Israel's Capital Markets Authority Proposes Overhaul of Long-Term Care Insurance

Israel's long-term care insurance market, primarily managed by health maintenance organizations (HMOs), is facing a crisis due to rising life expectancies and an increasing number of claims. The current intergenerational solidarity model, where younger members subsidize older ones, has become unsustainable.

In response, the Israel Capital Markets, Insurance and Savings Authority is proposing a significant reform: transforming long-term care insurance into a personal savings product, similar to pension funds. Under the proposed plan, which will be presented to the next government, monthly insurance payments would be redirected into managed personal savings accounts that accrue investment returns. The authority estimates that this approach, leveraging compound interest over a long investment horizon, would allow younger individuals to accumulate sufficient funds to cover future long-term care needs, potentially providing monthly benefits of approximately NIS 5,000 for home care or NIS 10,000 for institutional care, for up to five years.

The reform aims to address the financial deficits plaguing the current system. Recent emergency measures included reducing monthly benefits from around NIS 6,100 to NIS 5,000 and tightening the criteria for disability, requiring individuals to prove inability to perform at least four out of six basic daily activities, up from three previously. Insurers were also reclassified as mere operators, with all financial risk transferred to the insured.

To manage the transition, the authority suggests dividing policyholders into two groups: "younger" individuals (below a set age threshold) whose premiums would go into long-term personal savings, and "older" individuals who would remain in a closed group under existing policy terms to protect their rights. A potential further change under consideration is limiting the eligibility for using long-term care savings to around age 70, as actuarial data indicates that about 85% of long-term care claims occur after this age.

This proposal follows a near-collapse of the long-term care insurance operated by Clalit Health Services, the country's largest HMO. Harel Insurance initially announced it could no longer operate the unprofitable policy, leading to emergency measures and a new tender where only one company, Ailon Insurance, submitted a bid and won.