A single medical emergency can devastate a family’s finances, making affordable health insurance not just important but essential in a country like India. Yet, despite the urgency, around 40 crore people, or roughly 30% of India’s population, still lack financial protection for their health. This situation is alarming, especially as medical costs are escalating at an annual rate of 14%. In this context, the 18% GST on health insurance premiums is more than an economic burden – it’s a policy that demands urgent reevaluation.
Health insurance is not a luxury item; it is a necessity for every individual. However, the current high tax rate of 18% makes it less accessible, particularly for middle-income families who are already struggling to balance their financial responsibilities.
Unlike many other financial products, insurance is often only beneficial in times of crisis – when one is hospitalized or dealing with a serious illness. For many, this means paying significant amounts in premiums and taxes without ever needing to make a claim. The high GST rate thus feels not only burdensome but also unjust.
The financial strain on families is evident. A recent survey conducted in May 2024 revealed that over 50% of respondents experienced a premium increase of more than 25% in the last year, with some seeing hikes of up to 50%. This rapid escalation in premiums, compounded by the GST obligation, renders health insurance even less affordable.
Government data indicates that Rs 24,500 crore has been collected from GST on health insurance and reinsurance premiums over the past three years, underscoring the financial burden many are shouldering.
Health insurance should be viewed as a basic public good, offering vital financial protection during tough times. Yet, despite its importance, health insurance coverage in India has stagnated at a mere 1% for over two decades. Broader coverage is not just a matter of social welfare; it’s crucial for economic stability. Without adequate health insurance, even higher-income individuals can face financial distress, ultimately impacting their ability to contribute to the economy and support government initiatives.
The sky-high GST rate on health insurance, one of the highest in the world, is a significant barrier to wider coverage in India. The Standing Committee on Finance, in a report to Parliament earlier this year, rightly highlighted that the high GST rate makes insurance premiums prohibitively expensive. This is particularly concerning given the Insurance Regulatory and Development Authority of India (IRDAI)’s ambitious goal of achieving ‘Insurance for All by 2047.’ Without changes to the current tax structure, this goal may remain unattainable.
To make health insurance more accessible, the government should consider the following steps:
Reduction in GST: The government should reduce or remove the GST on health insurance premiums, particularly for individual and family packages. This would immediately lower the cost barrier, making insurance more accessible to a broader population.
Increase Tax Deduction Limits: Increasing the tax deduction limits under Section 80D of the Income Tax Act would provide additional financial relief to those purchasing health insurance. This would incentivize more people to invest in health insurance, thus expanding coverage.
Address Medical Inflation: Beyond tax relief, there needs to be a concerted effort to control medical inflation. The government should explore policy interventions that can regulate healthcare costs, making it easier for insurers to offer affordable premiums.
Promote Public-Private Partnerships: Encouraging collaboration between the public and private sectors could lead to more innovative and cost-effective insurance products tailored to the needs of different segments of society.
Public Awareness Campaigns: Increased efforts to raise awareness about the importance of health insurance and the benefits of early coverage can help drive up enrollment rates.
A robust healthcare system should be accessible to all, regardless of socio-economic status. The heavy GST on health insurance premiums denies millions of Indians essential financial protection. As noted by policymakers across the spectrum, the government needs to act swiftly to reduce or eliminate this tax. Such a move would ease the financial burden on families and bring India closer to achieving universal health coverage, a cornerstone for a healthier, more resilient nation.
-Dr Kapasi is the Co-Founder and MD and Dr Panghal is a Senior Consultant at Enira Consulting. Views expressed are personal.
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