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01 April 2024 | Country Update
Progressive Rise in NHI earmarked contributions (“The Health Tax”)
3.2. Sources of revenue and financial flows
The Israeli NHI covers all citizens and permanent residents. It provides access to a broad benefits package (also called the “health basket”). Four competing HPs are responsible for providing the health basket benefits to their members.
The health budget tends to be fairly stable from one year to the next. However, in 2015, the health budget was increased substantially (Ministry of Finance, 2015; Rosen & Merkur, 2015).
Each year, the government determines the level at which the NHI system will be funded. It is based on the previous year’s budget adjusted for demographic growth, technological developments, and a price index. Yet, it seems that these adjustments are not enough and recent studies show that the “real value” of the NHI budget has eroded since the enactment of the NHI law (Shmueli, Achdut & Sabag-Endeweld, 2008; Arieli, Horev & Keidar, 2012). The NHI budget per capita (adjusted for changes in the official health cost index) was essentially the same in 2013 as it was in 1995. If the additional funds received for additions to the benefits package (which of course also had concomitant additional costs) are deducted, then the per capita budget in 2013 was 12% lower than it was in 1995 (Ministry of Health, 2014a). The two main reasons for this erosion are the inadequate adjustment for the health cost index and the combination of demographic growth and population ageing:
Adjustment for the health cost index. The NHI budget is adjusted every year for the health cost index, which is supposed to adjust for the prices of inputs. In 2014, it was composed of indices for various inputs (i.e. the consumer price index, the average wage of health care providers and the average wage of public servants) but did not explicitly reflect hospital costs (such as the per diem rate). As inpatient care represents 40% of the NHI budget, this component is important to the health cost index.
Demographic growth and population ageing. Neither of these has been fully reflected in the NHI budget adjustment. This has created pressures on the capacity of HPs to fund ongoing operating expenses, although to date it has not yet compromised their ability to maintain their capital stock. According to the report of the German Committee (see section 6.2), the demographic adjuster grew by 31% between 1995 and 2013, while the number of insured grew by 45% and the number of age-standardized persons grew by 57% (Ministry of Health, 2014a).
In May 2013, the government decided to increase the demographic adjuster from 1.2% in 2013 to 1.6% up to 2016. However, this has still been insufficient to maintain the per capita purchasing power, as it does not adjust for real population growth (1.9% in 2014) and ageing, and does not compensate for erosion in earlier years. If no further improvement is made, in the medium and long term, the NHI budget erosion will cause pressures on fixed expenses too, as new infrastructure will be needed.
The erosion of the NHI budget, on the one hand, and the increase in the scope of the VHI market, on the other hand (section 3.5) led HPs to encourage their insured to use their supplemental insurance to obtain health care services, including services that formed part of the NHI benefits package. In this way, expenditure by the HPs decreased while their income remained the same. This trend contributed to the constant increase in the private financing share of the THE (Table3.4) (Ministry of Health, 2014a).
Table3.4
The budget for the NHI benefits package (officially known as “the cost of the benefits package”) is distributed among the HPs mainly prospectively (as described in section 3.3.3). Fig3.5a and Fig3.5b illustrates the trends in health expenditure in Israel by financing source (Fig3.5a) and according to source of revenue (Fig3.5b).
| Fig3.5a | Fig3.5b |
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Services outside the NHI system are financed via VHI and direct OOP payments. The VHI market in Israel offers two products: supplemental insurance provided by the HPs and commercial insurance provided by profit-making commercial insurance companies. VHI does not cover or reduce co-payments in the public system. (For more details on the VHI market, see section 3.5.)
An amendment to the 2024 budget includes an increase in NHI earmarked contributions (“The Health Tax”), which will be effective from 2025.
The health tax has two “steps” and both will be increased progressively. The first step comprises the part of the salary up to NIS 7,522 (60% of the average salary), which will be increased from 3.1% to 3.235%. The second step (the part of the salary above 60% of the average salary) will be increased from 5% to 5.165%.
The funds generated will finance mental health services. A concurrent reform plans to expand the availability of and access to mental health services due to the increase in demand post the October 7th attacks (see https://eurohealthobservatory.who.int/monitors/health-systems-monitor/analyses/hspm/israel-2015/mental-healthcare-initiatives-post-the-october-7th-attacks). In 2023, additional funds had already been directed to psychotherapists following the October 7th attacks (156 million NIS compared to 75 million NIS in 2022) (Filut & Zarhiya, 2024) (National Insurance, 2024).
Authors
References
Filut, A., & Zarhiya, Z. (6 March 2024). Health taxes will rise — but not equally for all employees. Retrieved from calcalist: https://www.calcalist.co.il/local_news/article/r1dxkbiap
National Insurance. (2 April 2024). Health insurance premium rates (in Hebrew). Retrieved from btl: https://www.btl.gov.il/Insurance/Health_Insurance/Pages/%D7%A9%D7%99%D7%A2%D7%95%D7%A8%D7%99%20%D7%93%D7%9E%D7%99%20%D7%91%D7%99%D7%98%D7%95%D7%97%20%D7%91%D7%A8%D7%99%D7%90%D7%95%D7%AA.aspx