Health Care for All

ZIV HELLMAN

Israel's healthcare system, with full, lifetime health insurance for every resident, is widely considered a success.

Oded, a software engineer in central Israel, was diagnosed a couple of years ago as needing to undergo surgery to correct a potentially life-threatening condition. To prepare himself for the procedure – involving more than eight hours of surgery, followed by months of recovery – he joined an Internet support group for people suffering from the same condition, but quickly felt out of place. “The conversations were always dominated by Americans,” he explains, “who spent most of their time complaining about the difficulties of financing the surgery.

“It seemed like insurance companies [in the US] routinely turned down coverage of the procedure, costing upwards of $60,000. Some wondered if their doctors had recommended the surgery just to make money off them. I had first-class and sympathetic surgeons treating me in Kfar Saba, and it was inconceivable even to question whether I would be covered by our national health system. I got annoyed when I was sent a bill of a couple of hundred dollars for X-rays and lab tests.”

Oded’s case is typical. In January 1995, at about the same time president Bill Clinton’s health reform bill failed in the US, Israel put into effect a national health law that guaranteed full, lifetime health insurance to every resident. Fifteen years later, the overall consensus on the impact of national health reform in Israel is almost universally positive.

From the perspective of the bottom line, the figures are impressive: Israel’s per capita health costs are half those of the United States, and the country expends a much smaller proportion of its GDP on health care, yet it provides universal health coverage, and top-notch, technologically up-to-date care. Its outcomes in many areas are superior.

Compared to the US, Israel has more physicians per capita, a lower infant mortality rate, higher life expectancy, and lower rates of cardiovascular disease. The country has the highest number of IVF units in the world per population, and is near the top of the lists of transplant units per population and overall physicians per population.

Although not without its flaws, and always with room for improvement, surveys indicate remarkable general satisfaction with the health care system; a survey conducted every two years by the Myers-JDC-Brookdale Institute consistently shows 88 percent of Israelis report a high level of satisfaction with their health plans.

Notably, that figure is even higher among minorities: The percentage of respondents who were satisfied or very satisfied was highest among Arabic speakers, at 94 percent. “The health system in this country is in good shape, by any measured parameter, in both accomplishments and containing expenses,” says Kobi Glazer, a professor in the Tel Aviv University School of Management, specializing in Health Economics.

In fact, a study that the Pittsburgh Regional Health Initiative (PRHI), a consortium of medical, business and civic leaders in Pennsylvania, commissioned in the autumn of 2009, concluded that the US and other countries might do well to learn from the Israeli health system. “Israel’s healthcare system has significant relevance and important lessons to lend to healthcare reform efforts in the United States,” says Bruce Rosen, director of the Smokler Center for Health Policy Research at the Myers-JDC-Brookdale Institute, who participated in the PRHI study.

“US health reform debates have been about the best ways to move toward a more integrated model, through which payment is aligned with care delivery and that targets safety, efficiency, access, and quality. Therefore, as the US moves to strengthen primary care, contain costs, and require multi-provider accountability for coordinated high-quality care, there is much to learn from Israel, where these concepts are already at work.“

Despite widespread misconceptions, the country’s health care system is not a socialized, single-payer system. Israelis generally accept as almost axiomatic that there should be universal health coverage, with a significant acceptance of government involvement in regulating health care for the sake of redistribution, accountability, and preventing competition from leading to uncontrollable cost overruns. At the same time, there is also recognition of the benefits of keeping a strong measure of competition in the system. This has led to what Glazer describes as “regulated competition”: universal state-financed insurance coverage is provided through four competing health-maintenance organizations.

The HMOs are independent and non-governmental, but highly regulated. Although membership in one of the funds is compulsory – no permanent resident can voluntarily opt out of the system – residents have free choice of which fund they wish to belong to (a change is allowed once every six months), making the HMOs compete for members. HMO members are typically directed by their HMO to a doctor or clinic associated with that HMO, but it is increasingly likely that any private clinic chosen arbitrarily will accept insurance payments from all four HMOs.

The basic coverage that every approved HMO is required to provide every member, regardless of age or pre-existing condition, is called the “health basket,” and is determined annually by the government. Members of HMOs are also free to purchase additional “supplemental” pay-as-you-go insurance. Government hospitals provide more than half of all acute-care hospital beds in the country and most psychiatric facilities.

Private hospitals, clinics, and commercial health insurance companies also thrive independently alongside the state-financed system, available to anyone who wishes to make use of them. Private insurers are regulated financially by the Ministry of Finance’s Insurance Commissioner, but, in contrast to the HMOs, they are free to reject applications on the basis of health status, exclude pre-existing conditions and rate premiums according to health status.

Between 70 to 80 percent of residents purchase supplemental insurance, which mostly covers private hospitalization, specialist choice, cosmetic surgery, and enhanced long-term care, although the percentage of supplemental insurance policyholders remains relatively low among the Arab population, low-income recipients, and the elderly. About a third of the population has some form of commercial comprehensive health insurance policy or long-term care insurance.

But satisfaction with the care provided by the standard HMOs is so high that supplemental and other insurance policies are rated by experts as underutilized relative to their potential. The Myers-JDC-Brookdale survey indicates that 43 percent of Israelis wait less than a week for appointments with specialists, and 18 percent wait between one and two weeks. Remarkably, only 1 percent per year take advantage of opportunities to switch HMO provider.

S., a mother of three, tells of a routine situation with one of her children. “On a Thursday night it dawned on me that the sore throat my 13-year-old had been complaining about was getting worse and might need medical attention. But it was already after hours and our neighborhood HMO branch wouldn’t be open until Sunday. I called the main office, and they directed me to their night-time pediatric walk-in clinic.

“We went in at 10:30 p.m. with no appointment and no wait. The doctor took one look, diagnosed strep throat without lab tests and prescribed antibiotics, which we proceeded to buy in the same building for 32 shekels ($8). When, a few days later, he didn’t seem to be getting better, I took him to his pediatrician at our local clinic, who ordered blood tests for a viral infection. There was another follow-up visit and finally a throat culture was taken after all. All the tests came back negative so we never knew what he had, but he recovered. There was never a question about getting same-day appointments, no paperwork, and the only expense was the medicine.”

Avigdor, a middle-aged media person, had a bout of pneumonia a few years ago. A follow-up X-ray revealed a growth on his lung. After looking at the CAT scan the lung specialist pronounced cancer. “That was somewhat scary,” Avigdor tells The Report.

He was rushed to surgery for the removal of part of his lung and then it turned out the the growth was a carcinoid – cancerlike, but non-malignant. Apart from the trauma of the diagnosis and the surgery, Avigdor was spared the worry of arranging and paying for the costly procedures. His health fund took care of it all.

“I paid less for a chest operation and a stay in intensive care, than it costs me to get a tooth fixed,” he remarks.

By law, there are only four approved HMOs. The 1995 law left open the possibility of adding a fifth HMO, but that will require a government vote of approval – a significant limitation of competition in public health insurance.

“But competition in health provision is not necessarily good, and under certain conditions it can be harmful,” says Glazer. “This is not like the market of, say, restaurants, or computer chips, and the difference is due to information asymmetry. Patients have far less information about which treatments are necessary and which are not than the providers. In unlimited competition, as we have seen in the US, providers have an incentive to exploit the information they have to push patients to undertake expensive treatments that may not be needed, in order to profit. The solution to this is regulated competition.”

The Israeli health system was largely shaped by historical circumstances. The first health plan was established back in 1911 by a workers’ association, espousing the idea that society as a whole is responsible for the health of its citizens. All four of the existing HMOs were established in the period between 1920 and the early 1940s, prior to the creation of the state. Reflective of the spirit of the times, when one’s political association determined membership in everything from sports clubs to youth movements, two of the four HMOs were associated in the past with political parties and labor organizations.

By the late 1980s, approximately 95 percent of the population was insured in one of the four HMOs – with more than 80 percent at Clalit, which was affiliated with the Histadrut (the General Federation of Labor). There was also a sense of general dissatisfaction with health care, and there were frequent doctor and nurse strikes. About 5 percent of the population was uninsured, and HMOs had a financial incentive to accept only younger and healthier people. Clalit, which had a disproportionate share of elderly and poorer members, ran increasingly large deficits that were covered by the public purse. There was also public unease with the fact that membership dues to Clalit went through the Histadrut, which took some of that money for its labor activities.

The National Health Law of 1995 ended the connection of health coverage with political parties, guaranteed universal health insurance, and made the specification of basic health benefits an explicit function of government. Clalit’s relative market share has shrunk to about half of the population.

The following year, an innovative Patients’ Rights Act was adopted, intended to shift medical care to a model that increases patient autonomy. The law defined basic rights and established bodies for handling complaints, along with ethics committees.

Public health, of course, needs to be financed. The financing sources of national health are about evenly divided between a health tax, which is a payroll tax earmarked for health spending, and the general state budget. Failure to pay health tax is a form of tax evasion and punished as such, but it cannot be used as a reason to deny an individual national health benefits. In return for providing state-mandated health benefits, the government gives the HMOs a capitation payment, with the total amount of public support each HMO receives determined by the number of members it has enrolled. The per-capita payments are higher for elderly members than for younger members, to avoid situations in which HMOs try to drive away the elderly from their rolls.

The health tax is not entirely progressive – income above five times the average salary is not taxed for health purposes. This has drawn some criticism, with some voices claiming that health spending should come entirely out of the general budget. Glazer, however, recommends against making any major changes to the way national health is funded. “The current hybrid tax system works,” he says. “There is no pressing need to change it. There are advantages to having tax collected specifically for the purpose of health care, and not leaving health spending entirely in the hands of Finance Ministry officials.”

The Ministry of Health targets a 2 percent yearly increase for technology and 2.5 percent for demographic shifts, but the Finance Ministry often approves appropriations increases that fall short of this goal. Given that hospitals are already operating at 92 percent bed utilization – and in some cases running over 100 percent – Ministry of Health officials have expressed concern that there has been insufficient capital budgeting over the past several years.

The standard national health benefits package does not include long-term care, mental health care, preventive health care, public health services and dental care. Nor is medical research covered. Households generally pay out-of-pocket for private laboratory tests, complementary medicine, private nurses and ambulances, psychological visits, optometry, and dental care, with dental care alone accounting for about 9 percent of total health expenditure.

In fact, taking this into account, over a third of Israel’s national health expenditures are covered by households. Adding private insurance payments to these figures, it turns out that public sources account for only 56 percent of Israel’s national health, according to OECD accounting estimates, and that share has been declining. This makes for an interesting comparison with the US, where public sources account for approximately 48 percent of health care expenses, paid through Medicare, Medicaid and the Department of Veterans’ Affairs – a challenge to the stereotypes of “socialized” medicine in Israel versus “private” medicine in the US.

“There isn’t one system here, and private and public health care gets mixed together,” says Dr Michael Bayme, a surgeon at Soroka Hospital in Beersheba, who studied medicine at NYU and worked as a physician for nearly ten years in the US before immigrating to Israel. “Patients will have surgery at a private hospital, and then go to follow-ups at public clinics, or the other way around, just as easily. All the possibilities are available, and people choose whichever works for them.”

Despite the praise that Israel’s national health law has drawn, for providing high standards and reliable medical care, there are also criticisms.

The annual determination of the basket of coverage is guaranteed to spark controversy and headlines. The Ministry of Health determines the basket of benefits based on the recommendations of a public committee composed of experts in health provision, financing, and public policy, and an appeals process exists for individuals who face rejection of treatments. But inevitably, some highly expensive treatments and medications are left out of the basket. Media articles highlight the plight of individuals dependent on treatments that have not made the cut of inclusion in the basket.

This priority-setting process, however, has also been praised by professionals for transparently dealing with the difficult question of the limits of public allocations for health, in an openly-debated manner that is rare through most of the world. “The state is committed to supporting health, but ultimately there is a limited amount of resources that can be given to health coverage,” points out Glazer. “That is also true of any health provider, private or public. And just like the government needs to balance its resource allocation, and determine how many tanks to purchase, and how many classrooms to have in schools, it needs to determine what medical treatments are covered, and at what cost.

“This is a decision that has to be taken at the national level, and then applied uniformly at every HMO – if each HMO were given the right to determine its own basket of coverage, they would tailor their coverage to the benefit of the young and healthy, to reduce as much as possible the old and sick on their rolls.”

The existence of supplemental insurance is also sometimes criticized, with some claiming that for-fee services provided by the registered HMO contradict the spirit in which the national health law was passed, to provide equal care for all, regardless of income. But Glazer defends the current system. “The main benefit of supplemental insurance is that it gives patients a choice of which doctor will treat them, and access to doctors at private hospitals,” he says. “The positive aspect of it is that the state requires the HMOs to offer supplemental insurance to everyone, regardless of health condition, and at an equal price, so that there is a measure of equity here.”

Other flaws in the health system that have been pointed to include the law’s failure to include psychological care and dental treatments in the list of basic public health benefits, despite persistent indications of correlations between both mental and dental health and overall health. End-of-life and palliative care are also generally regarded as under-funded, and there is no independent system for regulating hospital quality measurement and maintenance.

Glazer also criticizes strict policies forbidding the provision of private health treatment in public hospitals, a policy that was adopted to prevent a situation in which private care slowly crowds out public care. “But this has led doctors working in public hospitals to leave en masse in the early afternoon, to rush to their other jobs at private hospitals and clinics,” says Glazer. “This is a redundancy in the system that leads to unnecessary costs and waste, not to mention causing the doctors stress and exhaustion. There is no reason not to allow public hospitals to permit doctors to treat patients on their grounds under private arrangements, at agreed-upon hours, as long as it is regulated, and does not come at the expense of public health provision.”

Dr. Bayme agrees that physicians have to scramble to make a living. “I know of no doctor who works only at his day job,” he says. “The base salary for work at a public hospital is simply too low. Everyone either works many extra hours at private clinics and hospitals, or signs up for endless evening, weekend and holiday shifts at public hospitals. But when I worked in the US, I was also dividing my time between about eight hospitals, and a private clinic, and I was always on call. The only difference is that doctors in America make ten times as much, and are in the top three percent of the income ladder just by virtue of their profession.”

Both Glazer and Myers-JDC-Brookdale’s studies indicate that a potential shortage of nurses and doctors also looms as a near-future threat. Given the density of physicians in Israel – 3.6 per thousand, compared with only 2.4 per thousand in the US – this might seem a surprising concern. But Israel has relied heavily on immigration as a source of new physicians, especially the large immigration from the former Soviet Union in the 1990s; it is estimated that fewer than 40 percent of all licensed physicians in the country up to age 65 have studied in local medical schools. The sources of immigration are drying up, however, and greater reliance on homegrown physicians will be inevitable. The country currently has four medical schools and is planning to open a fifth.

“There is going to be a shortage of doctors in the near future,” says Glazer matter-of- factly. “This is a global phenomenon, but that means there will be competition between countries in attracting physicians. We need to prepare for this now, whether that means increasing the number of medical students, or improving the conditions of doctors in order to attract more talented young people to the field, and keeping them here.”

Ran Melamed, deputy director of Yedid, an association for community empowerment, tells The Report that gaps in medical care have left the population living in outlying parts of the country behind. Soroka Hospital is the only major public hospital serving most of the south, while there are seven major hospitals in relatively close geographic proximity in the densely populated core of the country.

“People living on the periphery have less access to basic information,” says Melamed, “both regarding their rights, and medical facts. They express fear of doctors, who intimidate them with attitudes of superiority. And they are poorer. With important health elements available only to those who can pay for supplemental insurance, the basic basket is disappearing for the poor. Many avoid seeing doctors out of concern that if a doctor diagnoses them as suffering from a major disease, they will not be able to afford out-of-pocket payments.”

What can be done to correct this situation? Melamed recommends requiring the HMOs to publish figures on the profits they are making on pharmaceutical sales. “They claim that profits from pharmaceuticals subsidize other activities, but they never present proof,” he says. “They should be required to lower the prices they charge for medications to lower-income members.”

Ran Shorrer, who has been studying the health system for his master’s thesis in economics at Hebrew University, even asks whether the competitiveness said to be inherent between the HMOs is overrated. “It is unclear where exactly the competition is expressed,” says Shorrer. “There is very little movement of insured members from one HMO to another, because they are perceived as indistinguishable. At this point, virtually every private clinic and doctor accepts insurance payments from all four HMOs, reducing a lot of the role of the HMO, from the perspective of much of the population, to a grand system for setting appointments with doctors, and then handling the insurance paperwork.”

Shorrer says that there is, in fact, competition between the HMOs, but what they are competing over is the ratio of the number of young insured members to elderly members, precisely what the health law was intended to prevent. “The extra payment from the government per capita for elderly members is supposed to make every insured citizen equally valuable for the HMOs, but obviously the HMOs themselves don’t believe this,” says Shorrer. “If you track carefully both their advertisements, and the services they voluntarily offer members beyond what they are required by law, you can see the bias towards the young. The extra benefits are concentrated in ante-natal care and child care, precisely because every HMO wants to increase the number of insured on its rolls in the young adult age group.”

Even with its shortcomings, the Israeli health system has been successful from the perspective of the economic bottom line: per capita spending on health in Israel is $2,069, compared with $6,401 in the United States. Expenditure on health as a percent of GDP is only 8 percent in Israel, versus 15 percent in the US, even though insurance coverage in Israel is universal, while 15 percent of the population in the US is uninsured.

A major part of the PRHI study is devoted to asking what factors contribute to these differences, and it suggests several. The Israeli emphasis on out-of-hospital primary care, rather than in-hospital medical care and short-term follow-up, is one of them. Ninety percent of the population regularly has contact with a primary care physician, who serves as a gatekeeper to direct them to specialists, as needed. This tends to reduce unnecessary diagnostic procedures and over-reliance on complex technology.

The pay incentives for physicians also make a difference; most Israeli physicians are contracted employees, and their work is generally assessed by overall results, not the number of tests or operations they order. In contrast, several studies indicate that fee-per-service incentives in the US have led to wasted spending on clinically irrelevant procedures.

Another factor is the relatively small differentiation in salaries paid to Israeli physicians in different specialties, from internal medicine, to radiology, to surgery and so on. In the US, differential salaries between specialties are a factor in the cost and structure of the health care system. The immense gulf between medical school tuitions in the two countries is another driver of macro distinctions between the health systems. In Israel, where medical schools are state subsidized, students pay less than $3,000 per year in tuition. In the US, students typically pay 10 to 20 times as much. The need to repay medical school loans then pushes top students to the sub-specialties that generate the most income.

Rosen adds to that list fewer malpractice suits in Israel, and hence less defensive medicine, a culture that recognizes that you can’t have everything and need to prioritize, and even constraints on hospital bed supply in Israel, resulting in less hospitalization. He cautions, however, against over-comparison to the US. “It is important to keep in mind that when you look at OECD countries as a whole, the US is the outlier, not Israel,” he says.

Glazer agrees. “National health works in every advanced country in the world,” he says emphatically, “and it can work in the US just as well.” Given the widely held assumption in Israel that universal health coverage should be guaranteed by society, and the success of 15 years of national health, many Israelis find the fierceness of opposition to health reform expressed in the US bewildering. “Americans are paranoid about changing their health system, to their detriment,” opines Glazer. “Of course, under the Israeli system there is rationing – you don’t have complete freedom to be treated by any doctor you want, and sometimes you might need to wait a couple of weeks for an appointment.

“But any health system will include some aspect of rationing. There is health care rationing in the US right now, in various ways, such as the number of people who are entirely uninsured, and people who have paid for health insurance for years and then discover their coverage disappears as soon as they get seriously ill,”Glazer notes.

This article was published in The Jerusalem Report on May 2, 2010.