Israel Proposes Overhaul of Long-Term Care Insurance to Personal Savings Model

Israel's long-term care insurance market, primarily managed by health maintenance organizations (HMOs), is facing a crisis due to rising life expectancy, increased illness rates, and a surge in claims. The current intergenerational solidarity model, where younger people subsidize older ones, has become unsustainable. In response, the Israel Capital Market, Insurance and Savings Authority is proposing a significant reform to transform long-term care insurance into a personal savings product, similar to pension funds.

The proposed plan, set to be presented to the next government, would initially offer long-term care as a voluntary savings and insurance product. Future iterations might include mandatory contributions for all citizens. The core idea is to shift monthly insurance payments into managed personal savings accounts that accrue investment returns. The Authority estimates that this approach, leveraging compound interest over long investment horizons, will enable younger individuals to accumulate sufficient funds to cover future care needs, potentially providing monthly benefits of approximately 5,000 shekels for home care and 10,000 shekels for institutional care, for up to five years.

To manage the transition and protect existing policyholders, the reform suggests dividing current policyholders into two groups. "Younger" individuals, below a determined age threshold, would have their premiums directed to long-term personal savings accounts managed by various insurance companies. "Older" individuals, above the age threshold, would be placed in a "closed group" and continue under their existing policy terms to safeguard their rights. The Authority is also considering limiting eligibility for long-term care benefits to individuals aged 70 and above, as actuarial data indicates that around 85% of long-term care claims occur after this age.

This proposal follows a series of emergency measures implemented in recent years to stabilize the market. These included reducing monthly long-term care benefits from about 6,100 shekels to 5,000 shekels and tightening the criteria for defining someone as requiring long-term care. Previously, individuals needed to prove inability to perform 3 basic daily activities; this has been increased to 4 out of 6. Furthermore, insurance companies were relieved of financial risk, acting solely as administrators, with the risk transferred to the insured pool. These measures were necessary to prevent the collapse of Clalit Health Services' long-term care fund, which was on the verge of insolvency and had its operations temporarily extended by Harel Insurance only after these changes. A recent tender for Clalit's long-term care policy operation saw only one bidder, Ayalon Insurance.