Competition Among Health Funds: Three Decades of the National Health Insurance Law

To mark 30 years since the enactment of the National Health Insurance Law, the Taub Center is releasing a study reviewing the development of the law over the past three decades, focusing on competition between health funds. The study examines how the law balances the social principles underpinning it — justice, equality, and mutual aid — with the aspiration to foster a degree of managed competition among the health funds as a means to improve system efficiency and the quality of services offered to members. Researchers Prof. Gabi Bin Nun, Nir Kaidar, Ofir Gonen, Natan Lev, and Prof. Nadav Davidovitch evaluate the various aspects of managed competition between health funds, weighing its advantages and disadvantages. The researchers propose policy alternatives to mitigate the negative effects of competition, ensuring that the health system continues to provide high-quality and equitable healthcare services for the population. Justice, equality, and mutual aid are the central principles underlying the National Health Insurance Law. At the same time, the law sought to encourage managed competition (competition regulated by strict oversight) among health funds as a means to achieve efficiency. The drafters of the law assumed that banning price competition (competition on premiums) and competition over the scope of health service coverage, while granting members complete freedom to choose their fund, would create competition primarily aimed at improving service quality. However, the managed competition, aimed at improving the quality of care, health outcomes, and creating more equitable services, also had some negative side effects. The health funds focused on competing for members in ways that did not contribute to reducing health disparities and led to increased costs without improving the population's health. Below are some of the negative aspects of this competition: High expenditures by health funds on marketing and advertising. Duplication of community services without economic justification. Lack of cooperation between health funds and resistance to reciprocal service agreements. Competition over physicians, leading to increased salary expenses without a corresponding improvement in public health. Amendments to the law and adapting to changing needs Over the 30 years since its implementation, the law has undergone many changes. Legislative amendments and proposals have aimed to reduce the negative aspects of managed competition among health funds. These changes include modifications to member transfers (e.g., the number of permissible transfers per year, preserving rights continuity, transferring medical information), competition in dental care, collaborations between funds in small communities, and restrictions on advertising and marketing. Some proposals and recommendations, however, were not implemented, such as plans to increase competition among the funds, transferring part of the collection mechanism for health insurance fees to the health funds, establishing a fifth fund managed by a private entity, and a program to restrict competition over medical personnel. These proposals were rejected for various reasons. Analysis of member transfers among health funds, 2015 to the present The trends in member transfers among health funds have fluctuated over the years. In the first three years after the law’s enactment, transfer rates were high — over 4% annually — likely due to accumulated demand from members who wanted to switch before the law but were denied or because transfers were conducted directly at fund branches. Following a 1998 amendment transferring the process to post office branches, transfer rates fell significantly to about 1% annually. From the early 2000s until 2021, transfer rates slowly increased, but in recent years, they have begun to decline again, reaching about 2% by 2024. The study presents trends in member transfers between health funds through two lenses: by showing the number of members joining and leaving each fund and by examining net transfer figures. Data reveal that in Clalit Health Services, more members left than joined between 1995–2010 and again from 2016 onward. Maccabi has led in net transfers since 2015, while Leumit has consistently lost more members than it has gained since 2006. In Meuhedet, trends have varied over the years. Transfers are more common among disadvantaged groups, Arabs, and Haredim (ultra-Orthodox Jews)The study analyzed the characteristics of members switching funds by population group and the socioeconomic status of their locality. Transfer rates were found to be higher in Haredi and Arab communities than in secular or mixed Jewish communities. This may be because these populations, with their larger family sizes, are more attractive to health funds, which focus their recruitment efforts on these groups. Similarly, transfers are more prevalent in lower socioeconomic clusters, decreasing as the local authority's socioeconomic ranking increases. The study also shows that Maccabi focuses on recruiting members from stronger populations, with new membership increasing as locality socioeconomic status rises. Meuhedet, by contrast, recruits more members from lower clusters. Clalit showed no significant differences in new member distribution across socioeconomic clusters. Researchers’ policy recommendations regarding health fund competition (Full list available in the study): Encouraging competition among health funds based on service quality, including publishing performance metrics such as wait times, treatment quality, and disparities between central and peripheral areas. Revising the capitation formula: Current weights, unchanged since 2010, fail to reflect members' healthcare needs accurately. Adjustments should include additional predictors of expenditure and temporary marginal rewards for member transfers. Enhancing Ministry of Health regulation: Despite existing oversight rules, enforcement remains inadequate. Health funds invest heavily in member recruitment using various methods, such as employee incentives and "community liaisons" in specific sectors. Stricter enforcement could help mitigate negative competition aspects and shift focus toward service quality. Easing transfers between health funds: While some progress has been made over the years, transferring members currently wait up to 3.5 months from application to execution. Reducing this waiting period to the minimum necessary would facilitate member transfers. Prof. Gabi Ben-Nun, one of the study's authors, states: "As our research shows, managed competition among health funds can lead to efficiency gains, improved services, and expanded member choice. However, to achieve these benefits, competition must be accompanied by rigorous regulation that is periodically reassessed to adapt to changing circumstances and the evolving competitive environment." Prof. Nadav Davidovitch, another co-author, adds: "One of the key takeaways from the research is the need for constant efforts to balance competition and equality, preventing health disparities, cost increases, and expenditure growth without public health improvement. It is also crucial to prevent member migration to private healthcare systems and ensure health funds prioritize service quality over market share."