ESI contribution rate cut a step in right direction, but quality of services at hospitals leaves a lot to be desired

The government on 13 June 2019 cut the rate of contribution under the Employees’ State Insurance Act (ESI Act) to 4 percent from 6.5 percent. The first reduction in 22 years will be effective 1 July 2019.

With this reduction, the employers’ contribution to the ESI Act has been reduced to 3.25 percent from 4.75 percent and the employees’ contribution has been reduced to 0.75 percent from 1.75 percent.

 ESI contribution rate cut a step in right direction, but quality of services at hospitals leaves a lot to be desired

Representational image. PTI

The move is expected to benefit about 3.6 crore employees and around 12.85 lakh employers. The reduced rate of contribution is expected to facilitate further enrollment of workers under the ESI scheme and bring more of the workforce into the formal sector.

Small employers too would welcome the reduction in their own contribution. The ESI Act 1948 provides for medical, cash, maternity, disability and dependent benefits to the insured persons under the Act funded out of the combined contributions of employers and employees.

Earlier, the wage ceiling was enhanced from Rs 15,000 per month to Rs 21,000 with effect from 1 January 2017. This effort by itself resulted in the popularity of adherence to the scheme leapfrogging as evident from the following table:


Now that the rate of contribution has been reduced both for employers and employees, there would be a further enlargement of the scheme in terms of its coverage.

There are 36 hospitals under ESIC and 115 hospitals under states helping ESIC in medical service delivery. The quality of services in these hospitals has come under scathing attacks and sharp criticism of patients and their families as well as health experts. As a result, the government in 2015 thought in terms of giving the covered employees the option of migrating to health insurance schemes approved by Insurance Regulatory and Development Authority (IRDA) with the option to return to the ESI in a manner of homecoming once. But the proposal is still hanging fire.

The itch to get out of the clutches of the admittedly poor services under ESI is pronounced so much so that many employers volunteer to give much better benefits than the ones conferred by the ESI Act so that their employees are not condemned to the substandard services offered by the ESI hospitals.

The Narendra Modi government, therefore, would do well to do more. It is all fine to make the ESI scheme affordable both by the small employers and small employees but the utility of the scheme would be felt when the ESI hospitals’ services improve drastically. Comparisons are odious but there is a compelling case for making one here. Government schools offer free education but their quality leaves much to be desired in the absence of infrastructure including playground, laboratories as well as quality teachers.

But then it is easier said than done. Ayushman Bharat targeting the below poverty line (BPL) segment of the populace estimated to be in the region of 50 crore people has elicited satisfaction from patients who have been fortunate to get quality treatment from private hospitals that have enrolled themselves under the scheme. The government should look for more and more private hospitals willing to empanel themselves under the ESI scheme as well.

The positive fallout of the series of moves at endearing ESI scheme to both small employers and employees is the formalisation of the economy. These employees would come under the radar of the ESI calculus and get reported when national statistics including the Gross Domestic Product (GDP) are compiled.

(The writer is a senior columnist and tweets @smurlidharan)

Updated Date: Jun 14, 2019 16:46:41 IST