The budget 2011 did not provide the medical services a favourable outcome. The medical services companies and health insurance companies were not happy with the treatment meted out to them.
Their expectation that healthcare will be given a priority sector status did not materialize. At the same time Government did not mention anything about public private partnership in the area of healthcare.
Budget Highlights for Healthcare Sector
The Government maintained the service tax at 10%. However to set the stage for GST (Goods and Services Tax) which will be implemented eventually, the Government proposed to bring more services under service tax regime. While this has disappointed healthcare, pharmaceuticals, and insurance sector, this was bound to happen sooner or later. The service tax net will include the following services from healthcare sector.
1. The new service tax regime will cover all services provided by hospitals with central air conditioning and which has at least 25 beds occupied by patients anytime of the year. The Finance Ministry gave its own reason to do this because of differential treatment meted out to people who paid from their pocket compared to the people who used insurance. Essentially, this will cover all corporate customers as well as most of the salaried employee in metros and cities. Hence the tax of 10% will be imposed on services by these types of hospitals. The Finance Ministry gave little relief by giving 50% abatement which will reduce the service tax effectively to 5%. The Finance Ministry, however, did not keep Government hospitals under the service tax.
2. The same tax regime has been extended to diagnostic tests of all kinds. This means 5% service tax on diagnostic tests.
3. The services will also include service provided by a doctor who is not an employee of the clinic establishment, but provides services from the same establishment.
4. The Finance Ministry proposed to bring all types of insurance services offered by insurance companies, in the area of investment, under the service tax regime. Earlier products like ULIPs were covered under this regime.
Impact of the new changes in Budget 2011
The impact of these changes will be felt by the policy holders as any increment in service tax will be directly passed to the end users, who are actually the policy holders. The proposed service tax will increase the premium. The insurance industry was hoping that Government will reverse the service tax imposed on cashless insurance but it did not happen.
There has already been discussion in corporate world about making employee share some part of health insurance because of increased cost. This move of Finance Ministry will further boost the drive.
All diagnostic tests will be expensive. This will hamper the drive to promote preventive healthcare initiatives which most of the countries are adopting in order to reduce the medical cost. Diagnostic check-up is the most effective way to promote preventive healthcare practices.
One of the expectations was that the Finance Ministry will increase the limit of medical reimbursement from 15000. However this did not happen. This will not put any new burden on taxpayers but the value of 15000 is no more enough because of spiralling medicine cost and inflation.
Finally, the impact of these changes will not be good on the consumers. The Finance Ministry contented that these service charges are levied upon those who have the paying power. This is misconception. Today many people in metro and cities do go to such hospitals for treatment.
Moreover, the Finance Ministry has not included Government hospitals for service tax thinking that this is pro-poor approach. However, as per a study, more than 80% of healthcare expenses in India are private. The state's contribution is less than 20%. A majority of Indian people go to private medical services because of bad condition of Government hospitals. This is in sharp contrast to developed countries where the majority avail Government hospitals.
All is not bad though
While the imposition of service tax is not good for the common man, the Government has increased healthcare layout, immunization programme, and National Health Insurance Scheme layout to cover more people who are part of MNREGA scheme. The increment is a whopping 20%. This will increase the healthcare access of people in the villages. At the same time the Government has kept the essential immunization out of service tax net.
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