Employee State Insurance Scheme is missing in action
January 8, 2021 5:00 AM
Covid-19 has exposed how ESIS and the ESIC system have failed beneficiaries; there is a need for reform involving outcome-measuring, better governance, and competition
ESIC has not benchmarked or understood the magnitude of out-of-pocket expenses incurred by ESIS beneficiaries.
By Bindu Ananth & Manish Sabharwal
Covid-19 is a national health emergency; India needs all the help it can get. Yet, India’s richest (Rs 80,000 crore in cash) and biggest (130 million people covered) health system , the Employee State Insurance Scheme (ESIS), has been missing in action. More tragically, ESIC has not been missed, with decades of mismanagement, poor quality, and weak governance leading to zero expectations.We make the case that the ESIS status quo is neither acceptable nor inevitable and propose a three-phase reform programme of outcome measuring, governance, and competition. ESIS, India’s largest health insurance programme, is financed by mandatory payroll deduction and covers all workers who earn up to Rs 21,000/month with employers that have 10 or more employees.
Despite covering roughly 10% of India’s population, ESIS’s under-performance remains remarkably under-analysed, but a new working paper from Dvara Research focuses on this issue. While there is limited data about ESIS beneficiary health outcomes, studies indicate a high degree of dissatisfaction with the scheme. The constraint is not resources; ESIC’s unspent reserves are larger than the Union government’s budgetary allocation for healthcare. What then ails the ESIS?
The first disease that ails ESIS is the lack of outcome measuring. Lant Pritchet of Harvard says that policy must never confuse the accounting of accountability (did you follow the rules and process) with the account of accountability (did you do the right things). ESIC lacks modern information & risk management architecture and does not transparently pursue better customer experience, grievance redress, and improved health outcomes. It must have clear targets and report periodically and transparently against these goals. For example, financial protection is one of the important goals of health insurance. But, today, ESIC has not benchmarked or understood the magnitude of out-of-pocket expenses incurred by ESIS beneficiaries.
The Dvara Research note argues that nudging ESIS closer towards a “managed care” vision with a higher focus on beneficiary outcomes—rather than just outputs such as beds and procedures—would need re-defining the relationships between the various actors in the ecosystem. Rather than passive reimbursement of network hospital claims, it suggests that issues around quality and accessibility of care can potentially be addressed through emphasising continuous monitoring and coordination. This could be executed relatively quickly if ESIC gives up its obsession with owning all of its infrastructure and puts out long-term capitation-based bids to state or district health-systems (Thailand may have lessons).
The second ailment afflicting ESIS is the lack of vision, goals, and strategy that arises from a governance birth-defect. ESIS was created in 1948 by an Act of Parliament and is administratively managed by the Employee State Insurance Corporation (ESIC), an autonomous agency of the government of India. The Union minister of labour is the chairman of the ESIC. A standing committee comprising 18 members drawn from a membership of 59 representatives of state governments, employers, trade unions, and medical professionals constitute the executive body that reviews policy matters—the equivalent of a Board. It is impossible for such a large group to have a meaningful discussion, make decisions, and exercise oversight. This governance-deficit needs creating a smaller board with age-limits, term-limits, expertise requirements, information architecture, and real powers.
The third disease is the lack of competition for the funds it gets from employers or for the facilities it runs; ESIC doesn’t have clients but hostages. ESIC, along with the ESIS departments of respective state governments, manages its own network of medical service providers and arranges for outsourced tertiary care in private hospitals. Thus, ESIC performs the role of a financier, purchaser, and provider of healthcare services which are all core and desirable aspects of a “Managed Care” model. However, there is a risk of effective denial of benefits because of the lack of competition inherent in single-payer national models. Perhaps, one alternative to induce “competition” is giving employees the choice of multiple, German-style, social health insurance plans like ESIS formed by groups of employers, trade unions or commercial insurers. Opening up ESIS would give beneficiaries (via their employers) the option to choose from different “Managed Care” entities based on the value for money and quality of service and customer interaction.
The ESIC status quo is unacceptable given our broader healthcare deficits exposed by the Covid-19 context. Our largest source of healthcare financing is out-of-pocket expenditure (OOPE), accounting for about 65% of the national average. In Bihar, OOPE is ~80% of the total (National Health Accounts, 2016-17). The rest of the financing pie is highly fragmented and comprises the Union government, state government, ESIS and insurance pools. While there is clearly a need for increasing the size of the pie (including through larger government allocations to health from the current levels of ~1% of state budgets), our health outcomes as measured by the disability-adjusted life years (DALY) are poor even relative to current expenditure levels. Currently, India has a DALY rate of more than 35,000 with significant state-level differences. To put this in context, India’s neighbouring countries Sri Lanka and Bangladesh perform much better against this metric, both have <30,000 DALY rates. Reform of the significant pools represents an opportunity to improve outcomes, overall expenditure levels notwithstanding.
ESIC reform is urgent because the pool is fairly large to start with, and it is set to grow to include gig and plantation workers as proposed by the new Labour Code. Merely increasing the coverage of the scheme without addressing the “birth defects” would be disastrous. We know that health financing is an area where pooling of money delivers better outcomes than individual purchasing of care. We have very few reasonably sized pooled funds, of which the ESI pool is one of the most significant. ESIC can effectively treat India’s diseases only after it heals its own three diseases. If not now, then when?