Sucheta Dalal :Budget gets mixed reviews from health insurers; service tax will put off hospitals
Sucheta Dalal

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Budget gets mixed reviews from health insurers; service tax will put off hospitals  

February 26, 2010

Finance minister Pranab Mukherjee has presented his Budget and most industry sectors are happy with his proposals. The Union government intends to increase the health benefits to workers under the National Rural Employment Guarantee Act (NREGA) and raise the Plan allocation for the ministry of health and family welfare. However, there is a mixed response to Mr Mukherjee’s Budget on other counts.


Mr Mukherjee announced an increase in the Plan allocation for the ministry of health and family welfare from Rs19,534 crore to Rs22,300 crore for 2010-11. “This would help in improving the health-care delivery mechanism which will indirectly help health insurers to serve their clients better,” said Krishnamoorthy Rao, chief executive and managing director of Future Generali India Insurance Co Ltd. However, S Sreenivasan, chief financial officer of Bajaj Allianz General Insurance, argues that the amount allotted is inadequate and an increase of Rs3,000 crore would hardly cover inflation.


Most insurers are concerned over the service tax on payments made to hospitals, arguing that it could increase the cost of the customer. “Specific to the general insurance industry, the clarification that no tax will be levied on unrealised investment income is a welcome step; this will free funds for investment in infrastructure and social sectors.  There is also a proposal to impose service tax on payments made to hospitals under health insurance schemes, which could push up costs for end customers,” said Bhargav Dasgupta, managing director and chief executive, ICICI Lombard GIC.


Mr Rao echoes the same view: “There had been no major changes for health insurers. The service tax on payments made to hospitals will push up the cost to the end customer.” Mr Sreenivasan argues that bringing health insurance costs under service tax will dissuade many hospitals from approving cashless transactions.


“At a macro level, a responsible and a well-balanced Budget for the common man. The middle-class will have a huge investible surplus in their hands because the lower income-tax levels. This money can get channelized into a whole lot of investment options, including life insurance,” Rajesh Relan, managing director, MetLife India Insurance Company Limited, said.


In view of the success of the Rashtriya Swasthya Bima Yojana (RSBY) scheme, the Union government plans to extend its benefits to NREGA beneficiaries who have worked for more than 15 days during the preceding financial year, in a move to provide health insurance cover to below-poverty-line workers and their families.


“The government’s agenda of inclusive growth has been reinforced with increased social spending and welcome measures like extension of the Rashtriya Swasthya Bima Yojana health insurance scheme to NREGA beneficiaries,” said Mr Dasgupta of ICICI Lombard GIC.


The Union government had launched RSBY on 1 October 2007, and so far more than 1crore smart cards have been issued under this scheme. The main focus is on 18 states that have weak public health infrastructure—Arunachal Pradesh, Assam, Bihar, Chhattisgarh, Himachal Pradesh, Jharkhand, Jammu and Kashmir, Manipur, Mizoram, Meghalaya, Madhya Pradesh, Nagaland, Orissa, Rajasthan, Sikkim, Tripura, Uttarakhand and Uttar Pradesh.


“Widening this scheme is certainly helpful to increase the base as well as give protection to more people from the deserving sections of the society.  For insurers, this would help in increasing the pool of health-insurance premium,” said Mr Rao of Future Generali. — Aaron Rodrigues



-- Sucheta Dalal