GST on health insurance is too high

A growing economy like India needs to ensure that its citizens are healthy. It is often stated that a healthy individual can contribute positively to the GDP of a country and therein lies the importance of a robust health insurance system.

Health insurance can play a key role in ensuring that Indian citizens do not suffer a setback due to the affordability aspect of quality healthcare.

However, as per estimates, health insurance penetration in India is at just 0.4 per cent as compared to 4.1 per cent in the US, indicating both the future potential as well the risks of a large segment of the population not being covered.

One segment of the population for healthcare is covered through the network of government hospitals as well as through government sponsored health insurance scheme at private hospitals. The second segment is covered by the group health insurance schemes covering the employee only or in other cases their families through the organisation.

The third segment of the population goes for health insurance voluntarily by paying an annual premium and getting covered under networked hospitals. This article focuses on this segment. A recent report states that growth in the coverage of individual lives under health insurance in FY23 has been slow at just 2.5 per cent due to relatively higher premium amounts and the higher level of GST on health insurance has also acted as a deterrent.

Covid impact

During and Post Covid, insurance companies had to settle huge claims directly impacting their bottom-line. As a consequence, they had to revise their premiums upward to protect their margins. This in turn affected the business growth of insurance companies.

The rising cost of private healthcare has also forced people to opt for health insurance.

The government charges GST on different goods and services as per a range that exists from no tax to 5 per cent, 12 per cent, 18 per cent and 28 per cent based on the recommendation of the GST Council.

The GST on health insurance is charged at 18 per cent of the premium amount thereby constituting nearly one-fifth of the premium and falling in the slab which is considered as penultimate to luxury. When we state that health insurance is a priority for the citizens of India, 18 per cent GST on the premium is a dampener.

To many customers of health insurance 18 per cent seems high in absolute terms for example if premium is ₹25,000 then GST @18 per cent comes out to ₹4,500 and total amount payable becomes ₹29,500 which is perceived to be high. Due to this reason, some customers, if they feel they are healthy will simply opt out of health insurance.

There were indications previously that the GST Council would take up this matter but so far GST on health still remains at a high 18 per cent. To promote health insurance, it is therefore suggested to the GST Council that a concessional GST of 5 per cent or no GST may be levied on health insurance treating it on par with Jan Dhan Yojana or Bank accounts.

This may go some distance in improving the penetration levels of the health insurance market in India.

The writer is Deputy Director, Symbiosis Institute of Business Management, Views expressed are personal

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