Here’s Why Health Insurance Should be a Key Module of Union Budget 2023

Health is a major factor that affects highly dense economies like India. With the growing population of over 1.4 billion and rising medical inflation, providing necessary healthcare facilities to all segments of the country is quite a challenge for the government.

Besides, just when we thought the covid-19 would finally be over, a new variant emerged in neighbouring China. Considering the re-emergence of covid-19 in various countries, the chances of a new wave in India cannot be completely ruled out. Due to the constantly rising medical inflation and the spread of new variants of covid-19, health insurance has become a necessity for each and every individual in India.

However, India is a country with one of the lowest health insurance penetration in the world due to a lack of awareness, limited reach, and lack of education. Millions of individuals end up spending a significant portion of their earnings on healthcare services. To increase penetration, improve accessibility, and make health insurance affordable, the government needs to prioritise the health insurance sector and take measures in the Union Budget 2023-24.

Along with providing financial protection in case of a medical emergency, health insurance also acts as an efficient tax-saving tool. The premiums paid towards the health insurance policy offer tax benefits under Section 80D of the Income Tax Act 1961. Moreover, the health insurance premiums paid for the family, including spouse, children, and parents, are also eligible for tax exemption under Section 80D.

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You can claim up to Rs 25,000 (and up to Rs 50,000 if you are a senior citizen) in a financial year for health insurance premiums paid towards yourself, your spouse, children, and parents who are less than 60 years old. For the premiums paid towards your senior citizen parents (above 60 years), you can claim up to Rs 50,000.

Apart from the premium payment deduction, Section 80D allows a tax deduction of up to Rs 5,000 per financial year for a health checkup that you might seek. These health checkups are preventive in nature and can be sought to identify illnesses at an early stage. However, this tax deduction is not over the above-mentioned limits of your insurance premium and can be claimed as a sub-limit within the above-admissible deductions.

Considering the increased cost of healthcare amidst the threat of the emergence of new viruses, Finance Minister Ms Nirmala Sitharaman needs to consider increasing the tax deduction limit under Section 80D of the Income Tax Act. Besides, the health checkup deduction limit is inadequate compared to the cost of a full-body health checkup. This limit needs to be raised to at least Rs 10,000 per financial year and can have a separate deduction limit over and above the admissible health insurance premium deduction limit.

Health insurance premiums have recorded a 10% to 30% hike across different types of health insurance plans since the beginning of the pandemic. Among other reasons, the rising cost of healthcare due to the covid-19 outbreak and medical inflation are the primary factors contributing to the health insurance premium shoot-up.

However, despite the increase in the cost of healthcare and health insurance premiums, the health insurance tax deduction is inadequate. The higher tax deduction will ensure more disposable income, resulting in higher health insurance penetration as people tend to buy health insurance policies. Scaling up the tax deduction limit on health insurance premiums will encourage people to buy health insurance and ensure they are not uninsured or underinsured.

Another crucial factor that increases the health insurance premium considerably is the Goods and Services Tax (GST). The prevailing applicable GST rate is 18%, which is very high considering the necessity of health insurance penetration. Since the GST on health insurance is distinctively high, many individuals buy lower sum insured or avoid buying it altogether.

While the hospitals pay GST when they buy goods, they do not levy it on their patients. So, no GST is applicable for the patients for medical services and hospital bills. Since health insurance is a part of the healthcare sector and every individual has adequate health insurance coverage is a basic necessity, the Government should relook at and remove the applicable GST on health insurance.

The removal of GST will encourage more people to buy adequate health insurance coverage and increase its penetration.

Furthermore, as the parliament had already passed the amendments to the General Insurance Business (Nationalisation) Act, 1972, for privatisation of the public sector insurance companies, better private sector investments are expected in the healthcare industry for sustained economic growth. Finance Minister Ms Nirmala Sitharaman is expected to be detailed out regarding the same in the Union Budget 2023-24.

Overall, Finance Minister Ms Nirmala Sitharaman, under the Modi Government, needs to prioritise the health insurance segment in the upcoming Union Budget 2023-24 (which will be presented in the parliament on February 1, 2023) and take measures, such as increase in the health insurance premium tax deduction limit, increase in the health checkup tax deduction limit, removal of GST for health insurance policies, and better private sector investments in health insurance sector to encourage people to buy adequate health insurance that leads to a healthy country in the long-term.

KETKI JADHAV is a Content Writer at PersonalFN since August 2021. She is an MBA (Finance) and has over seven years of experience in Retail Banking. Ketki specialises in covering articles around banking, insurance, personal finance, and mutual funds and has been doing it for over three years now.