Why retaining employee-funded group health insurance add-ons makes sense despite no GST exemption

Employee-funded group health insurance plans can complement independent retail health insurance covers

If you are an employee who is paying premiums for parental coverage as part of your corporate health insurance scheme or have opted for voluntary top-ups to increase your health cover, you might be tempted to let go of these to buy retail policies instead.

After all, only retail and family floater health insurance policies are exempt from GST, which would translate into lower premiums after September 22, though the extent depends on how insurers manage the loss of input tax credit. International broking firm CLSA estimates that the base premiums could rise by 1-4 percent.

According to Prudent Insurance Brokers, insurers may raise base premiums for retail policies by about 5 percent to recover the lost input tax credit, which translates into effective savings of 12-15 percent for individual policyholders.

What is clear, however, from the GST 2.0 FAQs issued by the Central Board of Indirect Taxes (CBIC) is that the exemption will not be extended to group health policies offered by employers and bought through banks. “Services of individual health and life insurance business provided by insurers to the insured, where the insured is not a group, are included within the ambit of the exemption. When these services are provided to an individual, or to an individual with his/her family, the same will be exempted,” CBIC reiterated on September 17.

Also read: GST cut on insurance: What new buyers and existing policyholders can expect

Why group plans with employee-funded premiums matter

Corporates cover their employees and their families under group health insurance policies and foot the bill for the premiums, which is included in the cost-to-company remuneration structure. Many corporates restrict the benefits to employee, spouse, and kids, but facilitate the option of covering parents, provided employees fund the premiums out of their pockets. In addition, some also offer top-up plans, which enhance the total coverage under the policy. Again, employees are required to pay for these premiums – that is, the amount is usually debited from their salaries every month.

According to Prudent Insurance Brokers’ research covering nearly 4,000 companies across around 20 industries in India, close to 15 percent of employers offer voluntary top-up health covers, with IT/ITeS companies dominating with a 40 percent adoption rate.

"Almost 50 percent of corporates offer employee-funded programs on fully paid or subsidised rates. Voluntary parental coverage also has prominent space, with about 10 percent of organizations offering the same, again dominated by IT/ITeS at around 40 percent,” says Surinder Bhagat, Head - Employee Benefits, Large Account Practices, Prudent Insurance Brokers.

Also read: TCS layoffs: How to retain your group health cover benefits while exiting

Since group health covers have not been granted any GST exemption, the effective premiums on such employer-facilitated group policies will not come down. You may feel tempted not to renew such plans and go for individual covers for parents and higher coverage for yourself. While personal health insurance policies are indispensable, corporate plans need not be junked to buy such coverage. Insurance advisors recommend continuing with such employer-facilitated health covers even if you have to fund the premiums.

This is because group plans do not come with waiting periods for pre-existing diseases, a huge source of comfort for employees and their parents. “The terms and conditions will be vastly different. You will not get the same benefits as those offered through the group platform. The employer will no longer be involved in the administration of the policy, which means that you will have to handle claims and other procedural issues yourself (like in the case of any retail policy),” points out Hari Radhakrishnan, Regional Director, First Policy Insurance Brokers.

Invest in individual covers, but persist with group plans too

Lower premiums cannot be the sole basis for making a decision on junking group health policies. “The key advantages of corporate-facilitated insurance plans include waived waiting periods for pre-existing diseases, no medical underwriting, easier claims process, lower out-of-pocket costs during claim processing, and significantly lower rejection rates compared to retail plans,” points out Bhagat. Instead of focusing on savings on premium outgo, policyholders should carefully compare the benefits of group and retail covers offered.  "Compare short-term cost savings versus long-term financial protection, administrative convenience and claims experience that corporate group programmes tend to deliver," he adds.

To be sure, an independent retail policy is also indispensable to your family, as group coverage will cease to exist once you quit or retire. Put simply, affordability permitting, both can add value to your protection portfolio.

“Do not mix up savings due to the GST cut and coverage benefits. These are two different things. Do not compromise on the coverage only to reduce premium costs,” says Radhakrishnan.