The differences between employees’ state insurance (ESI) and group health insurance have become extremely important for both employers and employees to understand as healthcare benefits are becoming increasingly important to workplaces. Both these policies are used for providing health coverages for workers, but differ fundamentally. See these difference in more details below.
What is ESI and Who Does It Cover?
ESI is a social welfare scheme managed and run by the Employees' State Insurance Corporation (ESIC), a body under the Ministry of Labour, Government of India. It applies to all organisations with 10 or more employees (20 or more in some states), and employees whose monthly wages do not exceed Rs 21,000 are eligible under the scheme.
As mentioned before, ESI is not just limited to hospital coverage like insurance. It is a social security scheme comprising:
Medical benefit: Medical treatment for the insured person and their dependants, at ESIC dispensaries and hospitals.
Illness benefit: Cash payments of upto 70% of wages during certified illnesses for up to 91 days a year during which workers can't work.
Maternity benefit: Paid leave for the full average daily wage for up to 26 weeks.
Disablement and dependants' benefit: Cash support for work-related injury or death.
Contributions are usually shared: the employer pays 3.25% of the employee's wages and the employee pays 0.75% by himself, going to a total of 4% of the employee's wages. Any employee earning below the daily wage threshold (Rs 176 a day) is exempt from the employee share.
What is Group Health Insurance?
Group health insurance is an insurance policy issued to an employer (or any group, such as an association) that covers a defined group of people, usually all employees on the payroll. The employer usually decides the sum insured (for example Rs 3 lakh or Rs 5 lakh per employee), whether to include family members, and any additional benefits such as maternity or OPD.
Group health insurance or corporate insurance is very different from ESI scheme:
Salary ceiling is not applicable here. The insurance sum is decided by the employer on the basis of the budget they may have.
Group medical coverage applies to every hospital in the cashless network of the insurance company. Reimbursement option is usually available in most other hospitals.
Employees are covered from day one under group mediclaim. Issues like pre-existing illnesses and waiting period are also covered as part of the policy from day one.
The employer pays for the entire insurance sum upto a certain value. This value is mainly dependent on the workforce numbers, average age of the group, etc.
Group health insurance is usually bought by companies to used as a talent retention lever and help employees and their families feel protected.
ESI vs. Group Health Insurance: Key Differences
The table below sets out the main differences between ESI and
Feature | ESI | Group health insurance |
|---|---|---|
Nature | Compulsory government scheme | Private insurance |
Run by | ESIC (government) | Private or public insurance company |
Who qualifies | Employees earning up to Rs 21,000/month | No salary limit as such |
Who pays | Employer 3.25% + employee 0.75% of wages | Employer mostly |
Where you get treated | Mainly ESIC hospitals and dispensaries | Any network hospital, cashless, plus reimbursement |
Sum insured | No fixed cap | Fixed per employee (usually Rs 3 lakh to Rs 5 lakh) |
Cash benefits | Sickness, maternity, disablement, dependants | None; covers hospital bills only |
Pre-existing diseases | Covered | Usually covered from day one |
Family cover | Dependants included | Optional, usually employer's choice |
ESI vs. Group Health Insurance Costs: A Real Example
Consider an employee making Rs 20,000 a month. Since the person is well below the Rs 21,000 ceiling, therefore ESI will apply.
ESI Calculation
The Employer share is: 3.25% of Rs 20,000 = Rs 650 per month.
The Employee share is: 0.75% of Rs 20,000 = Rs 150 per month.
Therefore, the total contribution going into ESI= Rs 800 a month.
Based on the contribution, employees and their dependants get medical coverage at ESIC-covered hospitals and some cash benefits as well. Fort example, 70% wages during certified illnesses.
Group Health Insurance
Group premiums are not calculated as a percentage of salary. For example, a Rs 5 lakh sum insured, an employer might pay somewhere in the range of Rs 5,000 to Rs 12,000 per employee per year (roughly Rs 400 to Rs 1,000 a month), depending on the group's age mix, family cover and claims history. The employee usually pays nothing till a certain amount of the sum insured. This is usually paid by the employers.
Therefore, ESI at Rs 800 a month provides a lower salaried employee with basic medical coverage while group policies help get employees higher expense treatments including treatments at private hospitals.
Can an employee have both ESI and Group Health Policy?
100% yes. If an employee is ESI-eligible (not earning more than Rs 21,000 a month) and the employer is also running a group health policy, that person can be covered by both. If the employee's salary crosses the ESI ceiling, ESI coverage lapses at the next contribution period and the group policy (if any) becomes the main cover.
What Happens When You Leave the Job or Cross the Salary Limit?
Both ESI and group health insurance are tied to employment, so leaving the job affects both.
- ESI: Benefits continue for the current contribution period and typically a defined benefit period after it. However, if the employee's salary increases more than Rs 21,000, they exit ESI at the beginning of the new contribution period and their coverage runs till the end of the current benefit period.
- Group health insurance: This coverage usually ends when an employee exits their current organisation.
Which One is Right for a Given Situation: ESI or Group Health Insurance?
ESI is mandatory wherever applicable. Therefore, the employer has to contribute toward ESI if required by the law. Group health policies, on the other hand, provide higher coverages, cashless treatment in network hospitals and more flexibility.
- For employees earning up to Rs 21,000 monthly in a ESI covered category, ESI is compulsory for medical treatment.
- For employees earning more than Rs 21,000, ESI does not apply. A group health policy is therefore a better choice to protect them against hospital bills.
- Employers sometimes use ESI for lower-wage employees and a group policy for the rest of the organisation, or a group policy added on top of ESI for wider hospital access to the entire workforce.
- For employees needing medical covers that can extend beyond a job change and retirement, a personal health policy is a better product.
Key Takeaways
- ESI is a government scheme run by ESIC (Employees' State Insurance Corporation) for low-income employees earning up to Rs 21,000 a month (Rs 25,000 for those with disabilities).
- Group health insurance policies are voluntary group health coverage policies bought by employers from insurance companies and come without any salary ceilings.
- ESI contributions are completely fixed as per the rules: the employer pays 3.25% and the employee pays 0.75% of wages, totalling 4%.
- Group premiums do not come with a fixed percentage; the premiums depend on several factors such as group size, employee average age and claims history, and are often paid by the employer with some contributions from employees for higher coverages.
- ESI treatments are usually covered at ESIC covered hospital. On the other hand, group mediclaim treatments are given at most hospitals and network hospitals for cashless treatments.
- ESI usually pays in terms of cash benefits for all issues including (sickness, maternity, disablement, dependants); group health insurance covers all of these .
- Both ESI coverage and group health insurance are directly tied to employment and stop when you leave the employment or cross the ESI wage limit as defined by the ESIC; a personal health policy is therefore bought to provide continued health coverage.
- An employee eligible for ESI can be covered by both ESI and group health insurance policy at the same time.
Frequently asked questions
Yes. ESI applies to most establishments with 10 or more employees (20 in some states) that have workers earning up to Rs 21,000 a month. For such companies, both employer and employee contributions are mandatory as per the ESI Act.
ESI covers both the insured worker as well their dependants like spouse and children, and parents.
A group health insurance policy cannot be used for treatments under the ESI scheme.
Generally, group insurance cover ends when you leave a job. Some insurance companies allow employees to convert a group policy into an individual health policy while leaving their current organisation but the terms might differ from insurer to insurer.
ESI works differently from a group health policy. Medical treatments are usually provided as part of the ESIC system directly. Cash benefits such as sickness and maternity pay are paid through additional amounts in salaries during the benefit coverage period.
Sources and references
- 1.Employees' State Insurance Corporation (ESIC): Benefits and contribution ratesMinistry of Labour and Employment, Government of India
- 2.
About the authors
Avanindra Jha
Written by · Associate Director - Marketing, ACKO for BusinessAvanindra Jha heads marketing at ACKO for Business. A MICA alum with roots in fintech and SaaS marketing, he writes about growth and business with the occasional detour into cinema and Indian philosophy. Off the clock, you'll find him at the guitar or the piano.
Nitesh Kapur
Reviewed by · Senior Director – Underwriting & Claims, Group Health Insurance at ACKOWith over 15 years of experience in health insurance underwriting, he has led group health insurance strategy, risk assessment, and policy design. He has held leadership roles at leading insurers, building risk frameworks, evaluating complex health risks, and strengthening underwriting standards.
