Good News for Senior Citizen Health Insurance: IRDA Caps Premiums

This limited spending leaves a vast portion of the population reliant on private healthcare, where costs continue to spiral.

A staggering 62% of hospital expenses in India are paid out-of-pocket, according to the World Health Organisation (WHO) placing immense financial strain on households and individuals.

While health insurance is meant to provide relief, policyholders also have to contend with an 18% GST on premiums, adding to the overall financial burden.

Last year, in July 2023, Union Minister, Mr Nitin Gadkari, wrote a letter to the Finance Minister, in which he expressed, "levying GST on life insurance premiums amounts to levying tax on the uncertainties of life. The Union (referring to Nagpur Division Life Insurance Corporation Employees Union) feels that the person who covers the risk of life's uncertainties to give protection to the family should not be levied tax on the premiums to purchase cover against this risk."

"Similarly, the 18 per cent GST on medical insurance premiums is proving to be a deterrent for the growth of this segment of business which is socially necessary. In view of the above, you are requested to consider the suggestion of withdrawal of GST on life and medical insurance premiums on priority as it becomes cumbersome for senior citizens as per rules with due verification," he wrote in his letter.

The views expressed by Mr Gadkari in his letter were based on a memorandum submitted by the Nagpur Division Life Insurance Corporation Employees Union to him.

Despite this, the GST council hasn't taken any decision to do away with 18% GST on health and life insurance premiums.

Senior citizens (aged 60 and above), in particular, are bearing the brunt of rising premium costs, which are already high given their age and associated health risks.

Recently, there have been increasing complaints from senior policyholders about sharp hikes in health insurance premiums, at times as much as 50-60%.

For those relying on limited income sources post-retirement, these steep hikes make it increasingly difficult to afford adequate health coverage.

As a result, some seniors are compelled to deplete their monetary reserves merely to maintain policy continuity, while others are left with no choice but to downgrade their policy parameters, limiting their access to comprehensive healthcare.

Beyond the financial strain, these arbitrarily rising premiums can take a significant psychological toll, particularly for elderly individuals managing chronic illnesses.

To address these concerns and clamp down on insurers abruptly and irrationally increasing premiums, the Insurance Regulatory and Development Authority of India (IRDAI) has now intervened to bring much-needed relief to senior citizens.

In a circular dated January 30, 2025, IRDAI observed that premium rates are primarily determined by the estimated claims outgo and the expenses incurred by insurance companies, including acquisition and servicing costs.

The claims outgo, in turn, are significantly influenced by hospital charges for various treatments and surgeries.

Unlike the Pradhan Mantri Jan Arogya Yojana (PMJAY) scheme, where hospitalisation expenses are centrally negotiated and standardised across various hospitals, there is no such uniformity in health insurance products.

This lack of standardisation results in higher hospitalisation costs, which directly contribute to increasing claim payouts and, ultimately, rising insurance premiums.

Senior citizens, being the most vulnerable age group having limited sources of income, suffer the most whenever there is a steep rise in health insurance premiums.

Hence, to mitigate this impact, IRDAI has now directed all general and health insurers to implement the following steps with immediate effect:

• Insurers cannot increase premiums for senior citizens by more than 10% per annum.

• If an insurer intends to increase premiums for senior citizens by more than 10% per annum or withdraw any individual health insurance product for senior citizens, they must first consult IRDAI.

Requiring a regulatory nod before withdrawing health insurance products is expected to safeguard senior citizens from losing access to essential coverage and deter insurers from forcing policyholders to switch to different (and likely more expensive) products.

Notably, rules restricting withdrawals are already in place but have not been enforced properly by the IRDAI. Therefore, it remains to be seen how the directive in the new circular will be effectively implemented.

As long as premiums are paid, insurers cannot unjustly and arbitrarily refuse renewal and jeopardise the well-being of senior citizens and non-senior citizens.

Clear Communication and Explanation of Terms

IRDAI has also mandated insurers to widely publicise the various measures taken to benefit senior citizens while offering health insurance products.

These include the mandatory time limits for the approvals of cashless claims, the reduced time period for considering pre-existing diseases, and the waiting period.

Insurers must also make available products, add-ons, and riders that cater to policyholders of all ages, covering diverse medical needs.

The objective is to ensure that all policyholders are well-informed about their rights, protections, and available coverage options. Plus, by making all the necessary information available, informed decisions can be made regarding the policies.

Additionally, to support senior citizens, the regulatory framework mandates all insurers to set up a dedicated channel for handling their health insurance claims and grievances. Insurers also need to publish the details of this channel on their respective websites.

Negotiation of Package Rates

Another significant directive by the IRDAI is that insurers must work towards a common empanelment of hospitals and negotiate package rates, similar to the approach followed in the PMJAY scheme.

If implemented effectively, the standardised treatment costs across hospitals shall help senior citizens avoid excessive charges and keep claims outgo in check, which in turn would prevent sharp increases in health insurance premiums.

Concerns Regarding New Policy Issuance

The IRDAI circular has sparked concerns that insurers may impose stricter entry barriers for senior citizens seeking new health insurance policies.

As IRDAI protects existing policyholders from excessive premium surges, insurers could respond by tightening underwriting norms for new applicants. This may include higher premiums, longer waiting periods, and the introduction of additional exclusions, eventually reducing coverage benefits.

In such cases, senior citizens may struggle to obtain adequate health insurance coverage with a suitable policy due to stringent eligibility criteria.

The widespread effectiveness of IRDAI's new directives will ultimately depend on how insurers modify their underwriting strategies.

To Conclude...

The IRDAI's decision to restrict insurance premium hikes for senior citizens is a vital step to make the policies more affordable for retirees.

The directive is expected to strengthen consumer protection and prevent income depletion for elders due to arbitrary premium hikes.

However, continued regulation from the IRDAI is necessary to ensure the directives are enforced and prevent insurers from introducing unreasonable norms and exclusions on new policies.

Additionally, the government should seriously consider reducing the 18% GST on health insurance premiums to 5% or, ideally, eliminating it altogether to make insurance more affordable and accessible to a broader population.

It is crucial to stay vigilant about insurer policy modifications. Use online resources to compare various health insurance plans to make informed decisions that align with your specific health requirements.

Be thoughtful in your approach.

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This article is for information purposes only and is not meant to influence your investment decisions. It should not be treated as a mutual fund recommendation or advice to make an investment decision in the above-mentioned schemes.