The idea of welfare state
- Covid reminds us that a modern state is a welfare state as governments worldwide launched 1,600 plus new social protection programmes in 2020.
- Sustainable social security lies in raising India’s 138th ranking in country per-capita GDP.
- However, on the social security schemes, there is a case for three reforms to our biggest health insurance and pension schemes:
- These schemes are the Employee State Insurance Scheme (ESIS) and Employee Provident Fund (EPF).
Issues with ESIS
- The Employee State Insurance Scheme (ESIS) is India’s richest and biggest health insurance scheme with 13 crore people covered and Rs 80,000 crore in cash.
- Employers with more than 10 employees make a mandatory 4 per cent payroll deduction for employees earning up to Rs 21,000 per month.
- Despite covering roughly 10 per cent of India’s population, a recent working paper from Dvara Research suggests high dissatisfaction.
- The constraint is hardly resources: ESIC’s unspent reserves are larger than the Central government’s healthcare budgetary allocation.
Issues with EPF
- EPF 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 per cent payroll deductions for employees earning up to Rs 15,000 per month.
- It only covers 10 per cent of India’s labour force and 60 per cent of accounts and 50 per cent of registered employers are inactive.
- EPF offers poor service and pathetic technology despite employer-funded administrative costs that make it the world’s most expensive government securities mutual fund.
Updating the risk-sharing frameworks in society
- In a book titled What We Owe Each Other: A New Social Contract, Nemat Shafik suggests updating the risk-sharing framework in societies.
- This is because current structures are breaking up under the weight of changes in the role of women, longer careers, technology, globalisation, and much else.
- She suggests a more nuanced social security redistribution across time (the piggy bank function), incomes (the Robin Hood function), and financial burden-bearing (the state, individuals, or employers).
- In India, the answer lies in fixing the problems of EPF and ESIS.
Solution to the EPF and ESIS problems
- Both suffer from 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.
Let’s look at possible solutions.
1) Structure
- EPF and ESIS combine the roles of policymaker, regulator, and service provider.
- Splitting roles is a precondition for performance because goals, strategy, and skills are different.
- An independent policymaker horrified with only 6 lakh of India’s 6.3 crore enterprises covered would create competition.
- An independent regulator terrified by ESIS overcharging would frown on a claims ratio of less than 75 per cent.
- An independent service provider would invest heavily in technology, customer service, and human capital.
- Splitting roles would lead to the following benefits:
- 1) Competition from NPS for EPF.
- 2) Ending VIP opt-out by merging CGHS with ESIS,
- 3) Raising enforceability by making employee provident fund contribution voluntary.
- 4) Improving portability by de-linking accounts from employers.
- 5) Targeting universalisation by simultaneously ending minimum employer head-count and employee salary contribution thresholds while introducing absolute contribution caps.
- The Health and Finance Ministry would be logical homes for ESIS and EPF policy roles.
2) Governance
- The governing board of ESIS and EPFO have 59 and 33 members respectively.
- Such a large group can’t have meaningful discussions, make decisions, and exercise oversight.
- This governance deficit needs smaller boards (not more than 15), age limits, term limits, expertise, active sub-committees (HR, Investments, and technology) and real powers.
3) Leadership
- Health and pensions need complex skills developed over time.
- Yet, ESIS and EPF are led by generalist bureaucrats.
- Both organisations need professional chief executives.
- 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.
- 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.
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. But a great place to start is three flick-of-pen, non-fiscal reforms at EPF and ESIS.
