Declining affordability of health insurances

Source: The post Declining affordability of health insurances has been created, based on the article “Explained: The debate over GST on health insurance” published in “Indian Express” on 7th August 2024.

UPSC Syllabus Topic: GS Paper 2 – Governance-Issues relating to development and management of Social Sector/Services relating to Health

Context: The article discusses how the increase in health and life insurance premiums, coupled with an 18% GST, has made insurance less affordable. It highlights concerns against this tax and debates on whether reducing GST would benefit policyholders and insurance industry growth.

For detailed information on All­-in-­one policy plan to spread insurance in India read this article here

What is the GST on Health and Life Insurance Premiums?

1. GST on health and life insurance policies is fixed at 18%.
2. GST replaced indirect taxes like service tax and cess on July 1, 2017.
3. Before GST, life insurance premiums had a 15% tax, including Basic Service Tax, Swachh Bharat cess, and Krishi Kalyan cess.
4. The increase from 15% to 18% raised premiums for policyholders.
5. In the last three financial years, GST on insurance policies generated Rs 21,256 crore.
6. Reissuance of health policies added another Rs 3,274 crore.
7. The rise in premiums, coupled with GST, has made insurance less affordable.

What Are the Arguments for Reducing GST on Insurance?

1. High Premium Costs: Health insurance premiums have increased significantly, with some public sector insurers raising premiums by 50%.
2. Medical Inflation: Medical inflation was estimated at 14% at the end of last year, adding to the cost burden on policyholders.
3. High GST Rate: India’s GST on insurance is 18%, the highest globally, deterring people from buying policies. Markets like Singapore and Hong Kong have no GST or VAT on insurance, making policies more affordable.
4. Industry Growth Restriction: Union Minister Nitin Gadkari stated that the GST on premiums restricts the industry’s growth.
5. Revenue Data: GST on insurance policies generated Rs 21,256 crore in the last three years, indicating the substantial financial burden on policyholders.

How Significant are the Insurance Markets in India?

1. The general insurance industry collected Rs 1,09,000 crore in health premiums in 2023-24.
2. Life insurance companies collected Rs 3,77,960 crore in premiums, with LIC contributing Rs 2,22,522 crore.
3. Five states (Maharashtra, Karnataka, Tamil Nadu, Gujarat, and Delhi) contributed 64% of total health insurance premiums in 2022-23.
4. Insurance penetration in the life sector dropped to 3% in 2022-23 from 3.2% in 2021-22.
5. Non-life insurance sector penetration remained at 1%.
6. Overall insurance penetration decreased to 4% in 2022-23 from 4.2% in 2021-22.

Question for practice:

Examine how the increase in GST on health and life insurance premiums has impacted the affordability and growth of the insurance industry in India.