The Employees’ State Insurance Corporation (ESIC) is facing significant challenges and requires internal reform. This includes increasing insourcing from the private sector while maintaining its funding and ownership structure. There are systemic, governance, and process shortcomings that can be addressed without exposing low-income formal-sector workers to the risks associated with unregulated private care in India, states a working paper by the Safe In India Foundation on `ESIC Reform and Privatisation’.
According to the report, “ESIC provides more value for money than private insurance.” After the contribution rate was reduced from 6.5% to 4% in 2019-20, ESIC’s benefit-to-contribution ratio averaged 93% over five years, outperforming private sector general insurers (88%) and significantly surpassing standalone health insurers (69%).
The report warns that the increased costs associated with privatisation will ultimately affect not only workers but also most businesses, especially micro, small, and medium enterprises (MSMEs). Higher premiums and poorer health outcomes for workers could negatively impact long-term profitability and labour productivity.
As ESIC celebrates its 75th anniversary this year, discussions surrounding its reform and potential privatisation have intensified. ESIC operates a network of 166 hospitals, 17 medical colleges, and 1,600 dispensaries supporting 15 crore beneficiaries. The report argues that the unique institutional capabilities of ESIC would be lost through privatisation, which would be irreversible. It recommends deploying the ₹1 lakh crore corpus intended for insured persons’ ESIC-promised benefits to fund reforms and improve infrastructure, rather than diverting it for non-ESIC purposes.
Safe In India (SII) based its report on extensive ground-level work and insights from experts, including practitioners and academics involved in related issues. Sandeep Sachdeva, co-founder and CEO of Safe In India Foundation, noted that the report has been submitted to Niti Aayog and the Ministry of Labour, with Niti Aayog responding positively.
ESIC currently covers 3.84 crore low-income formal workers and their families, totalling approximately 14.91 crore beneficiaries—about 10% of India’s population. This coverage integrates income protection (cash benefits) and medical protection, a combination that neither the public health system nor the private sector can adequately replace.
Value for Money
SII has worked with 8,000 injured workers to help them obtain treatment and compensation. They found that about 16% were registered with ESIC only after their accidents, and 64% received ESI cards only after being injured. If employers are already neglecting mandatory registration, it is unlikely that workers will make an honest, voluntary, and informed choice, it points out.
The report indicates that private insurance cannot replicate ESIC’s comprehensive basket of benefits, as no private insurance product comes close. For an insured person earning ₹15,000 per month, ESIC offers uncapped family medical coverage at ₹7,200 per year, which covers outpatient treatment and provides nine cash benefits, including a lifetime disability pension, 26 weeks of full-wage maternity cover, and unemployment insurance. In contrast, a private family floater with a ₹5 lakh ceiling costs between ₹15,000 and ₹30,000 annually for hospitalisation alone, excluding outpatient care, cash benefits, or any disability pension.
Operational Engineering
SII advocates reform of ESIC from within with the right focus and direction. Though ESIC struggles with timely and quality service delivery, these issues are operational rather than structural. The solution lies in operational reform and process re-engineering.
The paper advocates for reforming ESIC’s processes, quality of service, and coverage. It suggests that both medical and income protection insurance should remain under the responsibility of a single, non-private entity—ESIC—through mandatory contributions and risk pooling. ESIC has to focus on delivering medical benefits and improving its services, while private providers can be engaged to fill geographic gaps and provide high-speciality care.
The benefits granted to workers are statutory entitlements that cannot be renegotiated, repriced, or withdrawn. Any alternative system would need to provide all these benefits, making private substitution impractical. According to SII, the case for privatisation, promoted by certain businesses, is flawed. The argument for giving workers the choice is counterproductive, as choice often defaults to the employer’s decision, potentially denying insurance access altogether to low-income workers who are increasingly in non-permanent jobs.