The privatization of health care.

• Position: Israel

"Privatization" refers to two distinct areas: (1) the increasing provision of services by private businesses and non-profit organizations rather than by the government, and (2) direct payments imposed on consumers for health services formerly financed by the government through taxation.

The privatization of health care provision involves both the creation of new for-profit medical services - nursing homes, hospitals, specialized clinics for menopause, pain, cosmetic surgery, child development, diagnostic services and a plethora of alternative health services like homeopathy, naturology, and reflexology, and the conversion of public health care facilities into private ones.

Health economists agree that health services are not like other commodities sold on the marketplace; rather they are a prime example of "market failure." As most of the information concerning the "product" is in the hands of the seller-physician, the buyer-patient has limited knowledge and thus bears little resemblance to the classical model of the rational consumer. As a result, there is a "moral hazard" of the physician selling the patient a service or product that he or she does not need or, much worse, one that may be dangerous to their health.

Who Provides Health Services

Regardless of whether health services are financed directly by the consumers' fees for services or by the state, they are paid for by citizens. However, the difference is significant. To illustrate, the table below compares the total payments by households for social services and taxes in two very different societies: the United States and Sweden.

The average household expenditure for social services is about the same in the US and Sweden, 39.6% and 41.2%, respectively. The difference is that in Sweden the expenditure is utilized to provide health care for all, as revenues go to the government in the form of taxes, while in the United States, the figure represents an average between higher income families that purchase health care on a private basis and low-income families that go without (unless they are eligible for Medicare or Medicaid). The health outcomes: in Sweden, income disparities are much smaller than in the US, and the health of Swedes, as measured by indicators like infant mortality (4 per 1,000 live births in 1996) and life expectancy at birth (82 for women and 76 for men) is better than that of US citizens (infant mortality: 8 infant deaths per 1,000 live births - twice as high as that in Sweden; life expectancy at birth: 80 for women and 74 for men). In Sweden, the national expenditure on health is 7.3 % of the GNP, whereas in the US i t is nearly twice as high - 14.2% (World Bank, 1998: 18, 22, 90).

In a similar vein, one can compare the expenditures and health outcomes of two health services in Israel, one provided by the state on a universal basis and the other dominated by the private market. Preventive care for pregnant women and newborns is provided by a network of public Mother and Child clinics. The service is financed by the Ministry of Health and by a low user's fee. The total cost: 2% of the national expenditure on health. More than 95% of Israeli parents visit one of the clinics at least once during the first year of life of a newborn (Palti, 1996: 86). Looking at health results nationwide, over 90% of babies receive the necessary inoculations on time. Maternal mortality is negligible, and infant mortality is low.

The picture for dental medicine is entirely different: 90% is private. Expenditures for dental care constitute 12% of the national expenditure on health. Care is far from universal: the most recent national commission on health care (1990) found that 75% of Israelis did not have regular dental checkups. As a result, in 1992, the proportion of children aged 5-6 with no cavities was 41% in Israel, compared with 60% in Denmark, 58% in Norway and 49% in Great Britain, countries in which dental medicine is included in public health programs (Horev, 1996: 108). The number of adults aged 35-44 with serious gum problems (periodontal pockets) was 17% in Israel, compared with 8% in Norway, 11 % in Denmark and 12% in Great Britain (ibid: 109). And the proportion of persons 65 and older with no teeth of their own was 60% in Israel, compared with 31% in Norway and 50% in Denmark (ibid: 109). The fact that in Israel dental medicine is left to the private market leads to inequity in the provision of services: low-income pe rsons who cannot afford dental care have bad teeth.

Privatization: Private Services Instead of Public Services

The privatization of health services involves a number of processes: the retrenchment of government, the development of private services alongside public ones, and the conversion of government services into non-profit and for-profit companies. It also means the increase of co-payments for public services and the proliferation of private medical services.

Government Stops Paying

A year after the National Health Insurance Law was implemented, the Israel Ministry of Finance began to retrench. In 1995, it paid out MS 1.5 billion to cover the difference between revenues and expenditures under the National Health Insurance Law - more than it had anticipated. Finance officials accused the health funds of inefficiency and waste, while the latter pointed out that the law was underfinanced, as the budget failed to take into account (1) population growth and aging, (2) technological advances, and (3) the full increase in the cost of health services. The General Health Fund contended that it was not being properly compensated for its larger-than-average share of persons aged 75+ (79%) and chronically ill persons (75%). An objective observer - The Brookdale Institute - examined the balance sheets of the four health funds for 1995 and found instead of waste an average decrease in per capita expenditures.

At the end of 1996, the employers' health tax was abolished; in its stead, a sum of about NIS 7 billion formerly earmarked for the health care delivery system was put at the discretion of the Ministry of Finance. The same year, attempts were also made to impose co-payments on health services, but the Knesset refused to pass the budget bill as long as co-payment strings were attached.

The Cabinet's 1998 Budget Reconciliation Bill included far-reaching changes in the National Health Insurance Law. Following intensive lobbying efforts by a coalition of NGOs, compromise legislation was passed, under which responsibility for financing the services provided under the National Health Insurance Law devolved from the Finance Ministry to the health funds. The funds were instructed to prevent future deficits by imposing copayments and by selling more policies for supplemental insurance. They were also encouraged to add, but not subtract, services from the uniform benefits package, provided they could finance the additions (subject to approval by the Minister of Health and the Knesset Finance Committee). This change delivered a blow to equity in health care: henceforth, there would be a connection between the ability to pay and the services rendered, and health funds would be able to redesign their benefit packages so as to attract the healthy and affluent and thus "improve their patient mix."

Among the other changes instituted: a fiat that no more than one health fund serve localities of under 5,000 residents and no more than two localities of under 10,000. This will mean a decrease in the variety of public services offered to Arab communities - the main beneficiaries of the competition between health funds stimulated by the National Health Insurance Law.

Public Services Go Private

Sharap

A prominent example of the use of public institutions created by taxpayers' money for private profit is the Private Medical Services (Sharap) arrangement, under which senior physicians employed by the hospitals may see private patients in separate rooms and utilize other hospital facilities for their treatment. Hospitals regulate and collect Sharap fees, from which they deduct taxes and their own charges. This arrangement has been instituted in two public hospitals in Jerusalem, Hadassah and Shaa're Zedek. The physicians' unions would like to see it extended to all public hospitals in Israel.

Sharap can be viewed as an attempt to control "black market" medicine, in which patients paid hospital departments and physicians under the table in order to be operated on by the surgeon of their choice or to advance to the head of the waiting list (Lackman and Noy, 1991, 1998), by institutionalizing the practice. In 1995, 10% of surgical procedures and 18% of outpatient clinic services in the Hadassah and Shaa're Zedek hospitals were done under the Sharap; between 30% and 40% of the permanently employed physicians dispensed private care under the program (Shuval and Anson, 1999).

There is no empirical evidence that the Sharap arrangement contributes to the improvement of hospital services (Shirom and Amit, 1996: 64). What it does is to channel public resources to a thin stratum of senior physicians and affluent patients. While hospital overhead in the operation of the Sharap is supposed to be limited to 35%, an estimate of the overhead involved in scanning, pathology, and clinical lab services performed at the Sha'are Zedek hospital under the Sharap came to nearly 47%. This prompted Amit and Shirom to conclude that Sharap activities "in effect involve transferring...