The study examines the impact of private expenditure on healthcare in Israel on income distribution, poverty, and catastrophic healthcare spending and discusses the functioning of the publicly supported system by studying private expenditure on entitled care. The study examines the trend in private spending during 2003–2009 for its implications on the various impact aspects. The context of the study is the high share of private funding of healthcare in Israel that reached about 40 percent of total healthcare expenditure in Israel in 2010, and is the highest among developed economies that provide universal healthcare coverage. The study is based mainly on the 2009 Household Expenditure Survey by Israel’s Central Bureau of Statistics which includes a sample of 6,270 households, representing 2.136 million Israeli households, a fifth of which are classified as poor. The study is innovative in that it classifies into categories by their nearness to satisfying a basic need, to be included in the measurement of the poverty line, or by their nearness to a tax, to be included in the analysis of income distribution. Special attention is given to households which, unlike in the tax situation, forgo expenditure. Nearly all Israeli households, 93 percent, report private expenditure on medical care at 5.1 percent of average spending on consumption. The expenditure as a whole and by components is positively related to the level of income, and not to other common correlates of poverty in Israel such as being religious or Arab. Co-payments (partially mitigated since the end of 2011), which are considered closest to basic need or tax-like, are reported by about a fifth of total households. About a tenth of households report spending out of pocket on care that parallels care included in entitlement. Four percent of households, 80,000, insure privately for such care. The share of expenditure for parallel care in total private expenditure has been increasing with time. The trend is led by high education and high income groups that increasingly forgo publicly supported care. The data suggest supplier-induced demand for parallel care. Spending on co-payments and supplementary care, which is regarded as a need or tax-like but not included in entitlement, is regressive in spite of the evidence that low income households forgo such spending because of its economic implications. A calculation that subtracts these expenditures from the income of households increases the number of poor households by about 6,000 of which 1,300 households join the ranks of the poor because of private expenditure on entitled care. About 68,000 households incur spending that threatens the household’s vitality, including its health.

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