Imputing the Social Value of Public Health Care: a New Method with Application to Israel

Pre-COVID 19, countries with universal health care have experienced a rising demand for health care services without a corresponding rise in public supply. This has led to a debate on whether to increase private health care services - especially in hospitals and second-tier health care. Proponents for increasing private health care highlight gains in efficiency and innovation, while opponents emphasize its risk to social welfare. However, the monetary value of these gains and losses is seldom quantified. In this paper, we contribute to the debate by imputing the social value of public health care, which does not have a market and therefore cannot be monetized. Similar to contingent valuation methods that use hypothetical markets, we incorporate a hypothetical health care market into a general equilibrium model. Social value is modeled as a byproduct of health care services and enters a well-being household function. The model is calibrated to our unique Health Social Accounting Matrix of Israel. Using a Monte-Carlo method, we impute the minimum social value at around 26% of public health care financing. We furthermore simulate health care scenarios that internalize the social value to show that when assessing the best type, policymakers should weigh the economic gains of deregulation against the lost social value. We show that well-being may decrease in some cases from over-privatization.