Can NPS also support medical expenses? ICICI Pension Funds tests waters with Swasthya Equity Plus

At a time when medical expenses are rapidly rising every year and many Indians have limited health insurance or no cover at all, ICICI Pension Funds Management has launched the first Swasthya Pension Scheme under the National Pension System.

Swasthya Pension Scheme is a plan, through which the Pension Funds Regulatory and Development Authority (PFRDA) hopes will inculcate long-term retirement planning among individuals, while also aiding some of the savings to be used for healthcare expenses in case of emergency.

“There is about 38% insurance penetration which exists in the medical space. However, there is still a large population which is still not covered, because of a variety of reasons, which means that out of pocket expenses account for approximately 40% of the people. And a lot of hospitalisations, about one-fourth, happen by people selling off their assets. So our answer is NPS Swasthya,” noted Sumit Mohindra, CEO of ICICI Pension Funds Management.

For now, the ICICI PF NPS Swasthya Equity Plus scheme will be offered as a proof of concept under PFRDA’s regulatory sandbox framework.

Under the scheme, subscribers will have an option to withdraw up to 25% of their own contributions in the scheme for medical expenses through the Apollo 24|7 platform across the country for medicines and tests, and in selected hospitals and pharmacies across the Apollo network, for now in Bengaluru and Hyderabad.

Under the ICICI PF NPS Swasthya Equity Plus Scheme, 70-100% of the corpus will be invested in equity, up to 30% in debt and up to 10% in money market instruments. There won’t be any limit on the number of partial withdrawals, while the first withdrawal is permitted after a subscriber accumulates at least Rs 50,000. 

Also, up to 100% of total corpus withdrawal will be permitted if emergency medical expenses exceed 70% of the total corpus accumulated.

While currently the scheme will have a high equity exposure, if and when it’s regularised, other more conservative investment options could be looked at, depending on the risk appetite of the subscriber, pointed Mohindra.

He however, stressed, that this product was not to replace health insurance products.

“NPS Swasthya will come into play only when somebody either doesn’t have adequate coverage or certain things are not covered. Nothing can replace medical insurance,” said Mohindra.

This is the first such experiment undertaken by the PFRDA, bridging two different use cases and could usher in more such innovative products linked to healthcare over time if successful.

“The relaxations that have been given in this account is what makes this a special purpose account. We will have to see how the scheme runs and then we will be able to concretise the way this structure can be made,” said S Raman, the chairperson of PFRDA.

For this particular scheme, the tie-up is restricted to Apollo. However, Raman believes there could be more such experiments going ahead by pension funds in other aspects of healthcare. In a recent interaction, Raman had said three pension funds were exploring health-linked pension plans.