Case for a recast of employee insurance scheme gets stronger

Substantial and rapid progress in improving India’s health indicators has acquired greater urgency as India increasingly becomes integrated with the global economic activities, and aims to become a knowledge economy where quality human resources are an essential requirement.

The above objective cannot be met without undertaking the long-overdue restructuring of public sector health organisations, delivery systems, and professional education.

It is in the above context that the time has come to fundamentally restructure the Employees State Insurance Corporation (ESIC) and its main scheme, the Employee State Insurance Scheme (ESIS), established under the ESI Act of 1948 with the primary objective of meeting the healthcare needs of relatively low-wage private sector workers in select occupations. It is thus the oldest mandatory health insurance scheme in independent India.

The main reasons for the need for fundamental restructuring of the ESIC and the ESIS are as follows.

Unwieldy organisational structure: The ESIS has an overly elaborate administrative structure. At the national level, the ESIS is administered by a statutory body, the ESIC. Its board, which is rather unwieldy, comprises representatives of employers, employees, the Central Government, State Governments, medical profession and Parliament. It is chaired by the minister of labour, rather than the minister of health, reflecting the welfare rather than professional service-provider orientation of the ESIS.

At the state level, Regional Boards have been constituted in each State. There are also Local Committees whose role is advisory. There are nearly 800 implementation centres covering 29 States and Union Territories. 

The structure gives rise to difficult Centre-State-Local government coordination issues. The fact that the ministry of labour, whose responsibilities are quite divergent from health sector issues, is responsible for the ESIC creates coordination problems with the ministry of health and with the rest of the health sector in the country.

Low coverage: The ESI Act’s coverage is relatively narrow, confined to factories, shops, hotels, newspaper establishments, etc. It has been in existence for over 60 years, but by March 31, 2009, it covered less than 0.4 million employers, insured 13 million persons (potentially 50 million beneficiaries), and has still not been able to operate throughout the country.

This suggests that the ESIC has not been a ‘learning organisation’, i.e. an organisation which is able to perform services with greater degree of competence and with less resource cost as the length of period of its operations and its cumulative output increases.

Poor design, acceptability and accountability: The ESIS scheme is poorly designed and suffers from low levels of acceptance and accountability.

The contribution rates for the ESIS are 1.75% for the employees and 4.75% of wages for the employers. The wage limit for coverage since May 2010 has been Rs 15,000 per month. The ESIS provides full medical care, including hospitalisation to members and their families. Recently, coverage has also been extended to the dependents of the beneficiaries who are between 18 and 25 years of age.

Poor design is reflected in the provision that the members do not bear any charges at the time of service provision. Such zero co-payment rate provides strong incentives to over-utilise scarce healthcare services at the point of final consumption. It also reduces the voice of the consumer of services as no payments are being made at the time of purchase.

Another example of poor design is the absence of explicit guidelines by the ESIC for purchasing care from the State governments. Instead, the States are provided fixed payment per member (Rs 1,200 per member) to cover all services to the member and its dependents. This suggests that no estimates of unit cost of different services have been made; and no actuarial studies have been conducted to understand the longer run dynamics between revenues and expenditure.

There are several indicators of poor acceptability of ESIC services.
A survey by Teamlease Services, a human resource firm specialising in meeting temporary staff needs, but with full statutory benefits, found that only 2% of its employees have used ESIC services, and less than a third of them were satisfied with the facilities. More than two-thirds of the survey respondents felt that mandatory levies by ESIC do not provide sufficient value.

Another study, for Kerala, found that the majority of patients (57%) were not satisfied with the services of the ESIS doctors; 71% were not satisfied with medicines and dressing; and 73% with in-patient care. Nearly two-fifths did not even consider sickness benefits worth claiming.

Poor acceptance has given rise to the curious phenomenon that ESIC revenues continue to exceed its expenditure by a large margin; by 53% in 2008-09. Instead of improving the acceptability of its services, the ESIC Board unwisely continues to expand benefit promises, which would be financially unsustainable when the utilisation rate improves.

Recently, coverage has been extended to the dependents of the beneficiaries who are between 18 and 25 years of age. Parents are also covered, under certain conditions.

It is also leading to ESIC expanding in areas such as starting medical, nursing, and paramedical colleges, which are beyond its mandate.

The ESIC has accumulated balances of Rs 200 billion, but there do not appear to be Board members with specialised expertise in financial and capital markets.

In addition to poor accountability arising from poor design, lack of genuine autonomy of the ESIC severely constrains organisational and individual incentives for improvements. The members do not have recourse to consumer courts, reducing the scope for addressing their concerns.

The above discussion strongly suggests that resources, both physical facilities, material, and human, currently being devoted to ESIC could be employed to generate better health access and outcomes; and substantially increase the acceptability of the ESIC services by the members.

This is also essential to achieve desired results from the proposed linkages between the ESIC facilities and beneficiaries of Rashtriya Swasthya Bima Yojana .

It is therefore strongly suggested that a committee be constituted, including independent experts and representatives of service beneficiaries, to suggest options for fundamental restructuring with the objective of transforming ESIC into an internationally benchmarked professional health service provider, and
ensuring that it is well-integrated with the rest of the health sector in the country.

Mukul Asher (mukul.asher@gmail.com) is a professor and Dayashankar Maurya(mauryadauya@gmail.com) is a PhD Student at Lee Kuan Yew School of Public Policy,
National University of Singapore. Views are personal.