Regulated competition and health plan payment under the national health insurance law in Israel-the unfinished story

In 1995, a competitive national health insurance system was launched in Israel. Four health plans compete on quality of care and service experience with a uniform package of benefits. As in other reformed systems, Israel adopted prospective age-based risk adjustment to pay the health plans. However, while other systems moved on to adopt sophisticated prospective and retrospective mechanisms based on socioeconomic and health-based risk adjusters; the Israeli risk-adjustment scheme is still based on age, gender, and place of residence, supplemented by specific payments for five severe health conditions. Furthermore, while in most systems the risk-adjustment weights are derived from actual expenditures of the health plans, the Israeli methodology consists of a patchwork combination of several national surveys and datasets. Consequently, the payment system provides incentives for (implicit) selection and distorts the envisioned competition. This chapter critically reviews the Israeli system, discusses its weaknesses, and proposes ways to improve it.