India's Health Insurance Coverage Is Among The Lowest, Something The Centre Needs to Worry About

This welcome decision perhaps recognises the fact that the ever increasing cost of healthcare and poor state of public sector health care is forcing India's population to increasingy borrow to stay well. 

Just about 41 per cent of of Indian households have at least one member with some kind of a health insurace cover. The rest depend on their own resources to pay for medicare leading to ever increasing levels of indebtness.  

The  Economic Survey 2022-23 showed that nearly  48 per cent of the total healthcare spending in India was done from out-of-pocket payments.

However, even those with health cover find rising medi-care costs and insurance premium are burning  hole in their pocket. 

“I had a health insurance cover of Rs 10 lakh which I purchased from a private insurer with an annual premium of Rs 15,000. In a year’s time it has shot up to Rs 18,000,” 49- year-old RS Mandal, who works as a store assistant in Gurgaon said. 

Health insurance premiums in India too have been rising steadily along with prices of many daily necissities.

“Nevertheless, when I had a heart ailiment, I ended up spending another Rs 4-5 lakh as my insurance dit not cover much of what was spent on me,” Mandal said. 

Analysts believe that medi-care costs are one of the key factors which has propelled India's household debt to rise to 40.1 per cent of GDP as estimated by the RBI.

According to a study by Local Circles, the premium in health insurance has risen by more than 25 per cent for about 52 per cent of respondents, spread across 324 districts. Driven by rising medical costs with the extensive use of technology, health insurance premiums will increase further in the coming years.

The applicability of goods and services tax (GST) on health insurance premium, with no cap at present, has only added to the problem not only for policyholders, especially the seniors but the country’s policymakers as well.

India, with a low health insurance cover – one of the lowest among developing nations – could be staring at a larger disruption.

In the absence of adequate health insurance, unforeseen medical costs often lead to high out-of-pocket expenses and even household indebtedness. And with the country’s falling savings rate, this could catapult into a larger economic issue.

News reports suggest that the Union Minister for Road Transport & Highways Nitin Gadkari, in a letter to Finance Minister Nirmala Sitharaman, underlined the need to eliminate GST on insurance premiums.

Though many expected a decision on this to be taken at the 54th GST Council meeting held on Monday, Sitharaman said that the issue has been referred to a Group of Ministers (GoM), which will submit a report by next month-end.

Currently, health and life insurance poplicies attract an inexplicable 18 per cent GST, making insurance covers costlier by more than sixth of the premium. 

India’s Low Health Insurance Coverage

In contrast to India's abysmal lack of a properly functional universal free medical coverage of citizens, countries such as the UK, Australia, Canada, Sri Lanka, Cuba, Russia and China have versions of a free and compulsory National Health Scheme.

The US, several  European nations and Japan also have almost full health insurance coverage which allows citizens to access hospitals at no or low costs.

In India, health insurance is optional. Although India has the government- run Ayushman Bharat schemes for the poorer section with limited coverage, most costly illnesses require huge out of pocket expenses. 

Analysts argue that it is thus a no-brainer that GST on health insurance premium should be reduced or even eliminated.

However, while it is true that such a move will significantly reduce the insurance premium, it will surely hit the coffers of the federal and state governments too and this consideration is a road block to the lowering or removal of the tax.

The GST revenue accrued from health insurance premium by the Centre and the states from April 2021 to March 2024 stood at Rs 21,000 crore. 

Lancet in its report said that India “might need additional and inclusive approaches for people who are uninsured to increase their health-care use for improved health outcomes.” A large number of those who have health insurance products are under-insured.

“With the rise in medical and hospitalisation expenses, the sum insured by a large number of policyholders will not be enough to cover them in case there is an emergency situation. It is important to understand that just having medical insurance is not enough,” a senior executive of the large private sector health insurance firm told The Secretariat on condition of anonymity.

“The policyholders may still have to pay a substantial amount from their savings,” he added.

Opportunity For Growth

The underpenetrated health insurance segment offers an opportunity for insurance companies. Life Insurance Corporation (LIC), the public sector behemoth is already looking at entering the health insurance fray.  

GlobalData, an analytics firm, in its report estimated India’s health insurance industry would register a compound annual growth rate (CAGR) of 12.8 per cent between 2024 and 2028, in terms of gross written premiums (GWP).

At present, India’s health insurance market in terms of gross written premium is at around US $15.1 billion or Rs 1.3 lakh crore.

Tax Incentives On Health Insurance Premium Diluted

Under the old personal income tax regime, an individual, under Section 80D of the Income Tax Act, enjoyed a tax deduction of up to Rs 25,000 each year for health insurance premiums.

For senior citizens, the amount was higher at Rs 50,000. The new regime, however, does not offer any incentive for health insurance.

Presenting the Union Budget this year, Sitharaman enhanced the tax benefits under the new regime.

This is expected to push more tax payers to opt for this new structure, introduced in 2020-21, largely to address the Covid pandemic-induced economic crisis and boost consumption and thereby support economic growth.

Clearly, India needs to increase health insurance penetration rapidly. And for that, prices need to be reduced.

Adequate and affordable health insurance is the key. In the previous year, the total GST accrued from health insurance premium stood at Rs 8,263 crore.

While reduction or elimination of GST on health insurance premium will hurt the both the centre and states, it is a move that is desirable for the larger benefit of the people as it will significantly reduce the costs of premium and push universalisation of health insurance. 

As market penetration increases, the number of people paying insurance premia will also go up exponentially and a small tax of say 5 per cent might actually fetch more than what is acruing to the government coffers from the 18 per cent GST now being charged.