New Delhi: Health insurance companies are keenly awaiting the upcoming Union Budget 2023-24, which is just a day away. The stakeholders of the sector expect that the government would lower the prevailing GST rate on health insurance, propose to increase the FDI limit to 100 per cent and anticipate that the upcoming budget would take into account higher exemption on tax under Section 80D from the current limit 25,000 to at least Rs 1 lakh.
Speaking to ETHealthworld health insurance segment experts informed that the sector is expecting growth and development and various measures for the health insurance sector. Particular focus should be given towards easier access to healthcare financing about affordability, predictability and simplicity.
Step-up public health spending
Urging for an increased allocation of healthcare expenditure, Priya Deshmukh Gilbile, COO, ManipalCigna Health Insurance Co Ltd, said, “The healthcare sector is the one that contributes towards the nation’s GDP, creates jobs and keeps the nation healthy. According to an industry study, an estimated seven per cent of the population is pushed below the poverty line because of having to pay for healthcare services from their savings. Therefore we expect that the government in the upcoming budget comes up with a series of measures to boost the healthcare sector, thus increasing government health expenditure on health as a percentage of GDP. Medical inflation in India is also currently at ~14 per cent, which is the highest among Asian countries, therefore we expect the Budget 2023 to see an increased allocation of 20-25 per cent on healthcare expenditure from the previous year to curb medical inflation and provide equitable quality healthcare for all.”
Stressing that special focus should be given to easier access to healthcare financing Gilbile stated that the government should spend more on healthcare, and give more importance to health insurance which can be a huge respite for people who are struggling to meet the rising healthcare costs, and ensure the majority of the population comes under the ambit of insurance.
Informing that the healthcare budget is among the lowest compared to western counterparts, Sarbvir Singh, President and CEO, Policybazaar.com said, “For countries like the US and the UK, the healthcare expenditure in terms of the percentage of GDP varies between 8-10 per cent. Due to low healthcare expenditure, people in India rely on private hospitals for treatment, the cost of which is very high. It is recommended that the government should improve the efficiency and equity of health spending and accelerate health insurance penetration. This further brings down the value of claims that the insurer has to pay out which will result in lesser premiums and therefore make health insurance affordable for all.”
Meanwhile, Krishnan Ramachandran- MD and CEO, Niva Bupa Health Insurance, said, “Healthcare for all is an important and a necessary goal for the country. A demographic dividend can only be achieved if we have jobs, skills, and healthy people. The government needs to spend more on healthcare as it ultimately impacts our capacity and ability to become a fast-developing economy. A minimum of 3 per cent of GDP is the ideal amount to be spent on healthcare for a developing country like India. The government can play an important role from a policy standpoint that nudges the people to buy health insurance.”
Increase health insurance tax deduction limit to Rs 1 lakh
The insurance industry wants the upcoming budget to take into account a higher exemption on tax under Section 80D, from the current limit which stands at Rs 25,000 to at least Rs 1 lakh. The experts informed that Income Tax (IT) slabs have not changed for a couple of years and if it’s done the tax benefit will encourage more people to opt for health insurance for themselves, their spouse or dependent children and their elderly parents.
“India has recorded the highest medical inflation rate of about 15 per cent among Asian countries which is passed on to customers in different ways, including an increase in insurance premiums. However, the income tax slab hasn’t changed in the past couple of years due to which policyholders are not incentivised to purchase sufficient health cover. The insurance industry recommends that the budget should take into account a higher exemption on tax under Section 80D, from the current limit to at least Rs 1 lakh. Similarly, the current tax exemption limit for senior citizens needs to increase. This will encourage more customers to buy health insurance and decide the right sum assured,” added Singh.
Informing that the demand to increase the limit of tax deductions under section 80D will enhance affordability and encourage more people to opt for health insurance, Ramachandran said, “The COVID pandemic experience and increasing hospitalisation expense is leading people to consider higher sum insured health insurance plans which provides comprehensive coverage against all diseases. The limit increase under section 80D will encourage people to opt for health insurance plans with an adequate sum insured to secure the health of their loved ones.”
Ramachandran elucidated that the policyholders can currently claim a deduction of up to Rs 25,000 when they purchase health insurance for their parents who are less than 60 years of age and Rs 50,000 if parents are over 60 years of age. The government can consider increasing this limit to allow a deduction of Rs 50,000 for parents less than 60 years of age and Rs 1 lakh for parents above 60 years of age. This tax benefit will encourage more people to opt for health insurance for their elderly parents. The Rs 25,000 limit should also go up given the high healthcare inflation over the last two years, COVID being a contributing factor.
Adding further, Singh said, “The per capita insurance expenditure on healthcare in India is low because India still has very low health insurance penetration. The expectations from the upcoming budget – increase the current tax rebate in health insurance: from the health insurance perspective, the industry has rapidly evolved to correspond to higher demand for health insurance after the pandemic. Therefore, it is a necessary move in tandem with this demand to increase the tax rebate limit under Section 80D to at least Rs 1 lakh.”
“If these limits are revised upwards, it will be an additional incentive for health insurance buyers to go for a higher sum insured. Given the rise in healthcare spending, it is imperative to have an adequate sum insured and raising the deduction limits can influence that,” added Suresh Agarwal, MD & CEO, Kotak Mahindra General Insurance Company.
Adding to it Gilbile said, “Access to health insurance can help more people become part of the healthcare system and get access to quality treatment. The Government of India has implemented several policies with the motive of making quality healthcare accessible. Section 80D of the Income Tax Act in India is one such example. Currently, a policyholder can avail of a tax exemption of Rs 25,000 deduction per financial year under 80D for buying a health insurance policy for self, spouse or dependent children. This exemption can increase if the health insurance coverage includes parents. To help boost the overall health insurance penetration in the country and help millions of people access quality healthcare at an affordable cost, the increase in the limit of tax deduction in 80D can act as an incentive to ensure health insurance reaches the last mile, and to provide people with long term financial security.”
Emphasising that there has been an extraordinary increase in the incidence of critical illnesses in the country, she said, “The cost of treatment for critical illnesses is a curse for people living in the lower and middle-income group. And it is a fact that one major illness in the family can drain entire savings, and can push the family into a debt trap. Hence, this calls for a higher tax deduction limit for health insurance plans.”
Union Budget 2023-24 should consider lowering GST, increasing tax rebate
Flagging out the other key recommendations, Singh said, “Reduce the GST rate on health insurance from 18 per cent to five per cent to make it more cost-effective for the end consumer. Similarly, the GST applicable on hospital room rent above Rs 5,000, which the insurer has to pay, results in a higher premium for policyholders. There is a need to make health insurance affordable for all.”
Quoting the data from the National Health Accounts, Ramachandran stated that the per capita government spending on healthcare has increased by 74 per cent since 2013-14, ie from Rs 1,042 crore in 2013-14 to Rs 1,815 crore in 2018-19. While this is an encouraging sign, a lot more needs to be done to improve the healthcare infrastructure of the country and provide ease of healthcare access to the people.
Ramachandran highlighted that currently, an unreasonably high 18 per cent GST is levied on health insurance premiums, which not only makes in-patient treatment unnecessarily expensive but is also a serious impediment in building out-patient products into health insurance, which constitutes around 60-70 per cent of healthcare spends. He informed that this creates a mismatch in availing healthcare services directly rather than going through an insurance mechanism.
“The Government should consider lowering the prevailing GST rate on health insurance. In addition to reducing the GST slab, the government can provide incentives and tax exemptions to companies and bring in regulations that encourage companies to opt for health insurance for their employees,” he added.
Highlighting that low insurance penetration is another reason for the high Health Protection Gap (HPG) in India, Gilbile, said,” The total public and private health spending in India is far below the global average of 9.8 per cent. This has resulted in out-of-pocket expenditure accounting for more than half of total healthcare spending in India. Further, the rising cost of healthcare services and overall medical inflation in the country has made the health insurance an absolute necessity. Thus, in the upcoming Budget 2023, we do expect the Finance Minister to announce various measures for the health insurance sector.”
Stating that among the host of expectations from the budget, the proposal to increase the FDI limit to 100 per cent in insurance is unlikely to be introduced in the upcoming budget, as the FDI limit has just been recently increased to 74 per cent, Anup Rau, MD and CEO, Future Generali India Insurance said, “A conversation on FDI limit is one that we must have with the policymakers. 100 per cent FDI will help insurers to infuse fresh capital into the system and secure the next two decades of growth. The Indian economy and the insurance market are both tempting to insurers overseas. But let’s also bear in mind that the number of insurers in India is infinitesimally small, compared to our global peers. Part of the problem is the challenge for global insurers to find suitable local partners. With over 60 insurers between life and general insurance and a large number of their joint ventures, there is an acute shortage of local partners, who either have the ability or the inclination to get into this space. One can’t overstate how critical permitting 100 per cent FDI is- it’s a lot easier (or less politically sensitive) for the administration to increase the FDI limit to 100 per cent than it was to increase from 49 per cent to 74 per cent.”