To integrate health-related benefits with the National Pension Scheme (NPS), the Pension Fund Regulatory and Development Authority (PFRDA) has piloted the NPS Swasthya Pension Scheme (NSPS) to test its viability and technological backbone.
Under this scheme, all Indian citizens can contribute voluntarily and use the corpus to meet both outpatient (OPD) and hospital (hospitalization) expenses. The minimum investment is ₹1,000, as per the rules for Non-Government NPS subscribers and there is no maximum limit.
NSPS allows subscribers to invest in multiple asset classes under the NPS Multiple Scheme Framework (MSF). When the funds are not used for medical needs, the corpus continues to generate returns based on the chosen asset allocation. In effect, it functions as a dedicated investment fund for medical expenses that can be drawn on when needed.
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Except for government subscribers, all others above 40 years of age can currently transfer up to 30% of their joint NPS (own and employer’s share) contributions to NSPS.
“While building your own funds for medical expenses is a good way, it will take time to build a corpus. So it is not a substitute for health insurance. This is because under insurance you share the risk with a group of healthy and at-risk individuals. If there is a significant amount of claim, your own funds would not be enough. You cannot transfer the risk of health expenses with your own accumulated funds,” says Shashank Joshi, managing partner, LLP.
“This scheme would be good for someone who is unable to seek health cover through the insurance channel due to age or health issues. Also, those who are very young can segregate and invest long-term to build a corpus,” adds Joshi.
“Those who are past the age of 66 and have no permanent insurance, such retirees could insure themselves,” says Dr. Krishna Jaiswal, Managing Director, Ericson Insurance TPA.
How it works
Experts also point out that insurance companies usually negotiate with hospitals to create discounted price lists for certain procedures. It remains to be seen whether similar negotiated prices will be available under the limited NSPS option.
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One area where the NSPS could score above the do-it-yourself emergency medical corps is the payment infrastructure. The PFRDA is working on a framework that would allow healthcare costs to be shifted directly from the subscriber’s account to the hospital through intermediaries such as Third Party Administrators (TPAs).
The same pension funds that manage the NPS-linked corpus like SBI Pension Funds, HDFC Pension Fund and Axis Pension Fund will run the NSPS. These funds will need to work with TPAs, health benefit administrators (HBAs), central record keeping agencies, and fintech firms for enrollment, record keeping, and medical billing. Entry and exit standards, fee structures, complaints processes, value added elements and complaint handling mechanisms will be published by individual pension funds.
“We are in initial discussions with pension funds and as an industry intermediary TPAs successfully handle 79% of total hospitalization claims. Hospitals trust TPAs too much because of the long involvement and smooth process. The technology network would be such that the TPAs would not handle the funds. However, we would offer health cards, process the intimation associated with the admission and pay the bill directly through the pension system, cashless, cashless and the smooth discharge can be worked on,” says Jaiswal.
For the pilot phase, exit and withdrawal rules have been relaxed as per NPS regulations. Subscribers can partially withdraw up to 25% of their own contributions in NSPS at any time once the corpus reaches a minimum of Rs 50,000. However, the 25% cap could prove restrictive as medical expenses are often unpredictable and may exceed this limit.
If the hospitalization bill exceeds 70% of the total corpus under the scheme, subscribers will be able to withdraw 100% of the corpus as a one-time early exit to meet the expenses.
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Unlike regular health insurance for some diseases, there is no limit to the number of such withdrawals per year or the waiting period. To prevent fraudulent billing or withdrawals, funds will only be transferred to the TPA or HBA. While TPAs act as a bridge between individuals and hospitals, HBAs typically manage employee health benefits and wellness programs for businesses.
After assessing the operational and technological aspects, the PFRDA will decide the future of the pilot project under its regulatory sandbox. If the scheme is found unviable, the NSPS corpus will be transferred back to the regular NPS joint account scheme (outside MSF).
