reforming-health-insurance-and-pension-schemes

Context: Covid reminds us that a modern state is a welfare state — governments worldwide launched 1,600 plus new social protection programmes in 2020. 

  • Sustainable social security lies in raising India’s 138th ranking in country per-capita GDP.
  • There is the case for to our biggest health insurance and pension schemes: 
    • The Employee State Insurance Scheme (ESIS) and Employee Provident Fund (EPF).
  • Both have failed their clients since birthing and in COVID. 

Employee State Insurance Scheme (ESIS)

  • ESIS is India’s richest and biggest health insurance scheme with 13 crore people covered and Rs 80,000 crore in cash. 
  • Employers with more than 10 employees make a mandatory 4 per cent payroll deduction for employees earning up to Rs 21,000 per month. 

Employee Provident Fund (EPF).

  • EPF is India’s biggest pension scheme with a Rs 12 lakh crore corpus and 6.5 crore contributors. 
  • Employers with more than 20 employees make mandatory 24 per cent payroll deductions for employees earning up to Rs 15,000 per month. 
  • It only covers 10 per cent of India’s labour force and 60 percent of accounts and 50 per cent of registered employers are inactive. 

Concerns:

  • The problems of EPF and ESIS are 
    • poor coverage, high costs, unsatisfied customers, 
    • metrics confused with goals, jail provisions, 
    • excessive corruption, low expertise, rude and unaccountable staff with no fear of falling or hope of rising, and
    • no competition. 
  • ESIC’s unspent reserves are larger than the Central government’s healthcare budgetary allocation. Its annual profits of Rs 10,000 crore persist.
  • Despite covering roughly 10 per cent of India’s population, a recent working paper from Dvara Research suggests high dissatisfaction. 
  • EPF offers poor service and pathetic technology despite employer-funded administrative costs that make it the world’s most expensive government securities mutual fund.
  • Low EPF interest rate: At 8.5%, the EPF interest rate is at a seven-year low. The All India Trade Union Congress, which is a part of the Board, was opposed to reduction in interest on PF.Small savings rates range from 4.0-7.6%.
  • Falling ETF returns: The EPFO invests 85% of its annual accruals in the debt market and 15% in equities through ETFs. 

Way forward

  • Structure: Apart from not having clients but hostages, EPF and ESIS combine the roles of policymaker, regulator, and service provider. Splitting roles is a precondition for performance because goals, strategy, and skills are different. 
    • An independent service provider would invest heavily in technology, customer service, and human capital. 
    • Splitting roles would lead to 
      • competition from NPS for EPF, 
      • ending VIP opt-out by merging CGHS with ESIS, 
      • raising enforceability by making employee provident fund contribution voluntary, 
      • improving portability by de-linking accounts from employers, and
      • targeting universalisation by simultaneously ending minimum employer head-count and employee salary contribution thresholds while introducing absolute contribution caps. 
  • Governance: The governing board of ESIS and EPFO have 59 and 33 members respectively. 
    • Such a large group can’t have meaningful discussions, make decisions, and exercise oversight. 
    • This governance deficit needs smaller boards (not more than 15), age limits (70 years), term limits (10 years), expertise (technology, HR, health, pensions, finance, etc), active sub-committees (HR, Investments, and technology) and real powers (appointing the chief executive, setting targets, holding management accountable).
  • Leadership: Health and pensions need complex skills developed over time. Yet, ESIS and EPF are led by generalist bureaucrats. 
    • Both organisations need professional chief executives. A democracy’s generalists are its politicians and its delivery organisations must be run by technocrats. 

Social security can blunt structural and COVID inequality when combined with complementary policies like formalisation, financialisation, urbanisation, and better government schools.

Employee’s Provident Fund (EPF) 

  • It is a retirement benefit scheme, available for all salaried employees. 
  • It is looked after and maintained by the Employees Provident Fund Organisation of India (EPFO). 

Eligibility:

  • As per law, any registered company which has more than 20 employees has to get registered with the EPFO.
  • All salaried employees are eligible for the Employee’s Provident Fund (EPF). 
  • However, for a salaried employee earning less than Rs 15,000 per month, it is mandatory for them to register for an EPF account. 

EPF Contribution by Employees and Employers

  • Under the EPF scheme, both the employee and the employer make an equal contribution towards the scheme. 
  • Once the employee retires, he/she gets a lump sum amount – which includes the contribution made by self and the employer – with interest. 
  • The contribution made by both the employer and the employee is 12 percent of the employee’s basic salary. 
  • Though the entire 12 percent of the contribution made by the employee goes into their EPF account, 8.33 per cent out of 12 per cent from the employer’s contribution is diverted to the employee’s EPS (Employee’s Pension Scheme) account. 
  • The balance of 3.67 per cent from the employer’s side goes into the employee’s EPF account.