A New Social Contract

Context: Covid is an opportunity to make structural changes to our largest health insurance and pension schemes.

Major health insurance and pension schemes in India and issues involved:

• Employee State Insurance Scheme (ESIS): It is India’s richest and biggest health insurance scheme with 13 crore people covered and Rs 80,000 crore in cash. It covers roughly 10 % of India’s population.
  • Issue of low spending: Despite having annual profits of Rs 10,000 crore, ESIC’s unspent reserves are larger than the Central government’s healthcare budgetary allocation.
• Employee Provident Fund (EPF): It is India’s biggest pension scheme with a Rs 12 lakh crore corpus and 6.5 crore contributors.
  • Employers with more than 20 employees make mandatory 24% payroll deductions for employees earning up to Rs 15,000 per month. However, it has the following issues:
    • Low coverage:  It only covers 10 % of India’s labour force.
    • Lack of activity: 60 % of accounts and 50 % of registered employers are inactive. 
    • Poor service and pathetic technology.
    • World’s most expensive government securities mutual fund.

Fundamental issue with the social security schemes:

• Archaic structure: Current structures are breaking up under the weight of changes in the role of women, longer careers, technology, globalisation, and much else, leading to -
  • Poor coverage, high costs, unsatisfied customers, metrics confused with goals, jail provisions, excessive corruption, low expertise, rude and unaccountable staff with no fear of falling or hope of rising, and no competition.
  • These problems can’t be solved by bureaucrats or courts because they are not technical problems but adaptive problems (with multiple options and unmodellable trade-offs).
• Governance deficit: The governing board of ESIS and EPFO have 59 and 33 members, respectively. Such a large group can’t have meaningful discussions.
• Lack of leadership: ESIS and EPF are led by generalist bureaucrats who not only view their posting as a government backwater but their weak domain expertise feels like the cabin crew is flying the plane.

Way forward:

• Structural changes: Split the roles of policymaker, regulator, and service provider.
  • Independent policymaker would create competition (from either NPS or EPF).
  • Independent regulator would frown on a claims ratio of less than 75 %.
  • Independent service provider would invest heavily in technology, customer service, and human capital. 
• Governance changes: Address governance deficit by creating smaller boards (not more than 15), age limits (70 years), term limits (10 years), expertise (technology, HR, health, pensions, finance, etc.), active sub-committees (HR, Investments, and technology) and real powers (appointing the chief executive, setting targets, holding management accountable).
• Leadership changes: A less generalist, non-transitory, and non-cadred chief executive would create a new tone-from-the-top around performance management, technology, and service outcomes.
  • Philosopher Isaiah Berlin’s framing of the generalist vs specialist debate as hedgehogs (who know one thing) and foxes (who know many things) is important.

Conclusion: Social security — not a borrowing binge that steals from our grandchildren — can blunt structural and COVID inequality when combined with complementary policies like formalisation, financialisation, urbanisation, and better government schools. A great place to start is to reform ESIS and EPF.