A decision in this regard was taken at a cabinet meeting chaired by Chief Minister Pinarayi Vijayan.
The decision was on the basis of the recommendations of the 10th Pay Commission.
Until the new scheme is implemented, the present medical reimbursement will continue, an official release said.
The employees will have to remit Rs 300 every month towards the insurance scheme.The Rs 300 now being given monthly as medical allowance to pensioners will be stopped and the amount deposited as insurance premium.
Once the health insurance scheme becomes operational, the interest free treatment loan scheme will also cease, the release added.
The government is spending about Rs 230 crore annually towards medical reimbursement scheme, medical allowance for pensioners and interest free treatment loans and is hoping that when the insurance scheme comes into force, this expenditure can be reduced.
The cabinet also decided that while inviting applications from IRDA approved Insurance companies for the scheme, four public sector companies would be given preference, the release said.
There are about 4.50 lakh government servants and five lakh pensioners in the state.
The government also decided to create 120 new posts in the Kerala Public Service Commission.
(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)