LESSONS FROM THE SPREAD OF LONG-TERM CARE INSURANCE IN ISRAEL Shuli Brammli-Greenberg12, Ruth Waitzberg1 1Smokler Center for Health Policy Research, Myers-JDC-Brookdale Institute, Israel; 2Department of Health Systems Management at the School of Public Health, the Faculty of Social Welfare and Health Sciences University of Haifa.

Overview of the presentation Introduction – why is LTCI important? The structure of the Israeli LTC insurance market Development of the LTCI market How Israel overcame market failures according to health economic theory

Introduction – why is LTCI important?

LTC is costly and public funding is limited Israeli national expenditure on LTC totals USD 3 billion 1.3% of the GDP Of which 44% comes from private funding: 10% voluntary insurance 34% out-of-pocket including co-payments Source: Ministry of Health, 2010

Responsibility for different types of LTC NII  community care, (up to 18 hours of care, by means test) MoH and MoSA institutional care in nursing homes (graduated assistance, based on a means test of the applicants and their children) NHI 1995  HPs' acute care, hospitals and community 5

People wishing to prepare financially for old age have several options Save for LTC Out of pocket: Private savings bank, pension funds… LTCI Do nothing Rely on government Rely on family

Private LTCI is not very popular yet worldwide The risk of needing LTC is among the highest risks faced by an elderly person LTCI may be an alternative to public funding of LTC In most countries, LTCI is a relatively new and small branch of insurance; this is not the case in Israel Israel 69% (2011) USA ~4% France ~3% Rate of LTCI insured, % of the total population Source: MOF, 2012

The Structure of the Israeli LTC Insurance Market

Health Insurance Market in Israel Health insurance layers and % of insured* Commercial insurance: Benefits package tailored to individual needs; marketed by for-profit insurance companies. Regulated by MOF. Supplemental insurance 83% National Insurance (uniform basket) 100% CI 42% Supplemental insurance (SI): Uniform benefits package marketed by the health plans. Regulated by MOH. * Among adults aged 22+. Source: Brammli-Greenberg and Medina-Artom, 2013

The LTCI market in Israel In 2011 5.4 million people held some kind of LTCI Distribution of market share by type (% of population*) Health Plans 51% Commercial Collective 13% Individual Commercial 5% Regulated by MOF * Including children Source: MOF, 2012

The LTCI market in Israel In 2011 5.4 million people held some kind of LTCI Distribution of market share by type (% of population*) Health Plans 51% Individual Commercial 5% Regulated by MOF * Including children Source: MOF, 2012

The evolution of take-up of LTCI Source: MOF, 2003-2012 Source: Brammli Greenberg et al, 2003-2012

Development of the LTCI market 1998 2004 2009 2011

In the beginning… Commercial insurance – insignificant market (4% of the population in 1997) HP's collective insurance – HPs were the insurer, limited LTC was one of the services provided by SI (40% of the population in 1997) Source: Brammli-Greenberg and Gross, 1999. 1998 2004 2009 2011

The 1998 Reform The Budget Reconciliation Law: HPs were forbidden to include LTCI in their SI HPs could offer LTCI only through a collective policy provided by a commercial insurance company. Consequences: Those who held SI policies in 1998 were automatically enrolled in their health plan's LTCI. Suddenly 50% of the Israeli population owned LTCI MOF had to regulate a new product in the insurance market 1998 2004 2009 2011

The 1998 Reform MOH's directive: HPs could not obligate members to purchase their collective LTCI LTCI and SI must be purchased separately. Yet, HPs offer SI and LTCI together. Consequences: The marketing method linked the ownership of HPs' collective LTCI to SI. Many holders of LTCI were not aware of it. 1998 2004 2009 2011

Incremental changes Directives for Individual LTCI (2001-2002) Fixed premium for policyholders aged 65+ "Protected" premium 1998 2002 2004 2009 2011

Incremental changes Definition of the insurance event (2003) Compulsory coverage for at least 3 of the 6 ADLs and for mental frailty Include compensation for LTC at home Improving disclosure and information 1998 2002 2004 2009 2011

Incremental changes Directives for Collective LTCI (2004) Rules for a pre-existing medical condition (eliminating underwriting at time of claim) Continuity following a change in insurance company or when the individual leaves the group 1998 2002 2004 2009 2011

Incremental changes 2005-2009 2005: MOH included LTCI to the means test for assistance in funding institutional care The rationale: to make better use of the sources of funding available in the system The problem: family members prefer not to claim for benefit and do not report ownership of LTCI 2009: For new and renewed collective policies, a major change to the pricing method based on individual pricing with collective management 1998 2002 2004 2009 2011

Upcoming proposed reforms MOH (2011) Include LTC in the basic NHI benefits package All LTC provision will be transferred to the HPs LTC will be financed by a compulsory “national LTC insurance” Provide universal coverage of LTC and improve continuity of care MOF (2012) Standardization of HP's collective policies Uniform premiums and coverage Allow continuity of LTCI policy in case one switches HPs Ease the transition between the HPS and increase the competition 1998 2002 2004 2009 2011

How Israel Overcame market failures according to health economic theory

Products are vertically differentiated Individual Commercial LTCI (5%) HP's LTCI (51%) Individual policies expensive (around US$150 monthly) Fixed premium, paid-up premium All-life insurance period, flexibility as to the amount of benefit purchased Limited accessibility in purchasing the insurance Commercial insurance company insures, HPs hold the policy Relatively cheap Premiums increase with age Uniform policy and price for all members within the same age group Benefits are low relative to the costs of LTC. Benefits provided usually decrease with enrolment age

Supply barriers Prices higher than the actuarially fair price High transaction and administrative costs  collective policies are cheaper Adverse selection collective policies diversify risk + cross-subsidize.

Demand barriers Limited Knowledge or Rationality: people underestimate future need and cost of LTC  Israeli HPs' marketing method linked to SI + increased awareness + cheap Moral hazard: Elderly persons who prefer not to be institutionalized tend to purchase less LTCI  in Israel LTCI policy includes compensation benefits for LTC at home

Summary 1998 reform  new product + huge coverage Ongoing regulations  improved LTCI + enlarged the market Features of HP's collective  overcome supply and demand barriers 69% insured  but are they prepared for LTC? 1998 2002 2004 2009 2011