The Pension Fund Regulatory and Development Authority (PFRDA) has taken a significant step towards integrating health benefits with retirement planning by launching the NPS Swasthya Pension Scheme (NSPS) on a pilot basis. This innovative initiative aims to test the viability and technological infrastructure of a scheme that allows Indian citizens to build a dedicated corpus for medical expenses while participating in the National Pension System (NPS).
Key Features of the NPS Swasthya Pension Scheme
Under the NSPS, all Indian citizens can make voluntary contributions to cover both outpatient (OPD) and inpatient (hospitalization) expenses. The minimum investment is set at ₹1,000, aligning with the rules for non-government NPS subscribers, and there is no upper limit on contributions. This flexibility enables individuals to tailor their investments according to their financial capacity and health needs.
Investment and Returns Framework
Subscribers can invest across multiple asset classes under the NPS Multiple Scheme Framework (MSF). When funds are not being utilized for medical purposes, the corpus continues to generate returns based on the chosen asset allocation. Essentially, NSPS functions as a specialized investment pool for health-related costs, allowing withdrawals as needed without compromising long-term growth potential.
Eligibility and Contribution Transfers
Currently, except for government subscribers above the age of 40, all other participants can transfer up to 30% of their NPS Common Account Scheme contributions—including both self and employer shares—into the NSPS. This provision encourages a seamless integration of retirement savings with health preparedness.
Expert Insights on Health Financing
Financial experts emphasize that while building a personal fund for health expenses is beneficial, it should not replace health insurance. Shashank Joshi, partner at Akshay Finserve Management LLP, explains, "Creating your own corpus for health costs is a prudent approach, but it takes time to accumulate. Insurance, on the other hand, allows you to share risks with a pool of individuals. In cases of substantial claims, self-accumulated funds may fall short, as you cannot transfer health expense risks solely through personal savings."
Joshi adds that the scheme could be advantageous for those unable to obtain health insurance due to age or pre-existing conditions, as well as for younger individuals looking to invest long-term for a health corpus. Dr. Krishna Jaiswal, managing director of Ericson Insurance TPA, notes that pensioners aged 66 and above without continuing insurance policies could particularly benefit from NSPS coverage.
Operational Mechanics and Infrastructure
One of the standout features of NSPS is its payments infrastructure. PFRDA is developing a framework to facilitate direct transfers from subscribers' accounts to hospitals through intermediaries like third-party administrators (TPAs). This system aims to streamline medical bill settlements in a cashless manner, enhancing convenience for users.
Role of Pension Funds and Intermediaries
Established pension funds such as SBI Pension Funds, HDFC Pension Fund, and Axis Pension Fund will manage the NSPS corpus. These entities will collaborate with TPAs, Health Benefit Administrators (HBAs), Central Recordkeeping Agencies, and fintech firms to handle enrolment, record-keeping, and bill settlements. Individual pension funds will disclose details on entry and exit norms, fee structures, claims processes, and grievance redressal mechanisms.
Dr. Jaiswal highlights the efficiency of TPAs, stating, "As industry intermediaries, TPAs successfully manage 79% of hospitalization claims. Hospitals trust them due to long-standing engagements and smooth processes. Under NSPS, TPAs will not handle funds but will issue health cards, manage admission intimation, and ensure bills are settled directly with hospitals, enabling seamless discharges."
Withdrawal Rules and Flexibility
During the pilot phase, withdrawal regulations have been relaxed. Subscribers can partially withdraw up to 25% of their own contributions once the corpus reaches a minimum of ₹50,000. However, this cap might be restrictive given the unpredictable nature of medical expenses. In cases where hospitalization bills exceed 70% of the total corpus, subscribers are permitted to withdraw 100% of the funds as a lump-sum premature exit.
Unlike traditional health insurance policies that impose waiting periods for certain diseases, NSPS imposes no limits on the number of withdrawals annually and has no waiting period. To safeguard against fraudulent activities, funds will be transferred exclusively to TPAs or HBAs, ensuring secure transactions.
Future Prospects and Evaluation
PFRDA will assess the operational and technological aspects of the pilot under its Regulatory Sandbox framework. If the scheme proves unviable, the NSPS corpus will be transferred back to the regular NPS Common Account Scheme (non-MSF). This cautious approach underscores the authority's commitment to refining the scheme based on real-world feedback and performance metrics.
The introduction of NSPS represents a forward-thinking move to address healthcare financing challenges in India, offering a complementary tool to insurance while leveraging the robust NPS ecosystem. As the pilot progresses, it will be crucial to monitor its adoption and effectiveness in meeting the diverse health needs of subscribers across the country.
