Widening the safety net

A proposal to amend the ESI Act to provide alternative health insurance for workers has faced resistance from employee unions

Last year, P Koilraj, a worker of Upsana Engineering in Hosur, Tamil Nadu, passed away in the workplace. In March this year, Shankar Muthale, a VRL Logistics employee, died during his daily commute to work in Hubli.

The lower middle-class families of Koilraj and Muthale, who lost their sole breadwinners, however, had a lifeline. The dependent benefits provided under the Employees State Insurance (ESI) scheme have kept their homes running. In the event of death at workplace or during commute to work, the scheme provides for the payment of about 90 per cent of the worker's average salary to dependents for life.

When the Nanjangud-based Pasari Spinning Mills was shut, about 65 workers lost their livelihood. Under the ESI scheme, they were paid half their average salary for 12 months as unemployment allowance.

There are 156 hospitals and 2,000-odd dispensaries set up by the Employees State Insurance Corporation (ESIC), the apex body under the Act. These serve about 20 million employees working in small establishments and industries and earning up to Rs 15,000 a month (as well as their family members). About 400 million Indians, who aren't part of the organised sector, have been excluded from the ESI coverage.

Critics say only a minority reaps the full benefits of the scheme. More, the claims ratio of the programme is low, around 40 per cent. Insurance companies, by contrast, operate in the region of high 90s, says Rituparna Chakraborty, president of the Indian Staffing Federation.

To widen the safety net offered by the scheme, Finance Minister Arun Jaitley, in his Budget FY16 speech, announced a plan to amend the ESI Act to give employees the option to choose from other regulator-approved health products. While this has largely been welcomed by employer representatives in the ESIC board, employee unions have completely rejected the proposed amendments.

Highlighting the inadequacies of alternative health insurance schemes, the unions have questioned the alleged low-claims ratio under the ESI scheme. V Radhakrishnan, a Thrissur-based leader of the Bharatiya Mazdoor Sangh and a member of ESI Corporation, says the government is trying to replace an employee-friendly system with a profit-making product. "In the short term, it might look good. But in the long term, it will collapse, as companies are interested in maximising profits," says Radhakrishnan. No health insurance product would provide dependent benefits and unemployment allowances such as the ones cited earlier, he said.

  Employer representatives in the ESIC have argued the quality of service hasn't been consistent. A key feature of the ESI scheme has been that contributions are related to the paying capacity, as a fixed percentage of workers' wages. They are provided social security benefits according to individual needs, without distinction. However, this is now being questioned.

According to Chakraborty of the Indian Staffing Federation, though the corporation is sitting on a huge surplus of Rs 7,700 crore, it hasn't been able to spend it meaningfully. "ESI is not a profit-making body. It is supposed to invest in doctors and medicines, which it is not doing. Bringing in competition will improve the product and the delivery of service," said Chakraborty.

Many supporters of the ESI say the scheme covers pre-existing diseases. Bringing alternative insurance products under the ESI ambit will destabilise the universal medical coverage system and lead to exploitation of the poor, argues Meenakshisundaram, a member of the Centre of Indian Trade Unions. Employee trade unions rubbish the claims ratio argument, saying though the premium is assessable within a financial year, claims payable aren't. The claims ratio of the ESI scheme cannot be computed, as there is no direct relationship between revenue and costs in a particular an accounting year.

Permanent disablement benefits and dependant benefits constitute 40-45 per cent of the overall cash benefits under ESI. These can continue for several years, depending on the life of the disabled employees or dependents. Given the long-term nature of these two benefits, no relationship can be established between the contribution earned (premium) from these employees and the benefits (claims) paid in a particular accounting year.

Proponents of the ESI scheme agree while there is a need to weed out corruption and mismanagement, it is important to maintain reserves to meet critical long-term goals of the universal health scheme. According to Radhakrishnan, the corporation has spent about Rs 20,000 crore in establishing 11 medical colleges across the country.

Plans are also afoot to set up super-specialty hospitals and improve service delivery by setting up state-level ESI corporations. These bodies will be headed by the labour secretary of the state concerned.

For the time being, employers and private insurance players are keeping a close watch at the raging debate, waiting for the government to bring in more clarity on the issue. Antony Jacob, chief executive of Apollo Munich Health Insurance, says he is keen to look at opportunities in this segment but is waiting for a final notification from the government.