Budget 2024–25: Anticipated Reforms In Health Insurance Tax Benefits And Affordability Measures

In the heart of India, where vibrant cultures and bustling cities paint a picture of progress, a large number of families still grapple with the stark realities of healthcare access. For many, a single medical emergency can spell financial disaster, pushing them into the depths of poverty.

Amidst these challenges, health insurance stands out as a crucial lifeline, offering a safety net that promises not just financial security but also the hope of a healthier future. India, along with being the fastest-growing economy, is also one of the fastest-growing insurance markets in the world.

In the last financial year, the general insurance industry saw its total gross direct premium at Rs 2.89 lakh crore compared to Rs 2.56 lakh crore in the previous financial year-a growth of 13 percent. With a market share of 38 percent, health insurance continues to be the largest segment in non-life insurance. The premiums for health insurance stood at Rs 1.09 lakh crore in FY 2024 as against Rs 90,651 crore in FY 2023, witnessing a growth of 20.25 percent.

Today, the demand and awareness for health insurance are much higher, aided by the environment that we live in and rising medical inflation. On July 23, the finance minister will present the full budget for fiscal 2024-25, and the insurance industry will closely monitor the tax reforms on health insurance.

Increased Tax Deduction Limits under Section 80D

Currently, individuals can claim deductions up to Rs 25,000 for health insurance premiums paid for themselves, their spouse, and their children. Senior citizens now have a limit of Rs. 50,000. Proposals may seek to raise these limits further in order to account for rising healthcare costs and encourage more people to invest in health insurance. Section 80D not only provides tax benefits, but it also emphasizes the importance of health insurance and preventive health care, helping individuals and families mitigate the financial burden of medical expenses.

GST Reduction on Health Insurance Premiums

Higher premiums may make health insurance less affordable for many people, especially in a country like India where disposable incomes are limited. This could result in a significant portion of the population remaining uninsured or underinsured. The additional cost due to Goods and Services Tax (GST) might discourage individuals from opting for comprehensive health insurance plans, pushing them towards choosing policies with lower coverage or higher deductibles to keep premiums affordable. So, reducing the GST rate on health insurance premiums from the current 18 percent could make health insurance more affordable for the general public.

Increased Tax Deduction for Top-Up and Super-Top-Up Plans

The government should provide separate or additional tax deductions for premiums paid towards top-up and super-top-up health insurance plans. This would encourage policyholders to enhance their coverage beyond the basic health insurance plans.
Top-up health insurance plans serve as a supplement to an existing health insurance policy. They come into play when medical expenses exceed a predefined threshold, known as the deductible. Super top-up plans operate on a similar principle but offer a broader scope of coverage. Unlike top-up plans, which consider each hospitalization separately, super-top-up plans take into account the cumulative medical expenses over a policy year.

Separate Deductions for Critical Illness Plans

Providing separate tax deductions for premiums paid towards critical illness insurance plans, distinct from the overall health insurance deduction, could encourage individuals to opt for comprehensive coverage. Critical illness insurance plans are specialized health insurance policies designed to provide financial protection against life-threatening diseases and severe health conditions. These plans offer a lump-sum payout upon the diagnosis of specific critical illnesses, which can help cover treatment costs, recovery expenses, and even regular living expenses if the insured is unable to work.

The upcoming Union Finance Budget holds promise for the insurance sector, potentially ushering in reforms that could make health insurance more accessible and beneficial for millions. If the government takes proactive measures, it can further strengthen the safety net for India's vast population, ensuring that health insurance is not just a privilege but a right for all.