This article addresses a policy paradox that characterizes many health care systems and the Israeli system in particular, that is, the existence of two parallel yet seemingly contradictory policy trends: reducing public financing for health care services while increasing governmental involvement in health-system management. The authors characterize this process as privatization through centralization; that is, to control welfare-state expenses and be able to reduce them, the government must first control the funding and management of welfare-state mechanisms and organizations. They develop a theoretical rationale for explaining this policy paradox and demonstrate it through analyzing the legislative changes that followed the legislation of the National Health Insurance Law in Israel.