In India, approximately 10% of the workforce is engaged in the formal sector. Formal sector workers are subject to various labour laws prevalent in India, including the laws that govern the provision of social security benefits. A previous blog analysed how the laws governing the provision of various social security benefits performed for some classes of workers belonging to specific sectors such as construction, mines, beedi, etc. The analysis showed that these laws largely failed to meet their objectives.
General sector workers may also have a similar experience as workers working in those specialised sectors regarding receiving social security benefits through legislation. In the formal economy, general sector workers receive social security benefits such as insurance, free medical care, etc., primarily through the Employees’ State Insurance Act, 1948 (ESI Act). How has this law been implemented to benefit the working class? This article analyses the efficacy of this law in terms of the quality of services provided, especially when compared to the quality of services offered by the private sector.
Working principle of the ESI Act
The ESI Act is not different from other labour welfare laws enacted for specific worker groups such as construction workers, cine workers, or mine workers. The ESI Act works on taking contributions from both the employer and the employees to finance social security services such as free medical care, health, and medical insurance, etc. The ESI Act mandates that employers and employees must contribute towards the Employees’ State Insurance Fund at rates prescribed by the central government (S.39(2) of the Employees’ State Insurance Act, 1948). Currently, the employer’s and the employee’s contribution has been set at 3.75% and 0.75% of the wages payable respectively. This is similar to the sector-specific social security laws that the government enacted for construction workers, beedi workers, etc. The only difference is that the Employees’ State Insurance Act applies to a much more comprehensive range of employers, regardless of economic activity.
This regulation imposes a cost on employers and workers to ensure that workers receive social security benefits. In essence, this is similar to acquiring services from the private financial market since workers can acquire services in exchange for money. In both cases, forced contribution or payment for services, workers have to part with a small proportion of their income to acquire services.
Performance of ESIC
The Government of India created an autonomous corporation under the ESI Act called the Employees’ State Insurance Corporation (ESIC). ESIC is unique given that it not only functions as an insurance provider but also runs hospitals where employees can receive medical treatment free of charge. No private entity performs the function of providing both insurance and healthcare simultaneously. Due to this dichotomy, the analysis of the performance of ESIC has to be divided into two parts. For the insurance provision, the incurred claim ratio will be used to measure efficiency. Bed occupancy rates will be used to measure the efficiency of healthcare provision.
The incurred claim ratio shows how much money an insurance provider gives out as claims relative to the premium collected by the insurance provider in a financial year. The closer this ratio is to one (100%), the better off the insurance policyholders are. If this ratio is more significant than one, it implies that the insurance provider is spending more than it is earning, which is financially unviable in the long run. If this ratio is less than one, policyholders are not paid the claims owed. Therefore, the ideal ICR should be in the range of 75 to 90%. In a way, ICR tells us the return that a policyholder receives from the insurance provider against the price of the insurance scheme. For example, if the ICR is 90%, then it implies that, on average a policyholder receives Rs. 90 for every Rs. 100 that they pay as a premium.
Workers have not benefited from the ESI Act. This is because ESIC has a history of misusing funds collected for welfare activities and poor management (Financial Express, 2021). The figure below shows the gap between ESIC's ICR and the ICR of Private Insurers in the health sector.
The figure above shows that ESIC keeps a substantial percentage of its income idle every year. The ESIC has only spent 56.82% of its revenue in the past decade. During the same period, private insurance providers on average spent 78.89% of their premium on claim settlement. This implies that employees are better off acquiring insurance services under a free market system than acquiring them under the ESI Act. For every Rs. 100 that comes out of an employee’s pockets, the employee can receive benefits worth Rs. 79 from private insurance providers as opposed to Rs. 57 from ESIC.
In the case of healthcare provision, ESIC’s performance can be gauged based on a key measure of efficiency which is the occupancy rate of hospital beds. Occupancy rate tells us the number of beds that get used out of the total beds available in any hospital. This measure is used to assess the capacity of hospitals to provide medical care to inpatients. An 85% hospital-bed occupancy rate is considered ideal. Higher values imply that the hospital may be unable to handle an emergency that causes a large influx of patients. At the same time, a low occupancy rate is also not considered ideal since consistently high idle capacity indicates wasteful expenditure. Based on this measure, the efficiency of ESIC hospitals can be assessed compared to that of private hospitals.
ESIC-run hospitals have lower occupancy rates than private hospitals. ESIC maintains a dashboard that provides real-time information on current bed occupancy. The average daily occupancy rate was found to be approximately around 56%. The low occupancy rate seems to be a systemic problem within ESIC hospitals. For example, the occupancy rate was calculated at 57.54% for ESIC hospitals as per a CAG audit report that was released in the year 2014 (Comptroller and Auditor General of India, 2014). This report provides details on bed occupancy for the year 2012-13. This suggests that no positive change has happened in the last decade in terms of the quality of services provided in ESIC hospitals. In contrast, Fortis Hospitals had an average occupancy rate of 63.25% from 2019-10 to 2022-23 (Fortis Hospitals Limited, 2023).
The low occupancy rate observed in ESIC hospitals is counterintuitive given that there is a consistent shortage of hospital beds. The audit report observed that the shortage of beds increased from 55.39% in 2008-09 to 69.59% in 2012-13. This estimation was done based on the guideline of ‘1 bed per 250 insured persons’ followed by ESIC. The report also noted that certain wards such as gynaecology, paediatrics, etc. had an occupancy rate of more than 100% since two or more patients were admitted to the same bed. The overall occupancy rate was low despite multiple admissions on a single bed.
Lower demand for services may be due to the lower quality of services that the ESIC hospitals provide. Evidence suggests that the quality of services offered in ESIC is substandard. It has been observed that ESIC hospitals are often understaffed and have inadequate infrastructure to meet the healthcare demands of the employees. The CAG report observed a 41% vacancy for the post of specialists and a 22% vacancy for the post of general duty medical officers (GDMO) from 2008-09 to 2012-13. Despite failings, little attempts have been made to correct the problems associated with ESIC Hospitals.
Instead, the ESIC has focused on relying on a referral system to address the problem of lack of infrastructure and poor service. The referral system allows ESIC beneficiaries to acquire medical services from any empanelled private hospital. The CAG audit report found that ESIC’s referral expenditure had risen disproportionately from 2008-09 to 2012-13. In this period, the total spending of ESIC increased from Rs. 2,083.63 crores to Rs. 6,621.16 crores, an increase of 3x. During the same period, expenditure on referrals increased from Rs. 5.79 crores to Rs. 334.54 crores, an increase of 58x.
This stark contrast suggests that ESIC has not focused on improving its medical infrastructure. The referral expenditure was on Super Speciality Treatments (SST) across nine states. The report concludes by stating that
“Such substantial increase in referral expenditure could be because of non-availability of SST services with ESIC hospitals or lack of confidence in medical services being provided by ESIC. For example, as against sanctioned strength of 21 cardiologists and 17 neurologists, the ESIC had only two cardiologists and one neurologist across the country.”
Conclusion
Worker welfare laws are enacted because the government assumes that workers cannot make the right financial decisions. Therefore, the government feels the need to take upon the burden of making financial decisions on behalf of the workers. Contrary to expectations, the government has proven to be an inefficient financial decision-maker. Workers are better positioned to make financial decisions about acquiring financial services such as health insurance or even low-priced medical care. Workers entitled to receive benefits under the regulations are not much better off than the informal workers who do not get these benefits. An alternative strategy for creating awareness about the financial markets should be deployed so that workers can make the best possible decision about their future.
References
Comptroller and Auditor General of India. (2014). Report No. 30 of 2014—Performance Audit of Employees’ State Insurance Corporation of Union Government, Ministry of Labour and Employment.
Employees’ State Insurance Act (1948).
ESIC Annual Report: 2013-14; 2014-15; 2015-16; 2016-17; 2017-18; 2018-19; 2019-20; 2020-21; 2021-22; 2022-23
Financial Express. (2021, January 8). Employee State Insurance Scheme is missing in action. Financialexpress.
Fortis Hospitals Limited. (2023). Fortis Hospitals Limited Annual Report FY 2022-23.
IRDAI Annual Report: 2013-14; 2014-15; 2015-16; 2016-17; 2017-18; 2018-19;2019-20; 2020-21; 2021-22; 2022-23
Suyog Dandekar and Shubho Roy are researchers at Prosperiti.