as their age, gender, and how far they live from a metropolitan area, the National Insurance Institute also allocates a small percentage of the budget to cover the specific and high costs involved in treating patients with any one of five predefined serious illnesses. That allocation is divided proportionately among the different HMOs based on patient lists which they submit.

The mandated package of medical services following enactment of the law is similar to the one provided before it went into effect, with the exception of certain procedures and medications that are added on a regular basis, as described above. It is also noteworthy that the HMOs have remained nonprofit organizations because Israeli legislators wanted to ensure that profit-driven motives would not affect the quality of services provided.

Following an amendment to the Israeli Law, the HMOs are allowed to sell supplemental health insurance to their members. At present, 75% of all Israelis are covered under these supplemental health insurance plans. The government does however regulate them and has set the terms for how they operate:

  • Denying membership in these plans is prohibited.
  • The premiums charged by each HMO must be the same for everyone belonging to a particular age group, regardless of any preexisting condition.
  • Supplemental insurance plans cannot offer enhancements of existing components of the basic package of services.
  • The premiums are collected independently by the HMOs.

Among other things, the supplemental health plans offer a wider choice of specialists and hospitals, a fixed number of subsidized second opinions per year (including consultations with doctors who are not associated with the member’s HMO), and alternative and complementary therapies.

Prior to the legislation of the U.S. Act, approximately 16% of the population (roughly 48 million Americans) did not have health insurance. This was due to a variety of reasons: they did not qualify for one of the federally-funded health programs, such as Medicare or Medicaid, their employer did not offer a health plan, they were not members of an organization that offered group health insurance, or their medical or financial condition prevented them from taking out insurance.

Although the U.S. Act is a law like any other law, in some ways it is voluntary in nature. It encourages the purchase of health insurance by offering various incentives, but one can choose not to enroll in a health plan and pay the penalties accordingly.

Will the fact that Americans can choose to remain uninsured compromise the declared objectives of the U.S. Act?

I am certainly mindful of and respect a person’s right to choose. But past history has shown that when uninsured citizens are in need of medical attention and cannot afford to pay for it on their own, both they and the government are adversely affected. The government bears the financial burden because it ends up paying for life-saving treatments, whereas the patients are often prematurely released from the hospital, do not benefit from preventive care, etc. – which ultimately increases the government’s expenditure on health.

The system adopted by the American legislators, namely imposing penalties on people who do not purchase health insurance and offering incentives to those who do, will necessarily reduce the number of citizens who are not insured, but part of the problem will remain unaddressed.

Because Americans over the age of 65 are insured under Medicare (apart from those who did not pay Social Security for at least 40 quarters), the vast majority of the uninsured are young or middle age adults who are likely to require medical services over a period of many years. The uninsured are comprised of two major subgroups: people who cannot afford insurance or are socially marginalized, and those who can afford it, but prefer not to be insured. I propose that each subgroup receive differential coverage from what I call a ‘virtual insurer’ – namely, a pool of government funds that would cover a specific package of medical services delivered both in the community and in hospitals, which healthcare providers would be required to provide. Thus, for example, uninsured patients would be entitled to a minimum stay in the hospital whose length would be predefined by the ‘virtual insurer’ depending on the nature and severity of their illness and the subgroup they belong to. Furthermore, these same uninsured patients would be entitled a minimum number of doctors’ visits or treatments following their release from the hospital, thereby diminishing the likelihood of their being hospitalized again due to the same ailment. The cost of this ‘virtual insurance’ could be funded, at least in part, by the penalty money collected from those who choose not to take out insurance.

Clearly, there is no alternative to private healthcare in the United States. However, providing a federally mandated package of services to the uninsured (extending beyond life-saving treatments) would be a significant accomplishment, both in the eyes of those who view healthcare as a human right, and among those who believe that overall health spending would decline because the uninsured would benefit from preventive care.

(2) Deductibles and copayments

In Israel, the basic package of medical services mandated by the Israeli Law does not include any deductibles. Deductibles are also not permitted in the supplemental health plans.

From the outset, the HMOs were allowed to charge nominal copayments. Nevertheless, some time after the law went into effect, and as a way to address their continued deficits, the HMOs were permitted to increase their members’ copayments for doctors’ visits, medications, and select tests and procedures. Although the copayment amounts are regulated by the government and by all accounts are quite reasonable, some low-income Israelis are still unable to afford them and choose to forgo needed medications because of the copayments. In particular, this can be witnessed among patients with multiple ailments who regularly take a large number of prescription drugs. Forced to prioritize, they often choose to spend their limited budget on other basic needs.

Copayments were supposed to prevent unwarranted doctors’ visits and the purchase of unnecessary medications. Experience has shown, however, that these objectives have not necessarily been achieved and that low-income Israelis are cutting back their consumption of necessary services due to copayments – creating an ‘own goal’ situation.

In my view, it is preferable to offer fewer services in the basic healthcare package, as well as fewer services through the supplemental health plans (naturally with the exception of life-saving and life-extending procedures) and, in exchange, do away with the copayments.

The U.S. Act enables enrollment in different health plans through the healthcare exchanges, ranging from bronze to platinum. All the plans offer “essential health benefits” and the primary difference between them lies in the amount of the deductibles and copayments required of clients. A possible outcome of this situation could be that some will choose to forgo certain services rather than be charged the copayments. That in turn could lead to an increased national outlay on health for the same reasons characterizing the uninsured – namely, that the non-receipt of preventive care often leads to hospitalizations and rehospitalizations which could otherwise have been prevented.

(3) Reducing the national health outlay

At present, the United States spends close to 18% of its Gross National Product on health. That figure is substantially higher than in other wealthy industrialized nations. But if we compare expenditures on health to accepted health parameters such as life expectancy, infant mortality, and the availability and quality of medical services, we see that the United States is for the most part found somewhere in the middle despite its high outlay on health. For example, life expectancy for an American baby born today is 78, which means that the United States is ranked 27 out of 34 among all OECD countries based on this parameter. On the other hand, the U.S. excels in preventing infant mortality. Therefore, no direct correlation can be identified between the expenditure on health and the general health of the population.

The U.S. Law is expected to have an effect on healthcare costs by creating greater competitiveness among private insurers, which in turn should lead to lower premiums and greater efficiency in the system. Others claim that the law will have no or little effect on the national health spending or that it will increase it due to the expanded coverage provided under the law.

As noted above, the provision of a mandatory package of services to uninsured Americans while in the hospital, and then in the community following their release, could favorably impact the national outlay on health.

For the sake of comparison, the national expenditure on health in Israel amounts to 7.8% of the Gross National Product. It has remained more or less stable since the Israeli Law went into effect in 1995.

(4) Will the U.S. Act affect the number of people employed in the healthcare industry?

One of the objectives of the U.S. Act is to keep premiums charged by the medical insurers in check and prevent them from denying coverage to people perceived as being an insurance liability. The more stringent regulatory environment, coupled with the fact that new and large groups of Americans are looking to enroll in health insurance, have, as expected, encouraged increased competition between the insurers. The new reality is also likely to bring about greater efficiency even though the population is aging, which typically means greater consumption of medical services and more frequent and longer hospitalizations. This increased demand for services will be offset, at least in part, by the introduction of new medical technologies in the marketplace. The need for skilled professionals who have the required training and expertise to operate the cutting-edge equipment should consequently rise as well. Furthermore, shifting the provision of services from hospitals to the community will necessarily produce a demand for health professionals who have a different treatment orientation.

I therefore believe that the U.S. Act will not result in a significant change in the number of people employed in the healthcare industry, but rather they will transition into different areas of specialization and acquire new needed skills.

In conclusion

The experience in Israel has shown that the universal and egalitarian implementation of the Israeli Law, whereby people pay according to their ability and receive services according to their needs, has resulted in a quite good and efficient healthcare system.

The U.S. Act is semi-compulsory and has created a mechanism of incentives to encourage people to purchase health insurance and imposes penalties on those who refrain from doing so. Although the solution it offers is expected to alleviate a major part of the healthcare problem, the U.S. Act, in its current format, does not address the still existing “hard core” of uninsured Americans who only receive life-saving treatment if admitted to a hospital. Because upon release from the hospital they do not benefit from ongoing preventive medical care, their condition is likely to deteriorate and, ultimately, their care will cost the government more money.

That is why the idea of a ‘virtual insurer’ should be explored. It would cover all uninsured persons based on a predefined division into subgroups and guarantee that they receive a mandatory package of services delivered in the hospital and afterwards in the community. The money collected from the penalties imposed on those who do not enroll in a health plan could constitute the financial core for funding the costs incurred by the ‘virtual insurer.’

Based on the Israeli experience, the copayments charged by the U.S medical insurers could end up being a stumbling block. Originally intended to discourage over-consumption of medical services, in Israel they have led certain HMO members to forgo the purchase of needed medications and treatments because they are unable to afford them. This in turn jeopardizes their health and ultimately leads to higher spending on the part of the government.

A possible solution could be to reduce the basic basket of services provided under the law (obviously not at the expense of life-saving treatments), which would enable an overall decrease in copayments.

Whether or not the U.S. Act reduces the national outlay on health remains to be seen. One does expect to see more competition and greater efficiency in the health system. In my opinion, this will not result in fewer people being employed in the healthcare industry. There will, however, be a shift from certain medical and paramedical occupations to ones that focus on technological aspects of healthcare provision.

Appendix – The Key Elements of the National Health Insurance Law in Israel

  1. Every Israeli citizen is entitled to healthcare insurance.
  2. Every Israeli citizen is entitled to a basic package of medical services, which is identical in all the four HMOs in the country.
  3. Every Israeli citizen is free to choose which HMO he enrolls in.
  4. Members can switch from one HMO to another once every quarter without any restrictions or conditions.
  5. The HMOs are prohibited from denying someone membership for whatever reason.
  6. The government, through the National Insurance Institute, collects a progressive health tax from all Israelis.
  7. The health tax is collected monthly by the National Insurance Institute, which in turn distributes that money and the supplement received from the government among the four HMOs. (Details about how the distribution system works appear in the first section of the article).
  8. The government updates the cost of the basic package according to predefined criteria.
  9. The government has excluded a number of services from the basic package (e.g. mental health therapies, nursing care, pre/post natal clinics) which are provided by government-funded health providers and not the HMOs.

Two major amendments have been made to the Israeli Law since it went into effect:

  1. The HMOs are allowed to charge higher copayments (the amounts of which are subject to approval by the regulatory authorities).
  2. The HMOs are allowed to sell supplemental health insurance to their members. (At present, 75% of all Israelis are covered under these supplemental health insurance plans).

Overall, there are three tiers of medical coverage in Israel:

  1. The basic package of services to which all citizens are entitled by law.
  2. Voluntary supplemental insurance plans which are sold by the HMOs.
  3. Private health insurance plans.

There is some overlap between the coverage provided by the HMOs’ supplemental insurance plans and the private insurance plans, and attempts are currently being made to define which services each type of insurance plan should or may include.

About the Author – Jacob Witkowski

Dr. Witkowski is a CPA who also has a PhD in Business Administration from the International University of Business and Law. His wrote his dissertation on Healthcare Decision-Making in Israel. He has worked in the Israeli healthcare industry for over 35 years, filling a wide variety of positions both in the private and public sectors. He composed the Witkowski Report, which was an annual report dealing with the financial operations of the four HMOs in the country, and authored risk analysis reports pertaining to two of the HMOs. Dr. Witkowski set up a central reporting system for all the government-owned hospitals (encompassing 40% of total hospital beds in Israel), was the auditor for 16 hospitals, and worked in concert with the Director General of the Ministry of Health in formulating guidelines for comparing hospital efficiency. He was also instrumental in preparing and implementing a betterment plan for the Hadassah Medical Center in Jerusalem. Dr. Witkowski has done work for the Mackenzie consulting firm pertaining to the Israeli healthcare market, and filled the Economic Chair on Israel’s National Health Committee, which was an official appointment by the Minister of Health. He is currently the CEO of Step of Mind Ltd., an Israeli medical device company.

Dr. Witkowski’s professional pursuits have also extended beyond Israel’s borders to Eastern Europe, where he served as a consultant for health facilities in a number of countries.