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Part Three - The Social Program
National Insurance and the Welfare System
The National Insurance Institute, despite its name, is not run as an insurance institution at all, but rather as an "economic safety net"[22] for residents of Israel – in other words, as a welfare system. To date, after a gradual expansion of its powers and a corresponding budget increase,[23] the National Insurance Institute is the main instrument for the realization of the Israeli government's welfare policies.
Unlike typical welfare systems, which help only the most needy, National Insurance aims to provide financial security for the entire population – even people who are not interested in its services and who are able to finance their own "economic safety net." It is difficult to see the justification for this when public satisfaction with the National Insurance Institute is lower than average satisfaction with insurance companies and when many citizens are purchasing their own supplemental insurance.
Among the range of services provided by National Insurance, there are many services that are offered in the private market with competitive terms. For example, the National Insurance Institute provides long-term care insurance and workers disability insurance. These are basic insurance services, which can be purchased from almost any insurance company. Another example is the old age pension. For most policyholders, this is just an additional pension insurance, similar to that which every worker is required to purchase in any case.
Although the National Insurance Institute collects funds directly, it has no real economic autonomy and is dependent on the dictates of the state and its budget. The state dictates the amount of National Insurance payments and allowances, without a mechanism requiring it to match revenues and expenditures. The National Insurance Institute accumulates deficits, which guarantee that it will eventually collapse.[24] It is clear to all that when that happens, the state will have to cover the budget deficit, despite not being prepared for it.
The expected collapse of the welfare system is not unique to Israel, but is a known and widespread problem in the Western world. However, a significant factor in the welfare crisis elsewhere in the Western world is the fall in the birth rate, which causes the percentage of the elderly population being supported to increase while the percentage of young people in the labor force who finance this support is decreasing. This is not a significant factor affecting Israel, which has the highest birth rate among developed countries. That means that there are other reasons for Israel's future welfare crisis – budgetary irresponsibility, inefficiency, mismanagement, unjustified payments or a combination of these factors.
All in all, the National Insurance Institute is an awkward and inefficient mechanism, and many of its functions are not necessary at all. Forced reliance of Israeli residents on this institution is costing them a great deal of money and too often gives an inadequate return. Even worse, with the expected collapse of the National Insurance Institute, the "financial safety net" of millions of citizens who have paid premiums all their lives will disappear into thin air, and they will find themselves faced with a hopeless situation in their most difficult hour.
The Zehut Party proposes a program of measured reduction of the responsibilities of the National Insurance Institute by employing the free market mechanisms of efficiency and competitiveness. This program is a necessary first step in rebuilding the Israeli welfare system and removing the severe risk to the economic future of Israel's residents.
Reducing the Powers of the National Insurance Institute
A large part of the role of the National Insurance Institute is to provide a uniform basic insurance to residents of Israel. There is no justification for this in a free country. While such a basic insurance product is essential, it is a product that the private sector can provide on its own. In fact, private insurance companies do it successfully and efficiently even now. Just as the state does not have to bake bread for there to be bread on the shelves, so it does not have to provide insurance products itself in order for them to be available to the Israeli public.
The efficiency of private companies and the quality of service they provide has often been proven to be preferable to those of state-owned companies. We must take advantage of the option of relying on them to reduce the complex and wasteful mechanism of the National Insurance Institute.
Zehut will gradually reduce the country's insurance services. Insurance against work disability, long term care insurance and disability insurance are policies that exist in the private market. The state will gradually stop providing these services and direct residents to purchase them privately. At a later stage, termination of the grant of additional insurance services will be weighed, depending on the ability of private companies to provide them. The need to provide any of these services will be examined individually. With the reduction in national insurance services will come a significant reduction in insurance premiums.
Residents will be obliged to purchase their own insurance. All Israeli residents will be required to take out minimum insurance coverage, in place of the state insurance that has been forced upon them up until now. Employers will be obliged to insure their workers against work accidents. Because every resident and every employer will be able to choose their own insurance company, private insurance companies will need to compete for customers and will offer them good service and worthwhile premiums. When insurance companies are convinced that the State intends to terminate insurance services that are available on the open market, they will have an incentive to develop new insurance services that can replace the existing services provided by the State.
A person entitled to a pension will continue to receive it. The state, like any other insurer, cannot renounce the financial claims of its policyholders. Every resident of Israel who was eligible for National Insurance payments before the reduction in insurance services[25] will continue to receive the allowance, and will continue to be insured by the state, just as he was insured before the reduction of insurance services.
Ultimately, the goal is to create a situation in which all services that National Insurance provides today, except for social services and assistance to those in need, will be purchased on the private market.
Innovation and efficiency in the welfare system
According to the Zehut plan, the state will continue to be responsible for welfare, though this does not mean that the welfare system will continue to work unchanged. The failure of welfare programs in the Western world has led many countries to rethink their welfare policies and examine alternative models of assistance to the needy.
Zehut will be responsive to developments in the field of welfare and will follow innovative ideas and implementation of alternative models of welfare throughout the world. Zehut will look into implementing these ideas in the State of Israel, and will focus on the following topics:
Preventing welfare fraud. We will consider methods that effectively reduce instances of obtaining unjustified benefits from welfare, on condition that these methods do not unnecessarily impede those with real need and prevent them from receiving assistance.
Taking advantage of earning potential and avoiding the "welfare trap." The "welfare trap" is a situation in which the welfare program creates an economic incentive for those on welfare to continue to be dependent on welfare rather than taking advantage of their earning potential. This harms the economy and places a burden on the state budget, and worse – is hurting welfare recipients themselves. Today in Israel, there are situations in which additional income for welfare recipients results in their loss of eligibility for a pension. This makes it preferable for welfare recipients not to try to increase their income, and to continue to be dependent instead on the welfare allowance. We will consider methods that avoid such harmful incentives and do not punish welfare recipients for taking advantage of their earning potential.
Alternative welfare systems. We will consider alternative welfare systems – municipal, community[26] and others – that can fulfill some of the functions of the national welfare system and exist parallel to it. Alternative welfare systems provide a certain freedom of choice for residents, who can choose from the most successful system, or the system best suited to their needs. Such welfare systems tend to serve smaller communities, enabling them to be better acquainted with those in need of assistance. In addition, welfare systems and local mutual aid funds allow members of the community and city to support each other and thereby assist in the coalescence and realization of a communal identity.
[22] This is how the institute itself defines its role.
[23] National Insurance revenues are about 5% of GDP.
[24] Not only economic experts warn of the collapse of National Insurance. The National Insurance Institute itself has warned of its empty coffers and certain collapse.
[25] This includes any person who was injured while the insurance was in force and the claim was not received at the time that insurance services were suspended, but was later found to be justified.
[26] Such as the Gemach (free loan society) model which is fully implemented in Orthodox Jewish society, and fulfills its role quite successfully.
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