Incentives for health insurance

The cost of health care is rising dramatically. Most of the country is still under-insured or with inadequate health coverage. Section 80D allows up to Rs 15,000 of deduction towards a health insurance policy, but this is rarely if ever fully utilized by the average Indian family. We would like to see the government provide more incentives to promote health insurance. Lets see why this important and what the government might consider.

There are two providers of healthcare in India, the government provided services, and private sector services. Over the past few years, with the boom in sectors such as IT, pharma, media and manufacturing, a growing number of young Indians are working in the private sector, where their healthcare needs are not subsidized by their employers. 

But, even those of us who are eligible to use free or subsidized government healthcare facilities are confronted by quality issues, bureaucratic delays and problems of access to timely medical service. As a result, a large number of us seek medical care from the private sector hospitals where the cost of treatment is high. 

High and unforeseen medical expenses stretch the personal finances of a family. However, if the family had health insurance, the insurance can cover many if not most of the costs. The reality is that most in the country do not have even a basic level of health insurance.

So what can the government do?

Ultimately, the government's goal has to be for a healthy working population that can power the country's growth. To do this, it can build or improve its own network of hospitals to serve the population at a reasonable cost. However, so far the government's track record on this has not been very good.

Rather than the government spending money to build and operate hospitals, why not offer some of the money that would have been spent on this as an economically meaningful tax credit for the population to buy health insurance. People can then use this insurance to access private sector healthcare services.

The reason we are arguing for an economically meaningful tax credit is because the current deduction of Rs 15,000 under Section 80D is not working. The average urban family pays a premium of around Rs 5,000 for a policy for about Rs 2 lakhs of coverage. This gets a maximum tax relief of about Rs 1,600, which is not an attractive enough incentive in most cases. 

If, however, the government gave a tax credit for the full Rs 15,000, even if the premium paid by an individual is less than that amount, then that results in a tax saving of up to Rs 5,000 (33% tax rate on Rs 15,000), which in the above example makes the insurance policy virtually free. This can serve as a far more powerful incentive than what we have under the current legislation.

Over time, this can help increase the penetration of health insurance coverage, and can, to a large extent, mitigate the problem of families being financially unprepared for high hospitalization bills. And, this will also indirectly act as an incentive for the private healthcare companies to build and operate state of the art medical facilities as more and more people can afford to pay for their services.

The above is just a suggestion to get the debate going. What do you think?

By www.iTrust.in - India's leading one-stop financial supermarket for real estate, home loans, investments, taxes and financial planning.