In the interim budget for 2024-25 presented in February, finance minister Nirmala Sitharaman increased the government’s allocation towards the health sector by nearly 14%. But considering India’s strained public health infrastructure, insurance industry experts believe the government could do more to ensure more people have access to quality healthcare.
Mint spoke with industry experts for their recommendations on what Sitharaman, in her second term as India's finance minister, could include in her full-year budget for FY25 next month.
The Union government in its interim budget allocated ₹90,171 crore to the health sector for the financial year 2024-25, up from ₹79,221 crore in FY24. But the industry still feels this is low.
“The National Health Policy has proposed an increase in public expenditure on healthcare to 2.5% of GDP by 2025. Despite some progress over the years, India’s healthcare spending is still low compared to the global average, necessitating a substantial boost in healthcare spends,” said Prasun Sikdar, managing director and chief executive of ManipalCigna Health Insurance.
“Thus, in the upcoming union budget, we expect the finance minister to announce higher allocation of funds for healthcare compared to what was proposed in interim budget to meet the targets of the National Health Policy.”
Health insurance is a necessity. With the rising medical inflation, hospitalisation costs have surged. That, in turn, has caused a steep jump in health insurance premiums, more so for senior citizens. Customers have to pay 18% goods and services tax (GST) on the premiums.
“To enable better retail health insurance penetration, the government can consider categorising them (senior citizens) under a separate HSN code and lowering the tax to 5%,” says Parimal Heda, chief investment officer, GoDigit General Insurance. “This would make such health plans more affordable for individuals and may even make them consider higher sum insured.”
HSN, or the harmonised system of nomenclature, is a six-digit code for classifying various goods and services in tax invoices.
The tax on health insurance premiums should be reduced to 12% from 18% while continuing to allow insurers to claim input tax credit, said Dr. S. Prakash, MD and CEO-designate, Galaxy Health Insurance Company.
The tax “should be waived off for senior citizens, physically disabled, and other disease-specific categories,” he added.
Reducing GST on health insurance premiums will help improve the out-patient-department (OPD) coverage, said Krishnan Ramachandran, MD and CEO of Niva Bupa Health Insurance, adding that the 18% GST hindered the inclusion of OPD benefits in health insurance policies.
“Lowering the GST rate would support IRDAI’s vision of universal insurance coverage by 2047,” he said.
About 73% of Indians do not have health insurance, according to a report by the National Insurance Academy. IRDAI is the Insurance Regulatory and Development Authority of India.
Section 80D of the Income Tax Act, 1961 provides tax deductions of up to ₹25,000 on health insurance premiums paid in a financial year. For senior citizens aged 60 years and above, the tax deduction limit is ₹50,000 in a financial year.
The industry has been demanding higher tax incentives to encourage more people to buy insurance.
“The 80D tax exemption should be linked to inflation and revised periodically. Raising these limits to ₹50,000 and ₹1 lakh (for senior citizens), respectively, would further incentivize health insurance for elderly parents,” said Ramachandran of Nuva Bupa. “Tax exemptions should also extend to dependent family members like siblings.”
Heda of GoDigit suggests incentivising first-time health insurance buyers.
“An exemption of 200% of the premium paid can be considered for them under chapter VIA (of the Income Tax Act), which in a phased manner of four years can be reduced and made at par to the threshold that currently exists under Section 80D,” he said. “This could also help lessen the financial burden of the government for Pradhan Mantri Jan Arogya Yojana (PM-JAY).”
The Ayushman Bharat Pradhan Mantri Jan Arogya Yojana is the Union government’s flagship health insurance scheme, and the world’s largest.
While the insurance industry is well-regulated, the healthcare industry lacks supervision when it comes to pricing.
“Currently, hospitals are sort of self-regulated. Although there is the Clinical Establishment Act, we wonder how uniformly it is practised across the country,” said Dr. Prakash of Galaxy Health Insurance.
“A health regulator can better standardise operating procedures, create effective packages according to the location and expertise available in a hospital, and also (raise) questions on unethical practices. This can bring more confidence to the public and also better financial transactions between insurers and the hospitals,” he said.
Also, the government’s Universal Health Scheme “requires better implementation (to ensure) greater participation of multi-speciality and corporate hospitals and better reach to the deserving (below poverty level) population,” said Dr. Prakash. “Uniformity in its implementation across all states is also to be looked into.”
