Pension Fund Regulatory Authority launches Swasthya Pension Scheme

To integrate health-related benefits with the National Pension System (NPS), the Pension Fund Regulatory and Development Authority (PFRDA) has launched the NPS Swasthya Pension Scheme (NSPS) on a pilot basis to test its viability and technological backbone.

Under the scheme, all Indian citizens can make voluntary contributions and use the corpus to meet both outpatient (OPD) and inpatient (hospitalization) expenses. The minimum investment is ₹1,000, in line with rules for non-government NPS subscribers, and there is no maximum limit.

NSPS allows subscribers to invest across multiple asset classes under the NPS Multiple Scheme Framework (MSF). When the funds are not being used for medical needs, the corpus continues to generate returns based on the chosen asset allocation. In effect, it functions as a dedicated investment pool for health expenses that can be drawn down when required.

Except for government subscribers above the age of 40, all others can currently transfer up to 30% of their NPS Common Account Scheme contributions (self plus employer share) into NSPS.

“While building your own funds for health expenses is a good way, the corpus will take time to build. Hence, one cannot replace health insurance. This is because under insurance you are sharing the risk with a pool of healthy and risky individuals. When there is a substantial claim amount, your own funds wouldn’t suffice. You can’t transfer the health expenses risk using self accumulated funds,” says Shashank Joshi, partner at Akshay Finserve Management LLP.

“The scheme would be good for someone who isn’t able to seek a health cover through insurance channel due to age or health issues. Also, those who are very young, can segregate and invest for the longer-term to build a corpus,” Joshi adds.

“Those who cross the age of 66 years and do not have any insurance policy in continuation, such pensioners would be able to cover themselves,” says Dr. Krishna Jaiswal, managing director, Ericson Insurance TPA.

One area where NSPS could score over a do-it-yourself emergency health corpus is in payments infrastructure. PFRDA is working on a framework that would allow medical costs to move directly from a subscriber’s account to the hospital through intermediaries such as third party administrators (TPAs).

The same pension funds that manage NPS-linked corpus, such as SBI Pension Funds, HDFC Pension Fund and Axis Pension Fund, will operate NSPS. These funds will need to engage with TPAs, Health Benefit Administrators (HBAs), Central Recordkeeping Agencies and fintech firms for enrolment, record-keeping and settlement of medical bills. Entry and exit norms, fee structures, claims processes, value-added features and grievance redressal mechanisms will be disclosed by individual pension funds.

“We are in initial talks with the Pension Funds and as an industry intermediary, TPAs have been successfully handling 79% of the overall hospitalisation claims. Hospitals too trust the TPAs, due to the long engagement and smooth process. The technological network would be such that TPA will not handle the funds. However, we would offer the health cards, handle the admission linked intimation and settle the bill through the pension scheme, which would be a self funded scheme where payment is directly made to the hospital in a cashless manner and smooth discharge can be worked,” says Jaiswal.

For the pilot phase, exit and withdrawal rules under NPS regulations have been relaxed. Subscribers can partially withdraw up to 25% of their own contributions in NSPS at any time once the corpus reaches a minimum of Rs50,000. However, the 25% cap could prove restrictive, as medical expenses are often unpredictable and may exceed that threshold.

If a hospitalisation bill exceeds 70% of the total corpus under the scheme, subscribers will be allowed to withdraw 100% of the corpus as a lump-sum premature exit to meet the expense.

There is no limit on the number of such withdrawals in a year, and no waiting period, unlike in regular health insurance policies for certain diseases. To prevent fake billing or withdrawals, funds will be transferred only to TPAs or HBAs. While TPAs act as the bridge between individuals and hospitals, HBAs typically manage employee health benefits and wellness programmes for corporates.

After assessing operational and technological aspects, PFRDA will decide on the future of the pilot under its Regulatory Sandbox framework. If the scheme is found unviable, the NSPS corpus will be transferred back to the regular NPS Common Account Scheme (non-MSF).