Israel Considers Overhauling Long-Term Care Insurance for Millions

Israel's Capital Markets Authority is proposing a significant overhaul of long-term care insurance, a product covering approximately 5.2 million Israelis. The proposed model would replace the current mutual insurance system, where younger individuals subsidize older ones, with a personal savings model similar to pension funds. Under this new system, individuals would save in capital markets until age 70, at which point a coefficient would determine their monthly payout in case of disability. Savings could be withdrawn as a lump sum, subject to capital gains tax, with limited coverage maintained for one year.

The authority, led by Amit Gal, argues that this shift would significantly reduce costs for younger people, with monthly contributions of tens of shekels potentially accumulating to NIS 80,000-100,000, providing coverage up to NIS 300,000. The plan also includes provisions for older individuals, with an estimated NIS 5 billion budget cushion needed from the state for about one million insured individuals aged 55 and above who lack sufficient saving years.

Management of these savings would transfer from health maintenance organizations (HMOs) to insurance companies and institutional bodies, a move supported by the Ministry of Health, which seeks to separate long-term care from HMOs. The proposal faces opposition from the Treasury's Budget Division, which deems the current system stable following recent condition adjustments. The decision is expected to be deferred to the next government.

The initiative was reportedly triggered by the failure of a tender for the Clalit HMO's long-term care insurance operations, which attracted only one bidder. The Capital Markets Authority warns that the current model suffers from chronic instability due to increasing life expectancy and a surge in claims, fearing that a withdrawal of younger participants could lead to the system's collapse.