Restructure the ESIC

Higher wage ceiling proposal by Employees State Insurance Corporation is a further proof that it doesn’t serve the interests of the workers or the economy.

The ESIC (Employees State Insurance Corporation) management has proposed that the salary ceiling for mandatory membership be raised from Rs. 15,000/ per month to Rs. 25,000/ per month, more than eight fold increase since 1990. Employers have strongly opposed this proposal. The current contribution rates are 1.75 percent of the covered wage from employees and 4.75 percent from the employers, for a combined total of 6.75 percent. These are statutory rates, but once labour market dynamics and tax burden reasoning are taken into account, most of the final economic burden of the mandatory ESIC levy is likely to be on workers as a group.

wage ceiling

The total contribution collected in 2012-13 amounted to Rs. 81 billion, equivalent to only 0.08 percent of GDP, or less than Rs. 5000 per member per year. With that contribution, the ESIC aims to provide comprehensive insurance coverage, with no co-payment at the time of health service provision, including both out-patient services in clinics, and hospitalisation. ESIC also promises for cash benefits, and disability compensation programs. ESIC operates in 29 States and Union Territories (out of total of 35), with only 0.58 million employers registered. As of September 2013, it managed 34 hospitals, and nearly 1400 dispensaries; there were 117 hospitals run by state governments on behalf of ESIC; while there was a tie-up of varying degrees with over 800 hospitals.

The ESIC thus has an enormous health infrastructure, requiring complex coordination, technical, and management expertise.  Since its establishment in 1952, the ESIC is however supervised by the Ministry of Labour and Employment  (MOLE) and not by Ministry of Health and Family Welfare. MOLE traditionally has little expertise in health management, and entrusting such a complex task to it hampers systemic and coherent view of health policy and management. This anomaly must be addressed urgently if appropriate signals are to be provided to improve health status of Indians.

The reasons for assessing that the proposal to increase wage ceiling for mandatory ESIC contribution will harm workers and the economy are discussed below.

The main advantage of the proposal claimed by the ESIC management is that it will increase potential coverage by about 4.5 million workers. The membership of ESIC is officially stated as 17.1 million in September 2013, though inadequate disclosure of data does not permit estimation of how many are actually contributing on a regular basis. Even with the increased coverage, total membership of ESIC after more than 60 years of operations will be less than 5 percent of India’s 500 million labour force. ESIC management claims, without providing supportive evidence, that as family members of the covered employees also receive benefits, total beneficiaries number around 70 million, equivalent to slightly more than 5 percent of India’s population.

Given such low level of coverage, it is even more urgent that organisational and governance structures, policies, and programs of ESIC should be coherent with health care arrangements for the rest of 95 percent of the population. In additional to the above, there are three major deficiencies of the ESIC as an organisation that must receive priority over higher wage ceiling. Without addressing these, higher wage ceiling will harm workers and the economy.

First, even after more than 60 years of existence, ESIC has not been able to develop modern management information systems, and requisite human resource management practices, severely hampering quality of decisions, and delivery of services. ESIC has also been slow in adopting electronic medical records, SMS messaging services, and use of biometric identification cards. The cooperation between medical personnel, administrative staff, and project implementation staff is also insufficient for an effective learning organisation.

Second, the ESIC is presently not able to spend on benefits the compulsory contributions collected. This trend has persisted since 1990, with benefits to contributions ration being less than 40 percent in 2010-11. This trend has led to ESIC accumulation balances of Rs. 200 billion by 2012 (equivalent to 0.2 percent of GDP). It however neither publishes actuarial studies of its schemes, nor has developed investment management expertise.

Research studies strongly suggest that low quality of ESIC services as evidenced by low utilisation rates is a major reason for the above trend. Both outpatient and inpatient care services have exhibited declining trend at least since 2000. Thus in 2010-11, the hospitalisation rate of 0.67 for ESIC members was much lower than the overall community incidence of 2.0 estimated by the 60th round of NSSO (National Sample Survey Organization). A 2011 study by U Desh and V R Muraleedharan, How Equitable is Employees’ State Insurance System in India?: A case Study of Tamil Nadu, found that among ESIC members only 15 percent of the out-patients, and 35 percent of in-patients sought care from ESIC facilities.

Anecdotal evidence from our research suggests that many current ESIC members, both employers and employees, would like a choice to provide their own health insurance, and not be forced to contribute to ESIC. This suggests that the rest, in spite of mandatorily contributing to ESIC, most current ESIC members seek treatment from non-ESIC facilities, increasing their overall costs, and thereby reducing household expenditure on other essential goods and services. The increased wage -ceiling proposal will worsen household welfare even more as it would reduce take-home pay, but will not decrease the need to seek non-ESIC health care.

The proposal will raise statutory costs of hiring labour at the time when few jobs are being created in the formal sector. It may provide incentives for greater informalisation of labour force, and perhaps reduction in discretionary health and other benefits to manage overall human resource costs. Low economic reasoning skills within ESIC, and a  management mind-set that does not give due recognition to empirical evidence have led to insufficient importance given to the broader economic and labour market implications of the proposal.

Third, ESIC has focused on curative care, while neglecting preventive care that generates higher health care benefits. Thus, the Centre for Disease Control in the United States has estimated that between 1900 and 2000, average life expectancy at birth in United States of America increased by 30 years, of which more than four-fifths was contributed by improved preventive health care, and only remaining by curative care. Poor hygienic conditions found in ESIC facilities typifies its poor understanding of the role of curative care.

ESIC is moving into areas where it has no competence or mandate, such as setting up medical colleges and specialty hospitals. Given its low project management skills, and its welfare rather than professional orientation, initiating such projects is not consistent with meeting India’s unmet health care needs, and with India’s priority in obtaining better outcomes or results from government expenditure.

The above discussion strongly suggests that the new Union Government elected in 2014 should give high priority to restructure ESIC, turning it into an integral component of India’s coherent health care system. The ESIC should be required to be a professional health care service provider, which is internationally benchmarked, with appropriate balance between curative and preventive care.

Thus, there is a strong argument that without the transformation of the ESIC along the above directions, raising wage ceiling, and bringing more workers under the ESIC will harm the workers, and the economy.

Photo: gloogun