Relation between Health Insurance and GST

Goods and services tax (GST) has changed the taxation system of India. Undoubtedly, GST has not only changed the taxation system but also the percentage of tax charged on goods and services. The GST Act was passed in LokSabha on 29th March, 2017, and has been implemented from 1st July, 2017.

Many products has seen the significant changes because of the implementation of GST. And it has affected the insurance industry, too.

Do you have an insurance policy? At least a health insurance policy to tackle the rising medical inflation?

If you do not have a health insurance policy, then you must have one. Before I proceed further with the impact of GST on health insurance, let me tell you briefly about what is health insurance.

What is health insurance policy?

A health insurance policy provides financial aid at the time of medical emergencies. You pay a yearly premium to keep the policy in force. At the time of purchase you can decide the risk cover, which is called as sum insured.

The sum insured is the maximum amount the insurance company will pay in case a claim arises. The medical expenses are covered by the insurance company including pre- and post- hospitalization, in-patient hospitalization, day care, etc.

One can buy the health insurance policy to cover oneself under an individual health insurance plan or can cover all the family members under a family health insurance. Again, to cover all the family members, you further choose from either family health insurance or from family floater health insurance.

The generic health insurance plan is the one in which each member of the family is insured with a different individual sum insured. Whereas, a family floater health insurance plan has only one sum insured. Under the family floater health insurance plan, the sum insured can be utilized to cover the medical expenses by any of the insured member of the family. If the sum insured is not fully exhausted during the policy period, the rest of the sum insured amount can be utilized to cover the medical expenses of any other insured family member, if the need arises.

How will GST work now?

Well, GST will now have two components. The first being the Central GST (CGST) which will be imposed by the Central Government of India. The second component being the State GST (SGST) which will be collected by the State Government of India. The State GST will be collected to perform intrastate sales.

While, GST will impact each and every sector differently, the Health insurance sector will be affected majorly.

Impact of GST on Health Insurance:

Earlier, the total tax was 15% of the premium amount. However, from the effect of 1st July, 2017, GST has been implemented and because of which the tax has been increased from 15% to 18% of the premium amount. Health insurance has seen a hike of 3% in the tax payment. This hike would be passed directly to the policyholder in the form of increased premiums.

Let’s make it simpler with the help of an example.

Health insurance premium before GST:

- Family health insurance sum insured: Rs.5 lakh

- Annual Premium: Rs.25,000

- Tax: 15% of Rs.25,000 = Rs.3,750

- Total amount paid for the health insurance policy = Rs.25,000 + Rs.3,750 = Rs.28,750

Health insurance premium after GST:

- Family health insurance sum insured: Rs.5 lakh

- Annual Premium: Rs.25,000

- Tax: 18% of Rs.25,000 = Rs.4,500

- Total amount paid for the health insurance policy = Rs.25,000 + Rs.4,500 = Rs.29,500

- Because of GST there is a 3% hike.

- And in the above mentioned case it has made an impact of Rs.750.

Wrap up:

People who wish to buy a new health insurance policy or renew the ones bought previously will have to pay a tax of 18% on the premium, which makes buying health insurance policy just more costly. However, one must not neglect buying a health insurance plan, solely based on the premium amount, because the medical inflation is over and above the head, and the present lifestyle has left us with no choice but to have health insurance.