The Hindu Business Line : Unhealthy prescription

IT IS UNFORTUNATE that the Centre should be contemplating hiking yet again, the eligible salary limit for contribution to the Employee State Insurance scheme from Rs 6,500 to Rs 7,500. Evidently, the Government wants to retain in the ESI fold employees who would, in the normal course, have exited the scheme once their incomes rose above the threshold. The scheme, as now structured, requires contributions from employees with low medical risk to cross-subsidise the higher cost of securing the health and medical benefits of the high risk segment. Such an approach has been given up in other sectors as not being in accord with the principles of a market economy creating as it does distortions in the incentive structure in the economy.

The argument that in any insurance scheme, some bundling of beneficiaries with differing risk profiles has to be accepted is not quite tenable. The insurance industry is deploying increasingly sophisticated risk appraisal techniques to differentiate population segments for setting premiums. Quite apart from that, the proposed hike also fails the test of reasonableness as it cannot be justified in terms of meeting the rising cost of providing medical benefits. The contributions have for quite some time now been outstripping the expenses of running the scheme. In fact, the ESI Corporation had as of March 2001, the latest year for which such information is available, more than Rs 6,500 crore invested in special deposits with the government and banks. That this represents more than six times the current gross annual revenues clearly points to a situation of the ESI Corporation consistently running up surpluses, diluting its case for a hike in the salary limit to shore up revenues.

Ironically, employees in the organised sector have been ESI's most vociferous critics. When the eligibility limit was raised from Rs 3,000 to Rs 6,000 with the prospect of enlisting a larger number of contributors, the proposal set off a spate of legal action by trade unions of employees of the affected establishments. And with good reason too. The scheme has failed to live up to the expectations of the beneficiaries. It has necessarily to depend on the quality of public health system at the State level to deliver benefits to the beneficiaries. Nothing need be said about the quality of healthcare facilities available. At nearly 6.5 per cent of salary as the combined contribution for sustaining the scheme, it is quite expensive relative to the benefits on offer.

It is perhaps time to look at alternative models of delivery of social security to the working class. For instance, allowing employees to choose between a scheme run by the employer or an autonomous entity set up by it and the State-run ESI scheme is one option. The ESI Corporation can then play the role of a regulator to ensure that the scheme is not misused or that workers' interests are safeguarded. After all, the conditions that prevailed at the time when the scheme was conceived back in the 1950s are no longer applicable.