Comptroller warns National Insurance will be unable to fund its welfare commitments by 2035

Report on Israel’s preparations to deal with aging population finds state welfare agency burning through its reserves at an alarming rate since implementation of 2018 reform

The National Insurance Institute, which provides welfare benefits, is on a trajectory to be unable to fully fund its commitments by 2035, according to a report released Sunday by State Comptroller Matanyahu Englman.

The audit of the NII – known in Hebrew as “Bituach Leumi” – was part of a broader report by the comptroller looking at Israel’s preparations to deal with an aging population.

The report found that widespread flaws in a 2018 NII reform meant that the institution was now burning through its cash at a much faster rate than anticipated and was on track to deplete a crucial safety reserve by 2035, nine years earlier than previously predicted.

By law, NII benefits are financed by mandatory national insurance contributions collected from all Israeli residents, who in turn are guaranteed support in their time of need: unemployment, illness, disability, maternity leave, bankruptcy of corporations, and retirement. NII collects insurance payments from employees’ salaries and the income of the self-employed, and pays it out in welfare allowances.

As is commonly practiced by insurance companies, the NII charges the population more than it anticipates paying out, to make sure it has reserves for an aging population and for emergencies. This additional money, which can compensate for deficits, is now expected to run out by 2035, according to the comptroller.

Already, the total share of citizens receiving aid from the welfare agency has doubled since the reform passed in 2018, from about 16% to about 30%, twice the average for OECD countries.

The doubling of the number of individuals receiving care was accompanied by a tripling of expenditures on long-term care, from NIS 7 billion ($2.4b) pre-reform to NIS 21 billion ($7.1b) today, an increase ten times greater than the Finance Ministry predicted on the eve of the 2018 changes.

Moreover, the report found that the reforms – which included expanding the criteria for benefits, and establishing that a person’s level of aid would not go down even if his situation improved – were passed with almost no attention to actuarial assessments.

Not only was no actuarial report prepared to go along with the proposal of the reform, but actuarial considerations also weren’t presented before the relevant committee in the Knesset, nor to administrators making subsequent managerial decisions.

Additionally, despite a 2015 government resolution that the socio-economic cabinet would hold a meeting every year on the NII’s stability – including discussion of an actuarial report – not one such discussion was held, with the exception of a single meeting in 2018 that ended without any operational decision having been made.

The report also found that from the years 2024-2026, the NII approved a budget deficit without discussing measures that might be taken to reduce it.

The comptroller also investigated Israel’s means of conducting dependency assessments for potential recipients of NII aid. Unlike all other OECD countries, in Israel such assessments can be made via documents only, with just 1% of them made face-to-face in the applicant’s home.

Englman found that requests assessed using documents alone were approved at about a 16% higher rate than the small minority that included an in-person assessment.

Additionally, when the same person was assessed by both the NII and his health insurance fund, in 75% of cases the NII assessed the person to be eligible for greater need – an average of some 1.7 levels higher on the same seven-level scale.

The comptroller’s audit, conducted in collaboration with his counterparts in eight European countries, primarily dealt with Israel’s preparations for the aging of its population.

Whereas prior to the reform in 2018, some 180,000 citizens were receiving old-age pensions, that figure has more than doubled to some 392,000 today.

The share of Israel’s residents who are 65 and older, though tempered by the nation’s high birth rate, is nevertheless expected to continue to rise from 13% at the end of 2024 to some 15% in 2050.

According to Englman, the state faces a shortage of geriatric physicians and hospital beds, and is primarily responsive to existing illness rather than preventative of future problems for the currently healthy.

“Additionally, areas such as retirement preparation, employment, volunteering, and activities to mitigate loneliness lack coordinated and comprehensive management, clear targets, and inter-ministerial coordination mechanisms,” he wrote.

In response to the report, the NII appeared unperturbed about the looming crisis and said it remained committed to paying out and even increasing benefits.

The NII said it is “luckily not a private company, and it doesn’t meet its bottom line on the backs of citizens, but rather is obligated to provide services to those who built the state and paid into social security their whole lives, and are entitled to those funds when their health requires it.”

“The budgets were passed in the 2018 reforms after years in which senior citizens didn’t receive their money, and after harsh public criticism of their treatment; the state comptroller wrote about this at length, and after that, the reform was put into action.”

“Now is the time to remember that old-age pensions haven’t increased in over a decade, while the economic reality has changed from end to end. The job of the NII is to protect and defend senior citizens, and to provide them assistance that is their right, not out of charity,” it said.