JERUSALEM, DECEMBER 2002

This publication presents a detailed summary of national expenditure on health(Previous estimates on the national expenditure for the years 1962/63 until 2000 were published in: The Central Bureau of Statistics, National Expenditure on Health 1962-2000, Special Publication, No. 1171, 2001 and in the Statistical Abstract of Israel 2002, No. 53.) in 1998 and 1999 and preliminary estimates for 2000 and 2001. The detailed summaries present national health expenditure by types of service and by operating and financing sectors. They also present a comparison between Israel and the member countries of the OECD (Organization for Economic Cooperation and Development).

Successive series on the main components of national health expenditure since 1962/63 are shown in Table 1.

Table 2 presents estimates of the national expenditure on health from 1972/73 until 2001, by type of expenditure and service, at constant prices.

A breakdown of national expenditure on health, by type of expenditure and service is presented in Table 3 (from 1962/63 until 1999) and by operating sector, type of expenditure and service in Table 4 (for 1998 and 1999).

Table 5 details the components of government financing (including local authorities) and the components of financing of households for the years 1984/85 until 2001. For details on previous years, see earlier publications.

Table 6 presents national health expenditure for 1998-1999 by a consolidated classification of those sectors supplying the services and the sectors financing them.

A consolidated account of receipts and disbursements of government health services (including local authorities) and sick funds is presented in Table 7 (for the period from 1995 to 1999). The table presents the transactions of these bodies in relation to other sectors, after cancelling out disbursements and receipts among themselves. Table 8 also details the flow of receipts and disbursements between the government (including local authorities), the sick funds, and other non-profit health institutions (for 1998 and 1999).

Table 9 presents data on the national expenditure on health, by operating sector, for the years 1990 until 2001, at constant prices.

Table 10 details the expenditures of the government (including local authorities), sick funds and other non-profit institutions for 1998 and 1999. Current expenditures were classified into compensation of employees, medicines and medical supplies, and an imputed value for depreciation. Expenditure on fixed capital formation was broken down into capital formation in buildings and capital formation in equipment.

Table 11 presents an international comparison between national expenditure on health in Israel and in OECD countries for the years 1990, 1997 and 2000.

National expenditure on health, at constant prices, increased in 2001 by 5 percent (3 percent per capita), similar to the increase in 1998-2000, and compared to a more moderate increase of 1 percent in 1997 and relatively steep increases of 6-7 percent in 1993-1996. National expenditure on health at current prices in 2001 was NIS 43 milliard that is 8.8 percent of GDP.

It should be mentioned that health expenditure includes spending for all health services in clinics and hospitals, spending for services of private physicians and dentists, medicines and medical equipment, health research, government administration, and capital formation in buildings and equipment in health institutions.

An international comparison with OECD countries in 2000 reveals that National expenditure on health in Israel was 8.3 percent of the Gross Domestic Product, approximating the share of the GDP in Denmark, Australia and Greece. This share of expenditure is lower than in USA (13 percent), Germany, Canada, Switzerland and France (about 10 percent). In 16 other countries-especially Korea, Luxembourg and Poland-the share is lower than in Israel (about 6 percent).

Moreover, the international comparison shows that in the year 2000, the national expenditure per capita in terms of Purchasing Power Parity (PPP) amounted to $1,777 in Israel. This sum approximated the amounts in Sweden and United Kingdom. In the United States, per capita expenditure on health amounted to $4,600; and in 16 other countries the expenditure was higher than in Israel. In Portugal, Greece, Czech Republic, Korea, Hungary and Poland the per-capita expenditure was lower than $1,500. The calculation in terms of PPP took into account differences in product prices in different countries. The international comparison did not take into account differences between factors that may affect expenditures, such as age composition (the percentage of young people in Israel is higher than in other countries), employment structure, etc.

There is a continued increase in the share of payments by households for national expenditure on health: in 2001 payments for medicines and medical services (e.g., private physicians, private clinics, and dental care) per household financed 32 percent of national expenditure on health, similar to 1999 and 2000 (29 and 31 percent, respectively). Health tax financed 25 percent of the national expenditure, and the remaining 43 percent was financed from the state budget. Financing from the state budget includes, mostly, transfers to the sick funds, other non-profit institutions, supply of health services by government health institutions and financing by investment in building and acquisition of equipment in government hospitals.

In 2001, sick funds provided 40 percent of health services, similar to 41 percent in 1998-2000. Commercial enterprises (dentists and other private physicians, commercial hospitals, and manufacturers of medicines and medical equipment) provided for 28 percent of the total national health expenditure in 2001, compared with 27 percent in 2000 and 26 percent in 1999.

The share of services provided by government institutions (e.g., hospitals, clinics, and health administration) declined slightly, to 20 percent in 2000-2001, compared with 21 percent in 1999, and 22 percent in 1998. The share of services provided by other non-profit health institutions (such as Hadassah hospital and Magen David Adom) remained unchanged at 12 percent.

Analysis of the detailed reports on health services by type of service shows that in 1999 hospital services amounted to 41 percent of current expenditure on health, while the share of expenditure on services provided by public clinics and preventive-medicine services declined to 38 percent, compared with 39 percent in 1996-1998. Expenditures on private physicians and dental care amounted to 14 percent in 1999, and expenditures of households on medicines and medical equipment remained 6 percent.

It should be noted that the financial reports on national expenditure on health by type of service, analysed here refer to 1999, and no data are available for 2001.

3.1 In the national expenditure on health a distinction is made between: (1) current expenditure, and (2) fixed capital formation.

Current Expenditure includes expenditure on health services, medicines and medical equipment.

Fixed Capital Formation includes construction of buildings and acquisition of equipment for institutions that supply health services.

Services defined as health services (generally, according to the Standard Industrial Classification of all Economic Activities)(Central Bureau of Statistics and the Public Advisory Council for Statistics, Standard Industrial Classification of all Economic Activities 1993, Technical Publication No. 63, Jerusalem, 1993) include: government administration, public clinics and preventive medicine, hospitals and research, dental care and private physicians. According to the Standard Classification of all Economic Activities, expenditure on sanitation is not included in expenditure on health.

Direct expenditure of households on medicines and medical equipment purchased from commercial enterprises are shown as one item and are not classified according to the industries in which the goods were manufactured.

Health services provided by clinics and hospitals at military bases are not included.

The item "public clinics and preventive medicine" includes, inter alia, the services of the mother and child care clinics, health services in education institutions, campaigns against epidemics and illnesses, preventive psychiatric care, and inspectionof sanitation and medical materials by the Ministry of Health. The item also includes outpatient clinics of hospitals, to the extent that those expenditures could be identified in the financial reports of the hospitals. Expenditures of dental clinics were usually separated, and are listed under the item "dental care".

The item "hospitals and research" includes:

Units operating on a commercial basis in hospitals (such as Private Medical Services) were separated in the set of data presented here and included in the item "private physicians". Units in other non-profit institutions that operate on a commercial basis, were included in the item "public clinics and preventive medicine".

The item "dental care" includes dental laboratories and dental technicians.

The item "private physicians" includes private medical institutes and laboratories, nursing services and special treatment.

There are two kinds of services:

1) health services provided by the government and non-profit institutions (about 75 percent);

2) health services purchased by households directly from commercial enterprises.

The government and the non-profit institutions supply health services, in most cases, at reduced prices or free of charge. Since these services have no market price, their value is estimated at production cost:

1) compensation of employees - wages and salaries paid directly to employees, employers' contributions to funds and savings plans on behalf of employees (e.g., pension funds, national insurance including parallel tax, etc.), and taxes on labour such as payroll tax and employers´ tax;

2) expenditure on medicines, medical supplies and other current expenditures on purchases of goods and services;

3) an estimated imputation for expenditure on depreciation of buildings and equipment;

4) imputed government expenditure, representing the government´s commitment to pay budgetary pensions to its employees when they retire.

The last two components were not included in the estimates of the value of health services before 1984/85. In order to enable comparison with estimates for previous years, Tables 1 and 3 also present estimates for 1984/85, that were also carried out according to the previous method.

The cost of production does not include payment of interest, i.e., the value of the services provided to the public remains unchanged whether the government financed its expenditure by levying taxes or receipt of grants, or whether the government financed the expenditure by taking loans that bear interest.

Health services are classified by operating sector and by financing sector:

In the classification by operating sector, the direct expenditure of each sector on labour and on other goods and services was recorded, irrespective of the financing sector. For example: all expenditures of sick funds on labour and on other goods and services in institutions such as sick funds, were recorded as expenditures of that sector and not as expenditures of other sectors that financed them, such as the government or households.

In the classification by financing sector, the financing by each sector is defined as the total direct expenditure on goods and services plus subsidies, grants, transfers and other payments (net) to other sectors (not including provision of loans).

The calculation of the share of each sector in financing health expenditures does not include estimations of depreciation in the expenditure of the sector or in the total national expenditure on health (Table 5), since national expenditure on health includes current expenditures and expenditures on fixed capital formation.

Government financing does not include the subsidy component of government loans granted to other providers of health services (mainly sick funds) at a reduced interest rate or unlinked to the Consumer Price Index.

The flow of disbursements and receipts between the government, the sick funds and other non-profit health institutions (Table 8) is presented according to the financial reports of each sector, with no adjustment. Sometimes, the record of a particular flow of money in the reports of one sector (the paying sector) does not coincide with the parallel record of the flow in the reports of the other sector (the receiving sector). This difference may be attributed to a discrepancy in the timing of the record or to differential recording methods (i.e., recording on the basis of cash or on the basis of accruals).

Many transactions between the government and the sick funds were intended only for transfer of income from the collecting sector to the operating sector. These transfers can be attributed to the special way in which the health services are organized and financed. These transfers are not significant for certain analytical purposes and therefore Table 7 presents a consolidated account of the government and local authorities and sick funds. This account shows only receipts from and disbursements to other sectors, and all receipts and disbursements among the government, the local authorities, and the sick funds themselves were eliminated. The sector of "other non-profit health institutions" was omitted from this consolidated account.

Expenditure on health of government and local authorities includes expenditure on health (in the ordinary and development budgets) by the Ministry of Health, the Ministry of Labour and Social Affairs, the unit for treatment of Nazi victims, the national institutions and the National Insurance Institute, the Health Departments of the local authorities. It also includes the expenditure on medical supervision and dental care in primary schools from the budget of the Education Departments. Expenditures on administration in local authorities are included in the category "public clinics and preventive medicine," since it could not be separated from the other expenditure items in the reports of most of the local authorities.

Expenditure on health by sick funds includes the expenditure recorded in their ordinary and development budgets.

Expenditure on health by other non-profit institutions includes the expenditure of health institutions not owned by government, national institutions and local authorities, and institutions that do not operate on a commercial basis. Other non-profit health institutions include, inter alia, non-governmental public hospitals, health organizations, etc.

Expenditure on health by the business sector includes: the expenditure of households for the purpose of purchasing medicines and medical equipment from commercial enterprises, as well as revenue from health services provided by commercial enterprises such as private hospitals, commercial units in non-profit institutions such as Supplementary Medical Services and Private Medical Services, private physicians and dentists, etc.

This sector includes commercial medical activity of institutes affiliated with research foundations or hospital friends´ associations (organized as non-profit institutions), such as institutes for periodic examinations, institutes for special medical examinations, and commercial medical activity (plastic surgery, etc.).

Table 5 specifies the contributions of the government (including local authorities) and households in financing health expenditure. The estimated depreciation in the expenditure of each sector and in the total expenditure is not included in this table. As mentioned in Section 3.3, the value of the health services provided by the government and non-profit institutions is estimated according to current costs, excluding interest. The financing estimates do not include loans, repayment of loans, and interest.

Government financing is divided into the following:

1) Health tax, which the Ministry of Health and the National Insurance Institute transfer to sick funds;

2) Other subsidies provided out of the government budget to sick funds, to other non-profit institutions, and to households;

3) Provision of current services by governmental health institutions and by local authorities, purchase of health services in other sectors, construction and purchase of equipment by the government-less earmarked receipts.

4) Parallel tax, transferred to sick funds by the National Insurance Institute up to and including 1996.

Financing by households includes:

1) Other payments for health services, medicines and medical equipment purchased from the business sector, the government, the sick funds, and other non-profit institutions, as well as donations.

2)Until 1994, sick fund membership fees were included. In 1995, health tax replaced the membership fees.

The remainder, which is presented in the table without a breakdown, mainly includes deficits or surpluses of the sick funds and of other non-profit health institutions, as well as financing from unknown sources.

Table 6 presents the national expenditure on health in 1998-1999 by a consolidated classification of the operating and financing sectors.

Tables 7 and 8 present estimates for financing of health services. These estimates do not include provision and repayment of loans, interest (receipts and payments), or income from property.

Table 7 presents a consolidated account of the government (including local authorities) and sick funds, describing their activity with other sectors during the period from 1995 to 1999. The flow of finances between the government, local authorities, and sick funds does not appear in this account.

Table 8 presents data on the economic activity of each of the sectors in 1998 and 1999, including transactions between them as well as sale and purchase of services. The table includes also data on the sector of other non-profit health institutions.

The income side includes income from the sale of health services, such as hospitalization and treatment at clinics, for every sector. These services are sold to other sectors at full price or at a price covering only part of the cost.

Other income consists of subsidies and participation for maintenance of services (current transfers) and for building purposes (capital transfers).

Donations received from Israeli residents and from abroad for maintenance and building purposes are also included.

1) Expenditure on provision of health services to the public, such as operation of hospitals and clinics and administrative expenditures.

2) Capital formation in the construction of health institution buildings and in equipment.

3) Expenditure on the purchase of services from the other sectors, such as hospitalization and treatment in clinics owned by others. This item includes: government expenditure on hospitalization of mentally and chronically ill patients in hospitals owned by others; maternity hospitalization by the National Insurance Institute (in 1995-1997, disbursements were directly transferred to the sick funds); government payments for sick fund insurance coverage of welfare recipients and immigrants; hospitalization of sick fund members in government hospitals or in hospitals owned by other non-profit and commercial institutions.

4) Subsidies and participation in current maintenance of health services, which are defined as current transfers. Subsidies and participation in construction of buildings and in purchases of equipment, which are defined as capital transfers.

Current government transfers also include health-tax revenues forwarded to the sick funds by the Ministry of Health. Up to 1996 (inclusive), these transfers also included parallel-tax revenues forwarded by the National Insurance Institute to the sick funds.

The excess of expenditure over income for the government and local authorities, for the sick funds, and for other non-profit institutions is financed out of the general government budget from loans received by the sick funds and by other non-profit health institutions, or from the sale of assets by these institutions.

The values are presented in dollars equivalent to the value of Purchasing Power Parity (PPP). The PPP value expresses the proportional expenditure on a given list of products and services in different countries. The characteristic feature of this list is that in addition to international tradable goods, it includes non-tradable items such as road construction or education and health services-in which price differences between countries are relatively large. Accordingly, the PPP value differs from the cross-currency exchange rate, which is affected only by international trade in goods and services and by capital flows.

To compute the percent of national health expenditure out of the Gross Domestic Product, the calculation of Israel´s GDP was adjusted to that of other countries and net taxes on imports were added to this figure.

Estimates at current prices were based on a detailed analysis of expenditure items in the financial report of the government, which is compiled by the Accountant General, and financial reports of the national institutions, the National Insurance Institute and the local authorities. Additional sources were the annual reports of the State Comptroller and the explanatory notes to the Ministry of Health's budget proposal, prepared by the budget department at the Ministry of Finance.

Data on the expenditure of sick funds and other non-profit health institutions were obtained from an annual survey on the components of expenditure in these institutions, which was conducted by the Central Bureau of Statistics. This survey is based on an analysis of the financial reports or responses to special questionnaires received from sick funds and other non-profit health institutions.

Estimates of health services provided on a commercial basis-private physicians, nurses and dentists, medicines and medical equipment-are based on data obtained from the Household Expenditure Surveys    (The last survey was conducted in 1999. The Central Bureau of Statistics, Household Expenditure Survey1999, General Summery, Special Publication No. 1153, Jerusalem, 2001),which were carried out about once every five years until 1997, and on an annual basis since then. In these surveys, households specify all of their consumption expenditures. The estimates were based on details of consumption in the following items: dental care, dental insurance, supplementary medical insurance, private physicians, various treatments such as acupuncture, homeopathy and reflexology, other health services, convalescent homes, medicines, cotton wool and lignin, other medical materials, corrective optical rehabilitation equipment and other equipment. For years when no survey was conducted, estimates were derived from interpolation or extrapolation, based on changes in similar private consumption items for which data were available.

The estimates of the value of private hospital services were derived from their revenue reports submitted to the income tax authorities, as well as from reports on the number of hospitalization days submitted to the Ministry of Health.

Other sources used to compile the estimates were processing of contractors' reports to the local authorities and direct reports by the Ministry of Construction and Housing and the major construction companies on the areas of building begun acompleted.

The estimates of the number of hospitalization days were based on annual publications of Institutions of Hospitalization in Israel - published by the Division of Information Technology at the Ministry of Health.

The annual changes in national expenditure on health and its main components, at constant prices, were calculated separately for each sector (government and local authorities, sick funds, other non-profit institutions and the business sector), for each type of expenditure (wages, current purchases, depreciation, construction and equipment) and for each type of service (clinics, hospitals, etc.).

1) Changes in labour compensation of employees at constant prices for the general government, sick funds and other non-profit institutions (about 60 percent of current expenditure), were estimated according to changes in the number of employed persons and in the hours of work per employed person.

Current expenditure on the purchase of other goods and services was estimated by deflating the estimates at current prices, by a price index that takes into account the special composition of the expenditure of these institutions.

2) In the business sector, estimates at constant prices are calculated by the use of quantity indicators such as number of hospitalization days.

3) Capital formation in buildings, at constant prices, was estimated using the Price Index of Input in Residential Building. The estimate of capital formation in equipment was computed using price changes in the output of those industries that manufacture equipment, and price changes in imported equipment.

Estimates of the national expenditure on health, at constant prices, are weighted by base year prices, as follows:

The data on health expenditure in OECD countries were culled from OECD publications.

Since there is no reliable PPP index for the list of items included in health expenditure, the OECD study included an international comparison of health expenditures, taking into consideration the PPP value in terms of the GDP.

PPP in Israel was estimated on the basis of the results of a survey conducted by the Central Bureau of Statistics in collaboration with the OECD in 1996. The results were adjusted for 1998-2000 by extrapolating the price ratios gathered for 1996 for changes in the GDP price indices in the US and Israel.

5.1 The preliminary estimates for 2000-2001 are less reliable than those up to 1999, which are based on analysis of detailed financial reports. The preliminary estimates are based on data from several sources: reports to the Accountant General on expenditures of the Ministry of Health; data reported to the National Insurance Institute, on wages and on the number of workers in sick funds and other non-profit institutions; on financial reports and updated budgets of these institutions; and global estimates of expenditures of local authorities on health services and revenue from health services in the business sector. As of 1995, annual and quarterly comparative reports on incomes and expenditures of sick funds, the Nevo-Vitkovsky Report, have been used.

5.2 Estimates of most commercial health services based on the Household Expenditure Surveys (20 percent of the national expenditure on health), especially for years in which such surveys were not conducted-were found to have low reliability.

The estimates of national expenditure on health do not fully cover some of the expenditures on services provided by private clinics or private services provided by physicians and nurses, which were purchased by enterprises and institutions that are not affiliated with the industry (e.g., industrial establishments) instead of being purchased by households.

5.3 In analysing the findings, it should be taken into account that records of income and expenditure flow in the various sectors do not fully coincide with each other. For example, the government and sick funds often transfer funds to each other over a period of several years, and the transfers between the two sectors may be listed according to different years, at different values, and sometimes using different methods (i.e., the cash flow versus the accrual method). A transfer is sometimes recorded for the year in which it was carried out, but with a nominal value of the year to which it relates. Consequently, changes in the financing or supply of health services during the course of one year should be considered with caution, and analyses should be based on the average amount obtained for several years. Moreover, it should be noted that data obtained for recent years may change as a result of transfers relating items that have been subject to ongoing negotiations between the sectors.

Revisions of definitions and classifications introduced over the years are presented below:

6.1 The estimates for the years 1984/85 and onwards are presented in a new form and according to new definitions. To facilitate comparison with previous series, data for 1984/85 are presented according to the former definitions as well. The new form, unlike the previous one, includes imputed expenditure on budgetary pensions (reflecting the commitment of the government to pay retirement pensions to its employees), as well as in the imputed expenditure on depreciation of buildings and equipment in public health institutions. These additions increased the national expenditure on health in 1984/85 by about 10 percent.

Another difference is the distinction made between two groups of non-profit institutions: (1) institutions financed mainly by the government; and (2) other institutions. The first group includes the sick funds, and the second group includes other non-profit health institutions.

6.2 Until 1979/80, services for the treatment of frail elderly patients at geriatric centres and homes for the aged was also included in the estimates of expenditure for hospital services and in the national expenditure on health. It is estimated that the value of these services is about half a percent of the current national expenditure on health, one percent of the expenditure on "hospitals and research," and about 9 percent of the expenditure on "hospitals for the chronically ill". The revision reduced government expenditure and expenditures of other non-profit institutions (not including sick funds) by about one percent and local authorities' expenditure by 8 percent.

The publication National Expenditure on Health 1962-2000, Special Pub. No. 1171, 2001, includes minor changes in the estimate for 1999, based on revised data and on additional financial reports received since the previous report. In addition, revisions have been introduced in the preliminary estimate for the year 2000, some of which are based on detailed financial reports received to date.

8. Tables
1.National Expenditure on Health, by Operating Sector
2.National Expenditure on Health, by Type of Expenditure and Service, at Constant Prices
3.National Expenditure on Health, by Type of Expenditure and Service, at Current Prices
4.National Expenditure on Health, by Operating Sector, Type of Expenditure and Service
5.National Expenditure on Health (excluding depreciation), by Financing Sector
6.National Expenditure on Health, Supply and Finance by Sector
7.Receipts and Disbursements in Health Services of the Government and Local Authorities and Sick Funds - Consolidated Account
8.Receipts and Disbursements in Health Services of the Government and Local Authorities, Sick Funds and Other Non-Profit Institutions
9.National Expenditure on Health, by Operating Sector
10.Expenditure of the Government and Local Authorities, Sick Funds, and Other Non-Profit Institutions on Health Services, by Type of Expenditure
11. National Expenditure on Health - International Comparison

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