In India, health insurance is not a luxury—it is a necessity. With rising medical costs and a healthcare system that can easily drain a family’s savings, health insurance provides the financial safety net that millions of Indians depend on. However, despite its significance, nearly 30% of India’s population lacks health coverage. One of the key factors making health insurance less accessible is the 18% GST applied to premiums. This policy calls for urgent reform to ensure health coverage is affordable for all.
The Unfair Financial Strain
A single medical emergency can wipe out years of savings for a family, making health insurance indispensable. Yet, over 40 crore Indians remain without financial protection for their health, highlighting the economic divide in access to essential services. The escalating medical costs, which rise annually by 14%, only worsen the situation. When combined with an 18% GST on premiums, health insurance becomes a burden for many families, especially those in the middle-income bracket.
The GST on health insurance premiums disproportionately affects people who may never even make a claim. For them, the financial strain feels especially unfair. In a recent survey conducted in May 2024, more than half of the respondents reported a premium increase of over 25% in the last year. Coupled with GST, some families saw their health insurance costs increase by as much as 50%, pushing many to question the affordability of these policies.
A Policy That Hinders Economic Growth
The revenue collected from GST on health insurance premiums is significant, with Rs 24,500 crore collected over the last three years. While this may boost government revenue, it stifles broader economic growth. Without sufficient financial protection, families dip into their savings during medical crises, reducing their ability to contribute to the economy. This undermines the very economic stability that health insurance is supposed to support.
Historically, health insurance coverage in India has remained at a stagnant 1% for more than two decades. For a country striving toward universal healthcare, this statistic is alarming. The Insurance Regulatory and Development Authority of India (IRDAI) has set an ambitious target of achieving ‘Insurance for All by 2047.’ However, without a reduction in the GST rate, this goal may be unattainable.
The Case for Reducing GST
Several steps can be taken to make health insurance more accessible and affordable for the masses. These include:
1. Reduction or Elimination of GST
The government should reconsider the 18% GST rate applied to health insurance premiums. Reducing or entirely removing this tax, especially for individual and family plans, would immediately lower the financial burden on consumers, encouraging broader enrollment.
2. Increase in Tax Deduction Limits
Increasing the deduction limits under Section 80D of the Income Tax Act would provide additional financial relief to policyholders. This would incentivize more people to invest in health insurance, ultimately expanding coverage across the country.
3. Address Medical Inflation
Medical inflation is a growing concern in India, contributing to the rising cost of healthcare services. By implementing policies that regulate healthcare prices, the government can help control premium costs, making insurance more affordable for all.
4. Public-Private Partnerships
Encouraging collaborations between the public and private sectors can foster innovation in creating cost-effective health insurance products. These partnerships could offer more tailored and affordable solutions for different socio-economic groups.
5. Awareness Campaigns
Educating the public about the importance of health insurance and the long-term benefits of early enrollment can help increase coverage. Government-led campaigns that simplify health insurance concepts for the general population will be key to this effort.
The Path Forward
Health insurance is essential for a robust and resilient healthcare system. As it stands, the 18% GST on health insurance premiums is a barrier preventing millions of Indians from accessing this crucial safety net. Policymakers must act swiftly to reduce or eliminate this tax to bring the country closer to its goal of universal health coverage. Only then can India ensure financial protection for its citizens and build a healthier, more economically stable future.
Conclusion
As medical costs continue to rise, health insurance will become even more critical. Reducing the 18% GST on premiums, increasing tax deductions, and addressing medical inflation will make health insurance more affordable, bringing India closer to achieving universal health coverage. It is time for the government to reassess its tax policies to support a healthier and more financially secure population.