A key deterrent to widespread healthcare services is the cost associated with building up the necessary infrastructure. So, the greater the number of contributors, the lower the cost of providing such services, and the higher the number of people who can get services. In this context, health insurance and its wide reach can play an important role in the development of such services in India.
In theory, tax incentives should not drive a household’s decision to buy insurance. In practice, however, they do influence these decisions. It’s been observed that tax benefits encourage households to buy and continue with insurance. Currently, an individual or a Hindu undivided family (HUF) can claim tax deduction under section 80D of the I-t Act, 1961 against health insurance premium. For individuals, a deduction up to R15,000 is allowed against health insurance premium for self, spouse and dependent children. Similarly, for HUFs, deduction is allowed against health insurance premium for any member.
Individuals can claim additional deduction of up to R15,000 against health insurance premium for parents. The limit is enhanced to R20,000 if the parents are senior citizens.
In the Indian context, there are sound reasons to revise this tax deduction for encouraging people to buy health insurance. These limits, fixed long back, have outlived their utility while costs of diagnosis and treatment have increased across the board. A standalone review for a family of, say, 4-6
vis-ŕ-vis any health insurance provider would highlight that this amount is not sufficient to provide a meaningful health cover. A higher tax deduction would encourage more people to avail themselves of a bigger cover, which would increase demand for healthcare services and, in turn, provide the much-needed boost to healthcare providers.
Another incentive, generally utilised by salaried individuals, is in the form of tax-free reimbursement by the employer for expenditure incurred on medical treatment of self and family, up to R15,000 per year. This limit doesn’t serve any meaningful purpose in these times. The employers have to continue with this benefit as it was made part of the overall compensation package long ago, and it is difficult to make any changes to internal policies unless this tax benefit is withdrawn by the government or it becomes an industry-wide practice. As such, it only adds to the administrative cost for employers. Thus, this benefit should either be enhanced substantially or discontinued and merged with the health insurance coverage.
There could be an argument that health insurance primarily covers hospitalisation benefit while medical reimbursements generally cover routine, day-to-day medical needs. The counter-argument is, like most developed economies with a mature health care system, gradually, all medical care services would merge in the form of comprehensive healthcare services provided through insurance coverage or through social welfare schemes. A viable solution to spread healthcare services in India is through widespread insurance coverage — and tax incentives play an important role in the process.
n The writer is partner, KPMG