In the pursuit of financial democracy, it is imperative to scrutinize policies that may inadvertently hinder citizens’ access to essential services. One such policy is the imposition of the Goods and Services Tax (GST) on health insurance premiums. This taxation not only burdens individuals seeking health coverage but also raises questions about its alignment with the principles of equitable financial governance.
GST Revenue from Health Insurance Premiums
The government’s revenue from GST on health insurance premiums has seen a significant increase over the years. In the fiscal year 2023-24, the GST collected from health insurance services amounted to ₹8,263 crore. This substantial figure indicates a heavy tax burden on policyholders, which could be a deterrent to wider adoption of health insurance.
Health Insurance Penetration and Density in India
Despite the growing need for health coverage, India’s health insurance penetration remains alarmingly low. In the fiscal year 2023-24, overall insurance penetration decreased to 3.7% from 4% in the previous year, with life insurance penetration declining from 3% to 2.8%, and non-life insurance penetration remaining unchanged at 1%. This decline underscores the challenges in making health insurance accessible and affordable to the masses. Moreover, insurance density, which reflects per capita premium, showed only a marginal increase. It rose from $92 in FY 2022-23 to $95 in FY 2023-24, with non-life insurance density increasing from $22 to $25, while life insurance density remained stable at $70. These figures highlight the limited reach and acceptance of insurance products among the population.
Medical Inflation in India
India has been experiencing a significant rise in medical costs, with medical inflation estimated at 14% in recent years. This surge in healthcare expenses makes health insurance an essential tool for financial protection against unforeseen medical emergencies. However, the additional GST burden on premiums further escalates the cost, making it less affordable for many. The high cost has resulted a substantial number of policy holders discontinuing the insurance. Post Covid- Most of the Insurers have revised their premium on higher side.
Arguments against GST on Health Insurance Premiums
- Double Taxation on Personal Savings: Health insurance premiums are paid from individuals’ post-tax income. Imposing GST on these premiums amounts to taxing the same income twice, which is inherently unjust.
- Disincentive to Purchase Insurance: The additional 18% GST on premiums makes health insurance policies more expensive, discouraging individuals from opting for coverage. This is counterproductive to the goal of increasing insurance penetration.
- Inequitable Tax Burden: While individuals bear the full brunt of GST on premiums, insurance companies can offset this tax through input tax credits. This creates an uneven tax landscape where the end consumers are disproportionately affected. Not only that, in recent times- have most of the Insurance companies been caught
violating GST provisions. - Strain on Public Healthcare: Lower insurance penetration due to higher costs shifts the burden of healthcare expenses onto public healthcare systems, which are already under strain. Encouraging private health insurance uptake can alleviate some of this pressure.
Demand-
In light of the principles of financial democracy, the government should reconsider the imposition of GST on health insurance premiums. Eliminating this tax would make health insurance more affordable, increase penetration, and provide financial protection to a larger segment of the population. Such a move would demonstrate a commitment to equitable financial policies and the well-being of all citizens.
–Shubhendu bhattacharya
