Budget 2022 Expectations: GST cut on premium, hike tax exemption to boost penetration, health insurance sector urges Centre

Finance Minister Nirmala Sitharaman will present the Union Budget on February 1, 2022.

Though GST rates do not figure in Finance Minister’s Union Budget speech, the insurers want Nirmala Sitharaman to give an indication towards reduced rates on insurance premium.

They are of the view that the GST rate of 18 percent is way too high and makes it unaffordable for a large chunk of the Indian population, mainly in the middle- and low-income groups as well as senior citizens.

“The pandemic has taught us the importance of having a health insurance plan. My wish list from the budget is to see the health insurance sector receiving further impetus through boosters like a lower GST rate and higher exemption limits by the hon’ble finance minister,” said Suresh Agarwal, MD & CEO, Kotak Mahindra General Insurance.

According to Anup Rau, MD & CEO, Future Generali India Insurance, slashing GST rates significantly across all personal lines of products-from the current 18 percent to 5 percent will enable more people to buy health insurance. Also, that senior citizens should be exempted from paying GST on insurance premium, he stressed.

In India, penetration of health insurance is very low and a wider gamut of population should be brought under the safety net, feels the health insurance industry.

A Niti Aayog report last year noted that Ayushman Bharat- Pradhan Mantri Jan Arogya Yojana (AB-PMJAY), launched in September 2018, together with similar schemes offered by state governments has managed to cover nearly 50 percent of the population or 70 crore people at the bottom of the pyramid and nearly 20 percent or 25 crore individuals are covered by social health insurance, and private voluntary health insurance.

However, nearly 30 percent population or 42 crore people are still without any sort of health insurance coverage, it noted.

The industry expects that the government will focus on increasing access to health insurance for more people, enabling them to become part of the health care system and get quality treatment.

“Health insurance penetration in India is abysmally low, and what cannot be glossed over is that every year millions of people in our country are pushed below the poverty line because of the burden of out-of-pocket healthcare expenses,” says Srikanth Kandikonda, CFO, Manipal Cigna Health Insurance.

The 2020-21 annual report of the Insurance Regulatory and Development Authority of India (IRDAI) says that the insurance penetration in India stands at 4.2 per cent of the gross domestic product (GDP) as against a global average of 7.4 per cent of global average. The non-life insurance penetration was even lower at 1 percent of GDP as of March last year.

“Thus, we are hopeful in the upcoming Union budget 2022-23 the government looks at considering 5 percent GST tax slab on health insurance premium along with commodities such as food items to make it more affordable for the people living in the middle-income group to get access to quality healthcare care they need,” says Kandikonda.

He argues that a GST rate cut from 18 percent to 5 percent on the health insurance premiums will be a huge respite especially for senior citizens struggling with the rising healthcare costs.

“As people age, many elders may need to cope with some or the other health conditions and would need protection against any untoward hospitalization expenses on account of large number of diseases including critical illnesses,” he notes.

At present, on most insurance products the GST is 18 percent which thrusts the premium to 118 percent for the end-user, Kandikonda points out.

“The abolition or at least a sizeable reduction in the GST on all personal lines of products – from the existing 18 percent to 5 percent will encourage more people to buy health insurance,” he says.

According to Rakesh Jain, CEO, Reliance General Insurance Co Ltd, the insurance and healthcare sector need to evolve together to boost access to quality and affordable healthcare to the masses.

For the Union Budget 2022, the government should consider bringing healthcare facilities, such as diagnostic centers, specialty hospitals, wellness facilities, under the “Infrastructure” category, he says.

“This will bring in funding from large institutions, including insurance companies that seek and have regulatory obligation of investments in ‘Infrastructure assets.’ "

Further, the increase in the limit of tax deduction in 80D can help boost the overall health insurance penetration in the country.

Currently, income tax exemption under Section 80D of the Income Tax Act is up to Rs 25,000 on health insurance plans. In case of senior citizens, the exemption limit is up to Rs 50,000.

Considering this, the industry expects that Finance Minister Nirmala Sitharaman would raise the exemption limits substantially.

Amid the growing medical inflation, a major illness or even lifestyle disease and also infectious diseases like Covid can push the family into a debt trap, notes Kandikonda.

Thus, a comprehensive and high sum insured health insurance policy has become a necessity to access quality treatment without worrying about medical expenses, he asserts.

"Therefore, in the budget ahead we expect the government to announce initiatives to increase the limit for health cover under section 80D and GST rate cut, to help millions of people access quality healthcare at an affordable cost.”