The Union Budget 2018-19 will be presented tomorrow with a great expectation from all sectors of the economy. The Indian government has implemented some major macroeconomic decisions like GST, Demonitization, Real Estate Regulation Act (RERA) to accelerate he economic growth. Apart from these macro level reforms, the government is also responsible for introducing and implementing welfare related agenda for the country through the budget.
Insurance is considered as one of the critical social welfare subjects which needs a big boost in the upcoming union budget. If we talk about Health Insurance in specific, it is a much-needed form of insurance, which safeguards an individual/family/group towards a medical illness, disease or accidents by taking care of the medical cost involved. Expectations for widening the scope and penetration of Health Insurance in India must be treated with priority due to the following critical factors:
Low Insurance Penetration
Insurance penetration replicates the development of insurance sector in the country. Insurance penetration is measured as a ratio of premium to GDP. India’s recent penetration percentage stands at 3.49%. As per National Family Health Survey, less than one-third (29%) of households have at least one member covered under health insurance or any kind of health scheme. Health insurance is still a push product and not a pull product. There is a massive need to introduce measures this budget to make remarkable health insurance more known and popular. Health insurance must be categorized as a mandatory or essential product backed with special tax sops to the common man making it more of a “wanted product”.
High Out of Pocket Expenses
The stagnant health care facilities and low/zero health insurance coverage result in elevated out-of-pocket expenditure on health treatment. Rising medical inflation is another proximate cause for the increase in healthcare expenditure. As per National Health Accounts, 63% of total health spending in India are out of pocket expenditure. Higher out of pocket expenses signals out the lack of any financial arrangement or reserve to combat medical expenses. It further drains out the savings kept for the accomplishment of other financial goals. Critical Illness like Cancer, Cardiac disorders, etc. treatment costs are gigantic which without a health insurance scheme can become a nightmare for common man.
Increased cost of Premium
Under the GST regime, the cost of insurance has risen by 3%. With the implementation of the GST, the tax incidence on a health insurance policy has risen to 18% from 15%, which has made insurance buying costlier. If we talk about the senior citizen segment, the cost of health insurance is already on a higher side, loading it with 18% GST makes it more expensive. The healthcare need of senior citizen category is higher with more vulnerability of illness and lesser disposable income in hand. It’s high time health insurance product should be projected as an essential form of insurance. Government should look at eliminating higher taxation rate on the health insurance or bringing it to the lowest tax segment of 5% to make health insurance more affordable.
Low Tax Deduction limits under Section 80 D
Section 80 D of the Income Tax Act,1961 deals with the tax deductions related to medical insurance.The tax deduction limit under section 80 D is Rs 25,000 where an individual can get tax benefit for paying health insurance premium for self and his family (including spouse and dependent children). The tax deduction limit for the senior citizen is Rs 30,000. Further, an additional deduction of Rs25,000 can be claimed if one has bought medical insurance for his or her parents. This deduction can go up to Rs. 30,000 if the parents are senior citizens. Revision in the tax deduction limit must be in conjuction to the rising medical inflation. The enhancement in the tax deduction limits in this budget could be calibrated as another incentivized approach to encourage people to invest in health insurance. The twin benefit of health insurance cover and tax benefits will certainly act as an accelerating force to move people towards a health insurance cover.
Lack of provision for Health policies with Policy term more than one year
Conventionally, the health insurance policy is for one year, which needs to be renewed annually. But now many insurers have come up with a policy term of 2 and 3 years. Such policies offer discounts on premium for opting a policy term more than one and are economical as compared to an annual health insurance policy. The tax deduction under section 80 D is allowed in the financial year in which the payment is being made. There is no provision currently to spread over the tax benefits for policies with more than one year policy term. There is a need to inculcate such a provision where one should be allowed a pro-rata deduction of single premium paid in a year to spread it over the term of the policy to reap the tax benefits.
Considering the above important shortcomings in the health insurance domain, there are higher expectations from the Finance Minister in the Union Budget 2018. The health insurance penetration needs to improve by incentivizing health insurance premium for the common man. Rising medical treatment cost and lack of health insurance increases the out of pocket expenses for a common man making him drain his existing savings and resources. Lower GST rates for the health insurance product is required for reducing the existing tax burden on the buyer. There is a need to revise the tax deduction limits under section 80 D on a recurrent basis to be at par with rising medical costs. It will further encourage more people to opt for health insurance to avail tax benefits. Also, making it an essential buy just like motor insurance policy under some regulation will insist people to cover themselves under a health scheme. To make health insurance an attractive and popular product, the Government must frame clear roadmap to broaden the scope of health insurance in the organized and unorganized sector. Enhancement of the current health schemes and introduction of the new health insurance schemes backed by the government is much needed to give relief to the Indian population.
Harjot Singh Narula, Founder & CEO, ComparePolicy.com