ESI or Group Health Insurance: Which Is Better for Your Startup?


It is the legal and corporate responsibility of the organization to provide a healthy and safe work environment for its employees 👨‍💼. Post-pandemic, it has been made mandatory for employers to provide medical insurance to their employees. There are two options available to organizations for employees’ health insurance. The first is Employee State Insurance (ESI), and the second is Group Health Insurance. Let’s explore the meaning of both and the differences between them.

ESI: What does it mean?

Managed by the Employee state insurance corporation (ESIC), this scheme offers various benefits for sickness, medical treatment, maternity 👼, old age, and death of employees.

It includes all types of entities that employ 10 (20 for some states) or more employees, such as shops, restaurants, and hotels not engaged in manufacturing, cinemas, and more.

Under the ESI scheme, only employees with a salary up to Rs 21,000 per month are eligible for the benefits. A self-financing scheme, ESI requires both employers and employees to contribute a certain percentage of their wages each month.

However, there is one exception. If the employee’s daily average wage is Rs. 137, then they don’t have to contribute to this scheme, and only the employer’s contribution is paid.

In addition, registration must be completed within 15 days of the time the Act becomes applicable to the establishment, and it remains valid regardless of the number of employees or changes in manufacturing activity. Additionally, registration can be easily done online 💻.

Group health insurance: What does it mean?

Also known as corporate health insurance, it covers a wide range of medical treatments and illnesses. A smaller firm, of only 5-6 employees, can also apply for this. Additionally, for insurance coverage, the employees don’t have to pay any premiums. It is all borne by the employer.

Health insurance also offers coverage for pre-existing medical conditions. Thus, there is no need to worry about policies not being approved due to medical issues.

In addition to employees, employers benefit from buying this insurance as well.

Among these are low premiums and low costs, due to bulk policies and corporate discounts, an immediate insurance cover without any waiting period, and a more motivated workforce 😇 and employee’s loyalty.

Which insurance to choose for your startup?

Consider the following questions when choosing which insurance is right for your startup:

  1. How many employees do you have?

There is a minimum number of employees required for both ESI and group insurance policies. Micro-insurance policies can also be issued under group insurance to smaller groups of 5 members, subject to terms and conditions. Furthermore, third-party workers like freelancers are not included in this.

  1. What is the salary of your employees?

Only the employees working with entities that employ a minimum of 10 employees and are drawing wages up to Rs. 21,000 per month are eligible for the ESI scheme. Group insurance, on the other hand, does not have a maximum salary cap. In other words, there are no salary limitations. Hence, it is necessary to review the payroll carefully before choosing.

  1. Do you want to customize the insurance policy?

ESI schemes come with predefined benefits. It covers maternity care, sickness, temporary or permanent disability, death, diseases contracted at work, as well as injuries 🤒 that cause one to lose income and earning capacity. However, benefits of maternity can only be taken in either ESI or Maternity Benefit Act.

There is no death benefit or loss of job benefit under group insurance. It offers other comprehensive coverage like hospitalization, ambulance charges 👨‍🚒, consultations expenses, covid coverage, and more. Employers can also customize their group policy according to their needs and budget. However, they cannot do that with ESIC.

  1. Are you comfortable paying the entire premium amount?

Under corporate health insurance, the employer carries the entire premium cost. As a result, employees receive free medical coverage. However, in ESIC, employers and employees each contribute a fixed percentage of wages each month. Employers contribute 3.25% of the employee’s salary, while the employee must contribute 0.75% of their salaries. In addition, late or non-payment of contributions will incur a penalty of 12% per annum.

Final thoughts

Startups should consider all their health insurance options and then make an informed choice. Both ESI and group health coverage offer a range of benefits. Once their salaries increase 🤑, employees even have the choice to switch from ESI to group insurance. In case of questions or doubt, always seek an expert’s opinion.

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