Esic contribution cushion seen thinning on rise in benefit costs

Actuarial projections show ESIC's benefit spending could outpace contribution income over the next four years, even as interest income keeps the corporation in surplus

India’s statutory social security body, the Employees’ State Insurance Corporation (Esic), is projected to see its spending on benefits grow faster than its contribution income over the next four years, putting its contribution surplus under pressure, according to actuarial projections placed before the corporation.

 

The gap between contribution income and benefit expenditure is projected to turn negative at ₹1,072 crore in 2025-26, from a surplus of ₹404 crore in 2024-25, according to a copy of the financial projections reviewed by Business Standard.

 

The shortfall is estimated to widen to ₹2,873 crore in 2026-27, ₹5,055 crore in 2027-28, and ₹7,686 crore in 2028-29. Contribution income itself is projected to rise from ₹19,414 crore in 2024-25 to ₹24,510 crore in 2028-29. However, benefit expenditure is expected to rise much faster, from ₹16,833 crore to ₹29,447 crore over the same period.

 

 

Esic, a statutory body under the Ministry of Labour and Employment, administers the Employees’ State Insurance scheme, which provides healthcare and cash benefits to eligible workers and their dependants in cases such as sickness, maternity, employment injury, disability, and death. Esic collects contributions from employers and insured workers to fund these benefits and meet its administrative costs. The contribution surplus is the amount left after subtracting total benefit expenditure and administrative expenses from total contribution income.

 

Contribution income is projected to grow at 6 per cent a year over the projection period. Benefit costs, however, are expected to rise at different rates across categories. Medical care expenditure is projected to increase by 15 per cent annually, while maternity benefit expenditure is projected to rise by 25 per cent a year and dependants’ benefit expenditure by 17.25 per cent. The temporary disablement benefit is projected to grow by 3 per cent annually, while funeral expenses are estimated to rise by 8.75 per cent. Overall benefit expenditure is therefore projected to grow much faster than contribution income.

 

An email sent to Esic did not elicit a response until the time of going to press.

 

Medical care is expected to account for the largest share of the increase in benefit spending. Expenditure on medical care is projected to rise from ₹14,651 crore in 2024-25 to ₹16,849 crore in 2025-26 and ₹25,624 crore in 2028-29. The assessment said the financial margins were expected to narrow and would depend heavily on medical care costs and administrative expenditure.

 

The projections also flagged uncertainty around the recently added category of insured workers earning between ₹15,000 and ₹21,000 a month. The assessment said this group could have different patterns of benefit utilisation from the existing insured population, potentially affecting claims and expenditure.

 

The current wage ceiling of ₹21,000 was last raised from ₹15,000 in January 2017. The ceiling has since faced demands for an increase from workers and trade unions, with the government telling Parliament that a proposal to revise the limit was under consideration.

 

A higher ceiling would bring more workers into the contribution base and could increase Esic’s contribution income, potentially helping offset the pressure from rising benefit expenditure. However, it would also expand the number of workers eligible for Esic’s medical and cash benefits. For companies employing workers who would newly fall within the coverage limit, it would mean an additional statutory cost, as employers currently contribute 3.25 per cent of wages to Esic, while employees contribute 0.75 per cent.

 

The projected shortfall in contributions does not mean that Esic as a whole is expected to run a deficit. Esic also earns interest on the funds it holds. When this interest income is added to contribution income, the corporation is projected to retain a surplus of ₹7,099 crore in 2025-26 after meeting benefit and administrative expenses. However, this overall surplus is projected to gradually decline to ₹5,894 crore in 2026-27, ₹4,219 crore in 2027-28, and ₹1,972 crore in 2028-29.

 

The assessment recommended that Esic closely monitor contribution income and claims before deciding on corrective measures. It also called for stronger information technology systems to centralise beneficiary and claims data and for beneficiary records relating to permanent disablement, dependants’ benefits, and the Covid Relief Scheme to be reconciled with annual payments.

 

A centralised dashboard was also recommended to track individual beneficiary payments, including payment status, amounts and dates, and flag missed or delayed payments. 

Widening gap 

• Gap between contribution income and benefit expenditure is projected to swing to a deficit of ₹1,072 cr in FY26 
• Deficit is projected to widen to ₹2,873 cr in FY27, ₹5,055 cr in FY28 and ₹7,686 cr in FY29
• Contribution income is projected to rise from ₹19,414 cr in FY25 to ₹24,510 cr in FY29
• Benefit expenditure is expected to grow faster from ₹16,833 cr to ₹29,447 cr