Implementing managed competition in Israel

As of January 1, 1995, Israel's National Health Insurance (NHI) Law laid the foundations for regulating competition among the country's four private, not-for-profit sick funds. Prior to NHI the sick funds (SFs) had competed without governmental control. Extensive research on NHI implementation and the behavior of the sick funds (SFs) after passage of NHI reveals a paradoxical development: The NHI bill drew on the rhetoric of managed competition and did indeed establish a legal and structural framework for regulating competition among the SFs. Nevertheless, in practice, SF autonomy was constrained and competition over provision of statutory care was limited. Rather than fostering competition, the main thrust of the NHI reforms was to enhance central government's control over SF expenses in order to constrain government expenditures. The NHI reforms did encourage the SFs to cut costs and make visible service improvements. However, the reforms did not lead the SFs to reorganize, expand the scope of their services, or improve clinical quality, as the reformers had hoped. Nor did the reforms help eliminate the SF's operating deficits or insure financial stability for the whole health system. Furthermore, the reforms had unanticipated and undesired outcomes, including aggressive and illegal marketing by SFs and collaboration among SFs to restrict the extent of care provided under compulsory insurance. The Israeli case suggests that the theory of managed competition contains unrealistic assumptions about the types of competitive behavior that result from exposure to managed competition and the capacity of government and health providers to monitor quality. In addition to stemming from universal limitations to the managed competition model, the implementation pattern in Israel reflects local, historical forces and the interplay of Israel's powerful health system actors.