Why India's ESI Scheme Struggles Despite Its Promise: Insights from Workers and Employers

Change the Perception

It is probably the world's best and most innovative health insurance scheme for the working class, implemented in India about 64 years ago, known as the Employees State Insurance Scheme. It provides numerous benefits to workers and their families. The government has ambitious plans to extend its benefits to the unorganized sector as well. However, before expanding, the government should strengthen its functioning at the service level to cater to the needs of current members, which is generally hindered due to the dual control of state and center. Medical services provided by states are far from satisfactory. What are the reasons that a very good scheme with good intent does not draw applause from the class for which it is aimed? It requires introspection, and issues should be addressed.

BM gathered informal feedback from the working class and employers on the functioning of the scheme regarding the delivery of medical services. The general perception is that ESI is ill-equipped in terms of dispensary infrastructure, competent doctors, and supporting staff availability with a positive attitude and access in times of real need. The medical services for the working class in factories and offices cannot be equated with general public health services. Workers need special attention. Moreover, both employer and employee pay for it. While the administrative functioning of the scheme is perceived as satisfactory due to digitalization, medical facilities are perceived as far from satisfactory. Insensitive medical staff, cumbersome procedures, and corruption discourage employees from using its benefits to their full potential. Claim settlement also needs to be simplified and free from malpractices.

The majority of workers are not even aware of the location of dispensaries and their timings in their areas. The government has not been able to keep pace with the growing expectations of the working class regarding the delivery of medical services. On the other hand, employers find it complex when it comes to the compliance part of the scheme. Conflicting judicial pronouncements make things difficult to understand.

The business environment is dynamic. Processes have changed, and the way of doing business is constantly evolving. The government should make efforts to simplify the compliances, free from an excessive regulating approach, while continuously improving the medical services to attract working people to come and avail themselves of the benefits.

This issue's cover story focuses on this comprehensive scheme, aiming to make it understood simply with clarity on complex issues like the component of wages, liability concerning outsourced jobs, situations where accidental benefits are available, and overall benefits. The attempt is made to present the entire law concisely. It has been done to meet the persistent demand of fellow professionals.

Regards, Anil Kaushik

Business Manager - HR Magazine

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Sir, congratulations on the special issue of your HR Magazine on ESI matters. In your note above, you have raised some important aspects regarding the working of the Employees' State Insurance Scheme (ESIS). The issues raised have been pending for a long time, and it seems there has been very little initiative from the appropriate authorities to improve the functioning of the scheme.

However, concerning the administrative side of providing cash benefits, the ESIC institutions have shown continued improvements since the inception of the scheme. Initially, there was a contribution stamp system which was abolished more than 31 years ago. Now, an online system for the payment of contributions, submission of returns, and disbursement of cash benefits to insured persons has been introduced. I believe there are few other social security schemes (excluding medical benefits) that have improved to the satisfaction of their customers.

Your observations regarding shortcomings in the delivery of medical benefits under ESIS are correct. The situation lacks alternatives for improvement. Initially drafted by Prof. B.P. Adarkar, an eminent social security expert, ESIS recommended the unification of administrative and medical schemes under one authority in 1944. However, the Government of India opted for a dual system, separating the medical scheme and assigning it to State Governments. Consequently, State Governments operate ESIS hospitals and ESI dispensaries at the same standard as their civil hospitals and dispensaries. There is a lack of awareness among State Governments that the contributors, i.e., poor workers, have funded this scheme. Many State Governments do not maintain separate accounts for funds received from ESIC for medical facilities, leading to a lack of accountability towards worker satisfaction with medical benefits. ESIC operates ESIS medical schemes in Delhi under its control, where services may be superior to other states. To enhance medical benefits under ESIS, as suggested by Prof. Adarkar, complete medical benefits should be under ESIC's control and supervision. Since 2002, ESIC has initiated improvements by establishing at least one Model Hospital in every state, but these improvements appear minor considering the vast infrastructure of ESI Hospitals and Dispensaries in each state.

You also mentioned that "the Govt. has ambitious plans to extend its benefits to the unorganized sector." However, contributory social security schemes like ESIS are not designed for the unorganized sector, where pooling resources and risks is often impractical. The Unorganised Workers Social Security Act, 2008, specifically addresses the welfare of unorganized sector workers. Shifting the financial burden onto established social security schemes like ESIS to benefit the unorganized sector may render these schemes financially unsustainable in the long term.

I would like to highlight that the 2nd National Commission on Labour, in its 2002 Report to the Central Government, proposed significant improvements to social security schemes like ESIS and EPF, along with the consolidation of various labor laws. However, the Government has yet to implement these recommendations. Despite suggestions from experts like Prof. Adarkar, the scheme continues to run half-heartedly, possibly with governmental satisfaction with the current state of affairs. The proposed "Small-Factories Bill" aims to make ESIS and EPF optional in factories employing fewer than 40 workers, potentially signaling a shift towards hire-and-fire policies and laissez-faire models similar to those in developed economies like the USA.

Regards