Report: Private Health Care Spending Is Rising Rapidly

According to the report from the Taub Center for Social Policy Studies in Israel, greater spending has not resulted in improved services or quality.

The cost of private medical care in Israel is rising and this price inflation is spilling over into the public health system but without a concomitant improvement in health care, according to a report from the Taub Center for Social Policy Studies in Israel.

According to the policy paper, which is subtitled "Malignant growth in health care spending," rising health care spending is driven by increased spending on private health care. But greater spending has not resulted in improved services or quality, states the report. The public is simply paying much more for the same thing.

The report was written for the Jerusalem-based institution by Prof. Dov Chernichovsky of the Department of Health Systems Management in the Guilford Glazer Faculty of Business and Management of Ben-Gurion University of the Negev, who chairs the Taub Center's health policy program; Dr. Guy Navon, a senior economist at the Bank of Israel; and Health Ministry Director General Dr. Ronny Gamzo, who participated in the report before taking on his current appointments.

The price of private medical care rose by 87% between 1995, when the National Health Insurance Law was passed, and 2008. The consumer price index rose by only 57% in that same period.

Private spending on health care rose 103% from 1997 to 2007, while personal consumption rose only 43% in that same period, states the report.

Chernichovsky said the inflation in the price of medical services is a preliminary indicator, like high blood pressure, of possible damage to public health.

"Even though health care accounts for 5% of household spending and 8% of GDP, the government of Israel has forgotten that low inflation is the proper goal for this system too," said Chernichovsky. He said that in the United States health care costs are the spearhead of general inflation. In addition OECD countries with health care systems similar to Israel's do not have this kind of inflation in health care costs, states the report.

Why are prices rising?

As to why health care costs are climbing, the report's authors point above all to the supplementary health insurance policies offered by the HMOs. Most of the public has such insurance, on top of the government health insurance, a practice the the report says "encourages demand for private services within the public system." Israel has a unique mix of public and private services that encourages channeling services that could be provided by the public health system to the private sector. For example, private insurance has become a means for choosing surgeons and other physicians as well as for cutting waiting times. But the private health insurance pays only for services provided outside of the public system, even though usually the same doctors work both publicly and privately.

Chernichovsky says the problem is that when a patient calls her publicly funded HMO to schedule an appointment with a specialist she may have to wait for several weeks, but those with private insurance can see the same doctor almost immediately - in his private clinic. He calls this selection based on money.

The patient sees this as a good deal: The insurance company pays for 80% of the cost of the visit, and the 20% copayment looks like a small price to pay for medical care.

But for the economy as a whole much of this spending is unjustified, since the same service could be provided for no extra cost by the public system.

Another contributor to rising health care spending, according to the policy paper, is that physicians often see patients privately during the hours when they are supposed to be working in the public system. In practice, this is a way of increasing doctors' salaries, with the public footing the bill. Private health care also raises spending on medical infrastructure, since private facilities must be built alongside existing public ones.

The researchers note that the rise in the cost of health care decreases access to private health care for people in lower socioeconomic groups. That results in growing inequality in health care, while private spending on health care helps to push more people into poverty.

In the long run this is a public health issue, says Chernichovsky, as many are forced to forgo some health services due to cost.

Chernichovsky and his cronies are not optimistic about the future. They believe that the price inflation in the private health care service will probably increase costs in the public system as well. Doctor salaries are an excellent example. Higher wages for doctors in the private systems will create pressure to raise salaries in the public sector as well, he fears. The public sector will feel compelled to raise salaries in tandem in order to prevent a brain drain to private service.

The entrance to the Sheba Medical Center emergency room
Tomer Appelbaum