This note was first published as part of Session 3 of the four-part webinar series hosted by Dvara Research and IndiaSpend on “Reform Pathways for Healthcare financing in India”. Our first post on “Status of Health Systems in India at National and Subnational Levels” argued that while India looks at increasing the total health expenditure to improve health outcomes, it could benefit from an increase in the share of pooling and improving the performance of existing pools such as those managed by the state-level departments of health, State Health Authorities, the Employees’ State Insurance Corporation (ESIC), and commercial health insurance. In this note, we focus on the pool managed by ESIC and review its performance. We also outline pathways or structural design choices ESIC can move towards, with a view on the potential long-term role it can play in India’s healthcare system.
Employees’ State Insurance Scheme (ESIS) is the oldest health insurance scheme in India, and at the end of the financial year (FY) 2018-19, it had 31.4 million employees and 135.6 million beneficiaries (including dependents). The scheme is presently mandatory for all employees drawing monthly wages of up to Rs. 21,000 per month in the formal sector and is financed by the contributions of both employees and the employers, calculated as a percentage of wages paid/ payable. In return, employees and their dependents are entitled to receive medical care at ESIS’s own network of hospitals and dispensaries as well as private/ government hospitals, with which ESIS has tie-ups, for super specialty treatment. The scheme offers a comprehensive medical benefits package covering preventive, outpatient and inpatient medical care, in addition to other cash benefits such as disablement benefit and maternity benefit. Hence, ESIS aims to provide comprehensive social security to its pool of employees and their dependents (ESIC, not dated). Specifically, through its medical insurance, it seeks to provide financial protection against out-of-pocket health expenditure for its beneficiaries (Forgia & Nagpal, 2012).
With the features described above, ESIS is akin to a Social Health Insurance (SHI) programme. Compared to tax-based financing and commercial health insurance, SHI, as a mechanism to raise and pool funds to finance healthcare, is seen to be more advantageous. For example, in the absence of tax revenues that could fund universal access to healthcare to a country’s population, SHI offers a financially stable, self-financing model through mandatory employer-employee contributions. It is not dependent on periodic budgetary allocations from governments. Many of the issues with commercial health insurance that we discussed in the previous note, such as the practice of risk selection by insurers resulting in the exclusion of vulnerable sections of the population (from both an economic and health risk perspective), are not areas of concern under a SHI programme. Under SHI, contributions are determined by a beneficiary’s ability to pay regardless of the health risk they bring into the pool. More importantly, SHI promotes equity, as every beneficiary is entitled to access similar healthcare services (Hsiao & Shaw, 2007; Saltman, Busse, & Figueras 2004).
While India looks at increasing the total health expenditure to improve health outcomes for its population, ESIS is uniquely positioned to provide a sustainable platform to implement an effective SHI in the long term. By expanding its current base to include all formal sector workers as against just blue-collar workers and gradually opening up the scheme to informal sector workers as well, ESIS can help in extending health insurance coverage to a significant proportion of the population. This way, ESIS does not have to wait for formalisation of the workforce in the country to expand its coverage, which by design it is dependent on. Currently, ESIS plays three principal roles that are typically found in a healthcare system – financier (pooling and managing of funds), purchaser of healthcare services for its beneficiaries, and provider of healthcare services to its beneficiaries through its own network of hospitals and dispensaries. Because of this institutional setup, ESIS also provides an opportunity to extend health coverage beyond its current levels through innovative mechanisms.
Given the above context, in this note, we assess the performance of ESIS specifically against its mandate of providing medical benefits to its beneficiaries. On reviewing the available evidence, we find that the performance of ESIS is far from satisfactory on measures such as access, equity, quality, and efficiency. There is also not enough of a focus on health outcomes for its beneficiaries. Much of the concerns raised by its beneficiaries point to the lack of accessible ESIS health facilities or, where available, the lack of quality infrastructure at ESIS hospitals and dispensaries. The presence of this access challenge as well as the low quality of care are also indicated by supply-side measures which show that the availability of beds, number of outpatient visits, hospitalisation rates, and the average length of stay for inpatient services are either low or have been gradually declining. This unsatisfactory performance is observed against the backdrop of ESIS recording surpluses year on year and having huge financial reserves. Hence, while the number of beneficiaries has seen a significant increase over the years, expansion in its health facilities has not kept pace, indicating a clear misalignment between ESIS’ overall healthcare delivery challenges and its financial performance. This poor performance also questions the potential role of ESIS in contributing to higher risk pooling and insurance coverage in the long term (NITI Aayog, 2019).
To improve the scheme’s ability to provide healthcare services, we consider the recommendations of NITI Aayog, that focus on reforms in the areas of governance and operations in the short to medium term. We argue that these reforms may not be enough, and that it may make sense to change the structural form of ESIS to ensure that it remains relevant in India’s health systems landscape in the long term. Accordingly, we outline four potential pathways for reform that ESIS can consider adopting – moving towards a Managed Care model, allowing commercial insurers to compete with ESIS for its customers, moving towards to a Managed Competition model, and expanding its coverage. These pathways need not be viewed as alternatives but rather as sequential steps towards a robust, effective SHI in the long-term. Additionally, they are also not an alternative to NITI Aayog’s recommendations, as the latter may be critical to ensure superior performance of a structurally reformed ESIS.
To know about our findings and the potential pathways in detail, please read our research note on “Employee State Insurance Scheme – Performance and Potential Pathways for Reform” here.
ESIC. (n.d.). Contribution. Retrieved November 22, 2020, from https://www.esic.nic.in/contribution
ESIC. (n.d.). ESIC at a Glance – 2018-19. https://www.esic.nic.in/attachments/files/esic%20at%20a%20glance.pdf
ESIC. (n.d.). Frequently Asked Questions on ESIC. https://www.esic.nic.in/Publications/FAQ_ESIC_181210.pdf
ESIC. (n.d.). Information-Benefits. Retrieved November 22, 2020, from https://www.esic.nic.in/information-benefits
Forgia, Gerard, & Nagpal, Somil. (2012). Government-Sponsored Health Insurance in India: Are You Covered?. The World Bank. https://openknowledge.worldbank.org/bitstream/handle/10986/11957/722380PUB0EPI008029020120Box367926B.pdf?sequence=1
Hsiao, William C., & Shaw, Paul R. (2007). Social Health Insurance for Developing Nations. The World Bank. https://openknowledge.worldbank.org/handle/10986/6860
NITI Aayog. (2019). Health System for a New India: Building Blocks: Potential Pathways to Reform. https://niti.gov.in/sites/default/files/2019-11/NitiAayogBook_compressed.pdf
Saltman, Richard B., Busse, Reinhard, & Figueras, Josep. (2004). Social health insurance systems in western Europe. Open University Press. https://www.who.int/health_financing/documents/shi_w_europe.pdf