Context: India’s recently rationalised the Goods and Services Tax (GST) structure. Among other sectors, GST reforms were announced in the Healthcare segment. The reforms mark a turning point in the journey towards achieving universal health coverage.
Relevance of the Topic: Mains: Issues relating to development and management of services relating to Health.
GST Reforms in the Healthcare Sector
- Rationale: To make medical care more affordable and accessible for millions, especially for individuals struggling with high costs of treatment or health products.
Key Highlights of GST Reforms in the Healthcare Sector:
- Removal of GST on Insurance:
- Complete removal of GST on individual health and life insurance premiums. Earlier, an 18% GST rate was applied to the health insurance premiums.
- The reform covers all types of individual life insurance: Term, Unit Linked Insurance Plan (ULIP), Endowment, health insurance plans such as family floaters and senior citizen policies. Even reinsurance is included.
- GST cut on Medicines:
- GST on most medicines is lowered to 5%, and tax on life-saving drugs is cut to zero. This simplifies compliance and lowers prices in supply chains for health product manufacturers and service providers.
- GST cut on Medical Devices:
- Medical devices and diagnostic kits are now largely under a uniform 5% GST slab, from 12% GST or 18% GST earlier. E.g., CT scan machines are now taxed at only 5% compared to 18% earlier. This reduces the procurement costs of devices and would potentially lower patient charges over time.
- Common services such as blood tests, X-rays, and MRIs at laboratories may also become a little cheaper.
- GST exempt on Critical Care Units (unchanged):
- All critical care units i.e., Intensive Coronary Care Unit (ICU), Critical Care Unit (CCU), Intensive Coronary Care Unit (ICCU), and Neonatal Intensive Care Unit (NICU) are fully exempt from GST regardless of cost. This ensures that lifesaving care remains tax-free.
- Non-intensive care unit (ICU) rooms above ₹5,000 per day would attract 5% GST without input tax credit.
- GST exempt on Core Medical Services (unchanged):
- Core medical services provided by hospitals, doctors, and paramedics remain GST-exempt, keeping treatment itself untaxed.
- Push towards Preventive Healthcare:
- GST on gymnasiums, fitness centres, yoga studios, salons, barbers and wellness services is down from 18% to 5%.
- Cigarettes remain heavily taxed at 28% GST plus compensation cess, which adds up to an effective tax of between 52% and 88%.
- A new 40% sin goods slab has been announced but will only apply once cess liabilities are cleared.
- Sugary drinks (whether aerated, sweetened, or flavoured) have been moved to the new 40% slab, up from 28% plus cess, to discourage consumption.
Significance:
- Increase insurance coverage: Insurance coverage in India is only ~3.7% of GDP at present, compared to a global average of 6.8%. However, clear monitoring is required to ensure insurance providers pass on the GST benefit to the consumers.
- Reduce OOPE: Share of Out-of-Pocket Expenditure (OOPE) in Total Health Expenditure was around 47% in FY20. Cutting costs for life-saving medicines, simplifying taxes on equipment, and lowering rates on preventive services supports the entire health-care chain and would reduce OOPE.
Also Read: Universal Health Coverage (UHC)