Insurance costs will rise with the tax on healthcare

The budget proposal to impose a five per cent service tax on healthcare services has evoked a mixed response from the health insurance industry, which presently is worth Rs.40,000 crore in India. While this is likely to result in higher premiums and an increase in insurance costs, some are hopeful that this will encourage more people to go for insurance policies.

To start with, the proposed Budget has widened the tax ambit for all payments made for healthcare services. Earlier, only those policyholders who were making cashless payments to hospitals were under the tax ambit. But now even those policyholders who claim reimbursements will be liable to pay service tax.

“No doubt, insurance companies will pass over the burden to policyholders by increasing premiums, but to what extent these will increase shall be decided independently by different insurance companies,” says Amaranth Anantnarayan, CEO and MD, Bharti AXA General Insurance.

“We need to evaluate the actual impact of new service tax norms on the overall healthcare costs and then take a decision.

Since, health insurance requires annual renewals, it is unlikely to impact existing customers till the time for renewal,” says Dr Damien Marmion, CEO, Max Bupa Health Insurance Company Limited.

“But in case we do decide to make changes in our premiums, it will be universally applicable to all policyholders, irrespective of how the customers choose to avail the insurance cover —through reimbursements or cashless,” he adds.

However, others are of the opinion that this decision should, in fact, prompt more people to go for health insurance.

“There is not much difference for policyholders as those with cashless schemes were already paying the tax. Also, the service tax will be set off on the premium that the consumer pays. But those without a policy will now have to shell out extra money every time they avail a healthcare service,” says Antony Jacob, CEO, Apollo Munich Health Insurance Company Limited. “I think this decision should prompt more people to get health insurance,” he adds.

Only two per cent of the Indian population is covered by health insurance, largely because most insurance policy plans only cover hospitalisation or critical illnesses. Annual health check-ups, diagnostic tests and routine medical consultations are often not included. This is a serious concern, as these are more common healthcare costs that affect most of us.

“A lack of variety in schemes is one of the reasons for poor penetration of the health insurance market,” says Anantnarayan.

The Budget could have tackled some challenges in this aspect, which it has failed to do. For instance, section 80D of the Income Tax Act offers a deduction of Rs.15,000 for premium paid towards health insurance. “This is a marginal amount, considering the inflation and escalating healthcare costs. We were expecting the government to increase this bracket by around Rs.50,000, which didn’t happen. This would have actually encouraged more people to opt for health insurance,” says Anantnarayan.