Economic Theory

Integrated care in market-driven health systems: the Israeli example

Opponents of competitive pluralistic healthcare systems often argue that competition leads to a fragmentation of services, and that the success of a health system depends, first and foremost, on its ability to deliver integrated care. A health system’s actors, the market-critics argue, should cooperate, not compete; they should work with each other, not against each other.

This is nonsense. Competition is not the opposite of cooperation, and it is not an obstacle to achieving integration of services. Competition is an overall framework, in which integrated models can be tried and tested against specialised models. Competition can even be a catalyst for integration, if competitive pressures force providers to cooperate more closely across disciplinary boundaries than they otherwise would, in order to exploit economies of scope.

If there is one health system which clearly demonstrates this, it has to be the Israeli system.

The Israeli system is a social health insurance (SHI) system, comparable, in principle, to the systems of Switzerland, the Netherlands, Germany and Belgium. People choose between competing insurers and competing providers, everybody is obliged to buy a basic health insurance package, and the government pays the premiums of those who cannot afford them.

But unlike European SHI systems, the Israeli one is a system of competing integrated insurer-provider networks. Israeli insurers directly employ physicians, and they own and run their own healthcare facilities. Most primary care and ambulatory specialist care is delivered in-house. The largest health insurer, Clalit, even runs its own hospitals, it is, in fact, one of the largest actors in the Israeli hospital sector.

There are also other forms of integration, which stop short of a merger of organisations. When Israeli insurers contract external providers, they often do not just passively reimburse costs, but try actively to shape the delivery of care. Unlike most European insurers, Israeli insurers have the leverage to do so: they can channel their policyholders to contracted providers, which gives them the negotiating strength that comes with bulk-buying.

At least historically (this has changed in recent years), in European SHI systems, health insurance has been rather like car insurance: car insurers reimburse the cost of car repairs, but they would not get actively involved with coordinating car repair services, let alone run their own garages. The Israeli system, in contrast, is more like a system of competing gym chains, where members pay regular subscription fees and are, in return, entitled to use the in-house facilities.

Elements of this exist in some European health systems as well. In Switzerland, people can choose a so-called ‘HMO option’, which is about a quarter cheaper than conventional insurance. If they do so, they relinquish the right to free provider choice, and have most of their healthcare provided by an integrated multi-specialty health centre. In the Netherlands, health insurers can seek closer integration with healthcare providers, or even acquire stakes in provider organisations.

Markets only lead to ‘fragmentation’ if there are no significant economies of scope, and if the benefits of specialisation outweigh the benefits of integration. There are arguments against consumer-driven healthcare which deserve a hearing. But the ‘fragmentation’ meme is not one of them.


Head of Political Economy

Dr Kristian Niemietz is the IEA's Head of Political Economy. Kristian studied Economics at the Humboldt Universität zu Berlin and the Universidad de Salamanca, graduating in 2007 as Diplom-Volkswirt (≈MSc in Economics). During his studies, he interned at the Central Bank of Bolivia (2004), the National Statistics Office of Paraguay (2005), and at the IEA (2006). He also studied Political Economy at King's College London, graduating in 2013 with a PhD. Kristian previously worked as a Research Fellow at the Berlin-based Institute for Free Enterprise (IUF), and taught Economics at King's College London. He is the author of the books "Socialism: The Failed Idea That Never Dies" (2019), "Universal Healthcare Without The NHS" (2016), "Redefining The Poverty Debate" (2012) and "A New Understanding of Poverty" (2011).

2 thoughts on “Integrated care in market-driven health systems: the Israeli example”

  1. Posted 28/11/2016 at 17:24 | Permalink

    Hi Kristian,
    As a Brit who has been fortunate to sample other healthcare systems abroad, I’m often astounded by the national emotional attachment to a UK central government health system with so many flaws. One insurer/health provider makes little sense and certainly provides few incentives for investment in improved healthcare. But how to migrate from where we are to a pluralist multi-provider system? The existing private health providers themselves are not really a viable answer either.

    Sometimes wonder if we are simply faced here in the UK with the Tyranny of the Status Quo. After all we’ve been trying to build another Heathrow runway for nigh on 60 years.

  2. Posted 28/11/2016 at 19:28 | Permalink

    Why so few examples of similar successes? I still think the pre-emptive approach of Kaiser Permanente in California is better still.
    I do like the Israeli approach, but it should add the pre-emptive approach of KP using price to force healthier lifestyles

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