Insurance Needs a Stronger Push in Draft Labour Code on Social Security

The code needs to develop an efficient method to track beneficiaries so that the truly needy are brought under the social security net.

In order to provide medical coverage to people outside the ambit of the Employees’ Provident Fund Organization (EPFO) and the Employees’ State Insurance Corporation (ESIC), the Ministry of Labour and Employment has designed a draft Social Security Code. The code will provide a mandatory pension, insurance against disability and death and maternity coverage, along with optional medical and unemployment cover.

Current healthcare benefits from the Central and state governments and local bodies would remain as is – till the gradual implementation of a universal social security code.

The code will give a legislative and administrative framework to the rights-based provision of universal basic social security to the entire workforce. To address the social security needs of diverse peoples, especially the vulnerable, it proposes four tiers of programmes:

  • Those financed wholly by taxes and from the exchequer
  • Those that are partly contributory and partly subsidised by the state
  • Wholly contributory social insurance schemes
  • Voluntary schemes

The code ensures social security for unorganised sector workers via subsidised insurance through the Life Insurance Corporation /General Insurance Corporation of India and state governments. To promote these, insurance plans would have to provide coverage for major risks such as widowhood, accident, loss of assets, etc, with a uniform subsidy.

Peoples’ organisations and NGOs may be helpful in promoting these schemes. To cater to all these facilities, the code proposes setting up a separate body which will administer the social insurance schemes and regulate the insurance companies licensed by the Insurance Regulatory and Development Authority.

The unorganised or informal sector in India accounts for around half of the GDP and has been growing over the past two decades. It employs more than 90% of the workforce – of the 46.6 crore people employed in 2009-10, about 43.7 crore work in this sector (NSSO 66th Round).

Expenditures and coverage

India’s health insurance market has been growing. The Central and state governments extended insurance coverage to unorganised sector workers and below poverty line (BPL) households, either by actively purchasing insurance themselves or by partnering with insurance companies.

The health insurance expenditure in India, including government and private, were estimated at Rs 32,308 crore (2013-14), which was 7.6 % of the revenue expenditure on health. Most of the health insurance expenditures (52%) were managed by the government, of which social health insurance was 37% and government-sponsored health insurance schemes were 15%.

Health insurance expenditures in India mostly cover inpatient care (72%). But when insurance expenditures are disaggregated by types of providers, most (60%) are accounted for by private providers (including not-for-profit health facilities).

Also read: How Maternity Benefits Can Be Extended to Informal Women Workers

Both Union and state governments have voluntary schemes which provide cashless secondary and tertiary inpatient care for BPL people and unorganised sector workers. These are implemented either through a government department, a parastatal body governed by the government (trust or society) or an insurance company. For this, parastatal bodies receive a budgetary transfer from the government through reimbursements to healthcare providers, while the government pays the premium for insurance companies.

Total expenditure under these schemes was Rs 4,757 crore in 2013-14. About 96.5% of the finances for this were sourced from transfers and grants of the Union government (19.5%) and state government (77.0%). Rest 3.5% was collected from households/individuals as part of premiums under various insurance schemes.

Flaws in the code

There are several flaws in the proposed new labour code. For one, the involvement of private players would introduce transaction and administrative charges and raise costs. More importantly, the code does not distinguish between workers in the informal and formal sectors in their contributions towards social security – not appreciating the vast differences in their working and living conditions.

Also read: Labour Law Reforms: Why Informal Women Workers Might Feel Shortchanged

By ignoring the precarious nature of the work of informal workers and the fact that their wages are far lower than their counterparts in the formal sector, at barely sustainable levels, the draft code asks for a uniform contribution of 12.5% of monthly wage and up to 20% for self-employed workers.

The exemption of employers from paying cess – which could be granted retrospectively – could be confusing. Importantly, it contains no gender-specific provisions. It is not clear if the proposed new bodies will administer the schemes as efficiently as the EPFO and the ESIC and whether state administration of the schemes would work as well.

Apart from the afore-mentioned shortcomings in the proposed code, given that only one-third of the country’s population has any insurance cover, the code also needs to develop an efficient method to track beneficiaries so that the truly needy are brought under the social security net.

Barna Ganguli and Bakshi Amit Kumar Sinha are Assistant Professors at the Centre for Economic Policy and Public Finance (CEPPF), a research cell of the Finance Department, Government of Bihar, located at the Asian Development Research Institute (ADRI), Patna.