Health

Indians may need a tax headache to maintain their health

When Indian parliamentarians from the opposition parties wanted Finance Minister Nirmala Sitharaman to consider removing the Goods and Services Tax imposed on health and life insurance policies, she raised some related issues. and GST on insurance products.

“I want to raise two important points – the tax existed on medical insurance even before the introduction of GST. There was already a pre-GST tax on medical insurance, before GST was introduced This is not a new issue, they were already there in all the districts.

India imposes 18% GST on insurance products.

‘Subtract 18% GST or insurance’

Demands for indirect tax on health insurance came to the fore when one of his colleagues, Transport Minister Nitin Gadkari, demanded it in a letter. Sitharaman later said that the letter was not meant to be published.

However, in a country with high income inequality and health services in need of a major boost, Indians are debating why they should be taxed for something that related to demand – health care. The insurance penetration rate in India is very low compared to many other countries, and taxes are another cost that citizens have to bear if they want to buy medical insurance. Indians still lack any form of financial protection for health. The Economic Survey predicts that insurance penetration, measured as a percentage of GDP, will rise from 3.8% to FY23 to 4.3% by FY35. At the same time, life insurance premiums are expected to grow at an annual rate of 6.7% between 2024 and 2028. This increase is driven by the increasing demand for term life insurance, the number of people who youth, and progress in Insurtech.

Health insurance: Affordability

Parthanil Ghosh, Managing Director and General Business Manager of HDFC ERGO General Insurance, told ET Online that although the tax structure has been simplified since the introduction of GST in 2017, the affordability factor has become a serious problem for them. have a policy.

“While the single measure has ensured that the tax structure for policyholders is simplified and transparent, the affordability factor has been adversely affected as it has made health insurance premiums more expensive with GST revenue,” Ghosh explained.

Click here to read Parthanil Ghosh’s full interview

However, Ghosh highlighted the silver lining: “With Input Tax Credit available on GST paid by the insurer, the GST implications are relatively lower than those under Service Tax for other products of non-life insurance.”

“Insurance companies decide what the full payouts are based on the expected cost of the claim and the associated costs. These rates are inclusive of applicable GST. So, an insurance policy with a premium of Rs 15,000 will have an additional cost of Rs 2,700 (Rs 15,000 * 18%). The property tax credit available by the insurance company against services purchased ensures that these costs are not passed on to policyholders,” he said.

Samadhan Insurance COO and co-founder Shilpa Arora argues that the amount of GST imposed on premiums is ‘unfair.’

“GST of 18% is not justified on premiums. Insurance products are purchased to protect families against financial loss due to early death or illness. Where IRDAI is talking about insurance for all by 2047, the government should reduce GST to make payments easier,” Arora told ET Online.

Star Health did not respond to ET Online’s query.

Reluctance of Indians to buy insurance

Insurance premiums often increase by 10 to 20 percent, thus increasing the financial pressure on the policy buyer. This annual increase in premiums increases the cost burden for Indians and especially affects the elderly, especially those who have retired and can rely on their savings to survive.

“In India, where about 40% of people do not have financial protection for health, it is a concern, especially for the elderly, who may need high-cost insurance and therefore carry a heavy burden. of the GST rate,” said HDFC Ergo’s Ghosh.

The removal of GST from 18% can bring down the cost of health insurance

Shilpa Arora weighed in on this sentiment and said that if the government decides to reduce GST on insurance, it will help bring down the premiums as well.

“In life insurance, if the product is purchased, the customer pays Rs 59,000 as premium, but the investment will be treated as Rs 50,000 (with other death charges and expenses deducted), and Rs 9,000 as part of GST .This results in low returns because the policy holder calculates the total price paid and the amount they received. They often feel cheated and don’t trust the insurance products anymore. We get a lot of complaints there health insurance premiums have increased a lot, and the policy holder is asking for help. We can’t do much here, but the government can help by reducing the percentage of GST,” Arora explained.

GST removal from health insurance: A real opportunity?

Taxes are what help run society. Claiming tax exemption seems like a tough idea in a developing country like India. Experts believe that reduced or reduced taxes can have a positive effect on citizens. But what effect would such a release have on insurers?

“If GST is paid on insurance premiums, the insurance companies will not be able to claim input tax credit (ITC) on the GST paid by the insurance company, therefore, it may may not really benefit policyholders,” Ghosh said.

Shilpa Arora, on the other hand, has welcomed any future prospects of tax exemption for life and health insurance.

“This will make payments affordable; people can buy good products. The results of health products will improve,” he said.

Ghosh offered a different solution.

If the GST rate is fixed at 0% or any rate lower than the current rate of 18% instead of exemption, then the benefit equal to the available ITC credit will still be transferred to customers, and this is expected to result in lower fees. for the customer,” said Ghosh.

Would removal of GST from insurance help improve the low percentage of insurance penetration?

Insurance penetration in India has increased from 3.9 percent in 2013-14 to 4 percent between 2022-2023, according to Financial Services Secretary Vivek Joshi. Although the insurance industry has seen an influx of people investing in life and health insurance plans, insurance awareness is still low in India compared to other countries.

Ghosh said that various factors are contributing to the slow growth of insurance penetration.

“Affordability of health protection policies and financial literacy are major obstacles, as many people do not know the benefits of insurance in this country. With low prices, consumers find it difficult to ensure payment policies. It is also there is a lack of specific products and there is little trust in insurance policies.”

What low health insurance can do

Insurance Samadhan’s Arora said that the reduction in premiums could help encourage more investment in life and health insurance. He agreed that the simple tax system will help increase the percentage of policyholders.

“Lower premiums will create more protection and reduce policy breakdowns in the coming years. We strongly believe that 18 percent is too high for an important product for every family. of Indians,” said Arora.

India’s insurance penetration percentage reveals that many people do not subscribe to insurance. Experts associate this low percentage with two important factors: medical inflation and the absence of a health care regulator.

“The lack of a health care regulator has resulted in over 10% annual price increases, making health insurance premiums more expensive. And, after COVID, we “We have seen rising medical costs and the cost of modern technology, resulting in an increase in health insurance premiums,” Ghosh explained.

Further, he said that “in order to make insurance accessible in India, it is important to adopt a multi-faceted approach and complement it with other factors such as strong distribution networks, products and facilities.” new services, and the unsettled experience of increasing insurance.

Moment of truth: Insurance claims are denied

GST may be one of the problems when it comes to reluctance of Indians to invest in insurance policies. Another important reason for this reluctance can be linked to the increasing number of rejected insurance claims.

A study by Local Circles showed that at least 43 percent of insurance claims were either partially approved or denied in the last three years.

The survey cited the experiences of several policy holders, who revealed the difficulties they faced while making an insurance claim.

“From insurance companies denying claims based on pre-existing health conditions to only providing partial coverage, 43 percent of health insurance owners who have application three years ago they found it difficult to process it,” said the report. .

“The insurance industry has high fraud in the payment system, which leads to high rejection rates,” said HDFC Ergo’s Ghosh.

Shilpa Arora admitted that rejection of an insurance claim has a negative impact on policyholders.

“Rejecting an insurance claim destroys the confidence of the policyholder because the trust period for an insurance product is a claim. There are many things being done by IRDAI to improve the policyholder experience such as guidelines new health insurance policies and improved grievance mechanism,” said Arora.

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