Israel Proposes Overhaul of Long-Term Care Insurance Model

Israel's Capital Markets, Insurance and Savings Authority has proposed a new model for long-term care insurance provided by health maintenance organizations (HMOs) to address financial deficits and instability in the sector. The plan involves splitting approximately 5.2 million insured individuals into two age groups. Those aged 55 and over will remain in the current insurance structure, with their rights protected, while younger policyholders will be moved to long-term accumulation tracks with insurance companies selected through tenders.

This reform aims to shift from the current intergenerational subsidy model, where younger individuals' premiums directly fund older policyholders' claims without personal accumulation, to a more stable system based on long-term personal accumulation. The existing model has proven unsustainable, with HMOs operating as mere administrators while bearing no risk, and the HMOs themselves competing in an area they do not specialize in.

Recent years have seen significant benefit cuts and worsening policy terms to prevent a collapse, with one HMO's fund reportedly dwindling to just a few hundred million shekels. This lack of confidence is further evidenced by only one insurance company bidding in a recent tender for an operating company, compared to none in a previous tender.

The proposed model sets 55 as the age threshold. Those 55 and older will form a closed group managed by a new statutory corporation called "Siudit" (Long-Term Care). Younger policyholders will be distributed among insurance companies that will bear the insurance risk, through competitive tenders. This approach integrates savings and insurance, similar to Health Savings Accounts.

While the proposal is seen as a positive step, questions remain about its long-term viability and whether long-term savings are the correct solution for the inherent uncertainties in long-term care. An alternative suggested is strengthening the state-funded layer managed by the National Insurance Institute.

Regulatory support from the Ministry of Health is expected, as it would remove HMOs from insurance operations. However, managing the closed group of older policyholders could require billions of shekels from the state. Significant issues also remain unresolved, such as how the accumulated seniority of middle-aged policyholders will translate into new rights without loss of benefits. Furthermore, the Ministry of Finance's budget department is expected to oppose the plan, believing the current model has stabilized. The reform's advancement and necessary legislation will ultimately depend on the decision of the next finance minister.