Reforming the Israeli health care market

Israel's experience in attempting to implement a health system reform based in large measure on managed competition should provide important data to other countries considering reliance on competitive mechanisms for third-party purchase of health care. In this paper, current proposals for reform of the Israeli market for third-party purchase of health care are examined in light of ideal market structures, particularly the theory of managed competition. The relationship between the theory, the notion of a 'purchaser-provider split' and the Israeli case are explored. The current Israeli health care market, which features enrollment of 96% of the population in competing sick funds, is presented. The changes necessary to base third-party purchase of health-care on managed competition are discussed. Special conditions of the Israeli health care system likely to influence implementation of a managed competition strategy are considered. Beyond a 'purchaser-provider' split, the proposals call for other restructurings, such as a split between finance and insurance functions, which the standard theory of managed competition does not take into account. The implications of these proposals for smooth functioning of the health care market must be weighed against political and ethical considerations unique to the Israeli environment.