Should Government Remove 18% GST on Life and Medical Insurance Premiums?

In a recent appeal, Union Minister Nitin Gadkari advocated for the removal of the 18% Goods and Services Tax (GST) on life and medical insurance premiums. Dr. Shashank Chaudhari, Managing Director of Shri Venkatesh Eye Institute, highlighted the potential benefits of this proposal in an authored article, emphasizing the impact on affordability and accessibility of healthcare services for the general public.

The recent appeal by Nitin Gadkari to remove the 18% GST on life and medical insurance premiums, I see multiple dimensions to this proposal.

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Accessibility and Affordability

• Healthcare accessibility and affordability is a critical challenge for Gov. of India to address. When it comes to opting appropriate cover or even minimum insurance cover many individuals don’t opt due to high costs. However, point to be noted is that we have one of the lowest premium regime in India compare to mature insurance markets in the of the world. Removing GST will further lower the cost of insurance premiums, making them more affordable for a larger segment of the population. Intern it will help us in increasing insurance penetration & providing more individuals with the most needed financial protection against medical emergencies, which is one of the major cause of people who gets pushed back to poverty.
• With regards to the Hospitals and healthcare providers, they often face financial strain when patients are underinsured or uninsured. These patients are not in position to pay the fees of the treatment, resulting in financial losses for the hospital. With more people having adequate insurance coverage, hospitals can expect improvement in their cash flow and financial health. This, in turn, enables healthcare providers to invest in better infrastructure, technology, and services, enhancing overall healthcare quality.
• Higher health insurance penetration can possibly reduce the strain on government-funded healthcare schemes like Ayushman Bharat. With more people covered by private health insurance, the government can allocate resources more effectively to other critical areas.

Justification for Keeping GST on Life Insurance:

• Life insurance often includes an investment component, with policies like endowment plans, ULIPs, and money-back policies offering returns along with coverage. Taxing these premiums is similar to taxing other financial products and investments.
• This investment aspect makes life insurance more of a financial product than a pure risk mitigation tool, which justifies the imposition of GST.
• Life insurance policies tend to have longer durations and more predictable cash flows, making the tax revenue from these products more stable and reliable for the government.

 Policy Considerations:

Below are the figures from the IRDA annual report 2022-23.

If we look at these figures from the prospect of how much GST revenue Gov. has generated. In the year 2021-22 it was approximately Rs. 1,24,670.55 Cr & in 2022-23 it was Rs. 1,40,850.71 Cr (18% of the total premium underwritten) from Life insurance companies and Rs. 14,490.41 Cr in 2021-22 & Rs. 17,579.43 Cr in 2022-23 (18% of the total premium underwritten) from the health insurance companies.

Interestingly the budget of Government in current year for healthcare is around Rs. 90,000 Cr. Now, looking at the quantum of this expense, only expert public policy makers and the Economists are in the commanding position to make the decision to remove GST from the insurance premium or not?

Maintaining GST on life insurance premiums is reasonable due to its investment components and stable revenue contribution. However, removing GST from health insurance premiums aligns with the broader goal of universal health coverage and public health improvement. This targeted approach balances the need for government revenue with the necessity of making healthcare more accessible and affordable, ultimately benefiting the economy and society as a whole.