Rapid Growth of Private Health Policies Failing to Help Insured

Study finds out-of-pocket costs grew but health didn't improve.

Israeli households saw their out-of-pocket expenses for health care costs rise over the last decade even as their spending on private health insurance doubled, according to a report by the Health Ministry released yesterday.

The study found that between 2002 and 2011, there was an 0.6% increase in out-of-pocket health care costs for Israeli households at a time when the proportion of household expenses devoted to private health care insurance jumped 90%. Per capita costs on such insurance rose 48%, according to the study.

The report concluded that for those years there was no evidence that the expansion of private health insurance had any positive impact on containing health care costs for families or helped improve the overall health of the population.

"We found a situation in which costs grew significantly without evidence of any significant value for households as measured by lower health care costs or in improved medical results, versus a situation where no insurance of this sort had been purchased," wrote the authors of the study, which was conducted under the aegis of Tuvia Horev, deputy director-general for economics and health insurance at the ministry, and Nir Keidar, an aide.

According to the study, the health insurance market is unduly concentrated and suffers from a long list of serious market failures. They propose as a remedy that the Health Ministry intervene in the market with strict regulatory measures.

The proportion of the population covered by private health insurance - which includes supplementary coverage by the health maintenance organizations and policies issued by private insurance companies - has reached 81%, among the highest in the world. But the report focuses on the policies underwritten by insurance companies, which cover about 43% of Israel's population. A separate study on HMO coverage will be published separately.

The authors of the report say that the massive growth of private insurance over recent years has probably led to unnecessary duplicate coverage, although there are no data on the average number of policies per person.

Insurance overlap

"We see a risk, and there is some evidence to support this, that together with the trend of growing private insurance penetration into the market, the amount of coverage per person has also grown to the point where different insurance products are frequently overlapping one another," the report said.

The group insurance market scores a 97 on an index of market concentration ranging from 0 to 100 measuring the share of the top three players: Harel, Phoenix and Clal control 97% of the segment, the report said. For the serious illness segment, the level of concentration scored an 84, the survey noted.

It said the sophistication of the insurance products being offered and "market failure" demanded that the sector be regulated more thoroughly with managed competition. Right now regulatory responsibility for the sector is divided between the Finance Ministry's capital markets division, which supervises private health insurance, and the Health Ministry, which overseas the HMOs' supplementary coverage programs.

But because health insurance is so connected with health care services, the report recommends greater regulatory authority be given over to the Health Ministry.

"In the health care insurance market today there are only a small number of providers, and the level of concentration is relatively high compared to other segments of the general insurance market," the report concluded. "This is likely to hurt competition and put too much power in the hands of a few providers."

Horev and Keidar also expressed concern about the rising cost of public sector health care. The fact is that private health care insurance is helping boost the compensation of doctors working in private health care, which in turn is likely to lead to higher costs for the public sector even as it faces serious budget limitations, they said in the report.

"This could hurt, for example, the potential development of the system by transferring [financial] resources to retaining personnel at the expense of expanding the basket of [medical] services," they warned.

The report also cites the problem of how complicated the policies being issued in the sector are, which means consumers often do not understand what kind of coverage they are buying, and it may even leave them uncovered for risks they thought they were protected against.

"The incentives given to the [insurance] agent are likely to undermine his ability to act as an independent adviser," said the report. "In the pensions segment the position of insurance 'adviser' has been created," the report said. Without hurting the status and importance of the personal insurance agent, the question should be asked whether regulatory consideration shouldn't be given for advisers in the health insurance market."