- Bismarck introduced compulsory health insurance in 1883 as a state system for labourers, based on progressive dues. In Israel, almost a century has passed since the first attempt to establish health services until the present where each citizen receives by law comprehensive health services. We analyse the development of the Israeli system into one based on social principles, discuss advantages, issues and future challenges of the health system and its implementation. The organised health system in Israel started as a single dominant socialistic-political health fund, alongside other funds concentrating on highly educated high earners in metropolitan areas. The 1995 National Health Insurance Law stipulated that health services be provided by the existing health funds to all citizens, and be financed by a salary-based ''health tax''. The state is challenged by its roles as regulator, health provider, and national resource allocator.