Republican presidential candidate Mitt Romney had some very kind things to say about the Israeli health care system at a fundraiser there Monday. He praised Israel for spending just 8 percent of its GDP on health care and still remaining a "pretty healthy nation:"
When our health care costs are completely out of control. Do you realize what health care spending is as a percentage of the GDP in Israel? 8 percent. You spend 8 percent of GDP on health care. And you’re a pretty healthy nation. We spend 18 percent of our GDP on health care. 10 percentage points more. That gap, that 10 percent cost, let me compare that with the size of our military. Our military budget is 4 percent. Our gap with Israel is 10 points of GDP. We have to find ways, not just to provide health care to more people, but to find ways to finally manage our health care costs.
Romney's point about Israel's success in controlling health care costs is spot on: Its health care system has seen health care costs grow much slower than other industrialized nations.
How it has gotten there, however, may not be to the Republican candidate's liking: Israel regulates its health care system aggressively, requiring all residents to carry insurance and capping revenue for various parts of the country's health care system.
Israel created a national health care system in 1995, largely funded through payroll and general tax revenue. The government provides all citizens with health insurance: They get to pick from one of four competing, nonprofit plans. Those insurance plans have to accept all customers—including people with pre-existing conditions—and provide residents with a broad set of government-mandated benefits.
Health insurance does not, however, cover every medical service. Dental and vision care, for example, fall outside of the standard government set of benefits. The majority of Israelis—81 percent —purchase a supplemental health insurance plan to "use the private health care system for services that may not be available in through the public system," according to a paper by Health Affairs.
Now, let's get to the costs. As you can see in the chart below, Israel's health care costs have hovered around 8 percent of its gross domestic product for over two decades, while other countries' have seen theirs rise:
Israel's lower health care spending does not look to sacrifice the quality of care. It has made more improvements than the United States on numerous quality metrics, and the country continues to have a higher life expectancy:
How'd they do it? Jack Zwanziger and Shuli Brammli-Greenberg took a crack at that question in a 2011 Health Affairs paper. The answer, they say, has a lot to do with "strong government influence:
The national government exerts direct operational control over a large proportion of total health care expenditures, through a range of mechanisms, including caps on hospital revenue and national contracts with salaried physicians. The Ministry of Finance has been able to persuade the national government to agree to relatively small increases in the health care budget because the system has performed well, with a very high level of public satisfaction.
The Israeli Ministry of Finance controls about 40 percent of Israel's health care expenditures through those payments to the four insurance plans. The ministry decides how much it will pay the health plans for each Israeli citizen they enroll, making adjustments for how old a person is and how high their health care costs are expected to be.
It's then up to the health insurance plan to figure out how to provide coverage within that set budget. If they spend too much—have a patient who is constantly in the hospital, for example—they will find themselves in the red. It's that set budget—a capitated budget, in health policy terms—that seems to be crucial to the Israeli health care system's success in cost control.