This is an excellent tax break because it encourages health insurance and preventive care. According to government statistics more than 70% of health care is paid for from personal savings. This is high and ideally personal savings should be the last resort for health care expenses when insurance has been fully utilized. For Section 80D, the government should have two objectives. To encourage more and more people to buy health insurance and motivate them to buy the right amount of sum insured. To achieve this the income tax exemption in section 80D should be increased, ideally double.
The current tax exemption does not encourage the purchase of adequate health insurance. The table below shows this from SecureNow’s database of all health insurance products currently available in the market.
|the product||Section 80D Exemption Limit (Rs.)||number of products available||Average Premium (Inclusive of Taxes)|
|Family floater Rs 20 lakh sum assured, eldest age 30||25,000||45||28,700|
|Family Floater Rs.5 Lakh Sum Assured, Senior Age 45||25,000||86||23,200|
|Individual insurance of Rs 10 lakh each for a family of two persons above the age of 45 years||25,000||73||30,600|
|Family Floater Rs 10 Lakh Sum Assured, Senior Age 45||25,000||73||32,400|
|Family Floater Rs.20 Lakh Sum Assured, Senior Age 45||25,000||45||42,800|
|Individual insurance of Rs 20 lakh each for a family of two persons above the age of 45 years||25,000||45||44,000|
|Individual insurance of Rs 10 lakh for two persons above the age of 60 years||50,000||73||63,000|
|Personal insurance of Rs 5 lakh for two persons above the age of 75 years||50,000||16||95,000|
|Individual insurance of Rs 10 lakh each for two persons above the age of 75 years||50,000||18||1,26,624|
 For family floaters where the age of the eldest person is 30 years, we have assumed that the family consists of 3 i.e. spouse and 1 child.
 For family floaters where the age of the eldest person is 45 years, we have assumed a family of 4 i.e. spouse and 2 children
 For all individual insurance we have considered the total premium for 2 persons, self and spouse, assuming there is a salaried individual who gets the benefit of section 80D
Taxpayers in cities should have health insurance of at least Rs 10 lakh. In fact, I would argue that if one takes a long-term view, there should be a cover of at least Rs 20 lakh per person. For a health insurance cover of Rs 10 lakh today, the tax exemption would generally not cover the existing insurance premium. The open gap increases with age and is maximum for senior citizens. It is possible to buy a lower insurance cover of Rs 5 lakhs within the exemption limit. However, it is also the Rs 5 lakh cover, where room rent limits and other limits are often the most restrictive. Also, the cover of Rs 5 lakh is still insufficient, if many family members are hospitalized. It has become quite common during the pandemic with the whole family falling ill at the same time.
The pandemic has served as a clarion call for raising the Sum Assured levels. Most families saw a sharp increase in health care costs as many people in the family fell ill, hospital costs increased due to lack of capacity and widespread PPE use, and average hospital stays increased from 2 to 3 days. It’s been a week. Or for more covid patients. For many of our clients, we have seen an increase of 50% or more in healthcare expenditure during COVID. With the regularity with which new covid strains are emerging, we should increase the health insurance amount to deal with the rising cost.
The government has allowed the use of up to Rs 5,000 of the exemption limit for preventive health check-ups. I am ready for an annual health checkup for early detection of medical problems. However, since the exemption limits are already lower, an unintentional consequence is that taxpayers who use preventive health check-up expenses to claim exemption under section 80D, have a higher total exemption for health insurance. less than the limit. Both are important and a higher limit would solve this problem.
From the government’s point of view, the target should be that taxpayers buy a sum assured of at least Rs 10 lakh today. High medical inflation is the main reason for this. According to the government’s BRICS Combined Statistics 2021, the Consumer Price Index (CPI) in health has been growing at a rate of around 6% per annum over the past few years. CPI will definitely be higher in cities. Medical inflation appears to be high in the 10% to 15% region when I look at their database of several thousand claims. The increase comes from increasing hospital room rates, patients upgrading their rooms, and a steady reduction in the cost of treatment. Many hospitalized during the pandemic were out of pocket as room charges exceeded the rates recommended by the General Insurance Council (GIC). As insurers paid compensation based on GIC recommendations and hospitals were charged based on market dynamics, the insured bore the difference. A higher sum insured without room limit will reduce such issues in future.
The health insurance and related sum insured you buy today is meant to insure you against medical emergencies for a lifetime. A few years back the insurance regulator, IRDAI introduced the excellent lifetime renewal facility in individual health insurance. Therefore, the sum insured you buy now should be able to cover your medical emergency expenses even after two to three decades. To estimate this sum assured, the current costs need to be combined at the expected medical inflation rates. For example, a good tertiary hospital currently costs Rs 2.5 to 5 lakh to insert a stent. A 35 year old man may require a stent after 20 years, when the increased cost would be Rs 20 to 30 lakhs. Even if she has a generous no-claim bonus in her current insurance, it’s going to be seriously less than the cost of treatment if she really needs it. So today higher sum insured should be encouraged by tax policy. As shown in the table above, the average premium across various sum assured indicates that the tax exemption limit is much lower than the premium payable in most of the segments and this difference will only increase in future as the sum assured requirements increase.
Another tax change that will boost health insurance immediately is the reduction of the GST tax slab from 18% to 10 or 5%. This reduction has a direct impact on the overall insurance premium and will make the purchase more affordable.
These changes may not cost the exchequer a material sum as the loss of tax revenue may be partially offset by a reduction in the insured population’s dependence on government hospitals and health infrastructure.
(The author is the co-founder of SecureNow Insurance Broker.)