Service tax on hospitals to hike insurance premiums

Insurers have expressed fears that the proposed 5% service tax on centrally air- conditioned hospitals and diagnostic services would increase the cost of health insurance premium.

"The increase in service tax would have some impact on the insurance premium. But the extent to which policies will turn costly would depend on how much burden the insurers are passing on to consumers," Bharti AXA General Insurance Chief Executive Amarnath Ananthanarayanan said.

Finance Minister Pranab Mukherjee in the Union Budget for 2011-12 proposed to impose a service tax of 5% on all services, including diagnostic services, provided by a centrally air-conditioned clinical establishments having more than 25 beds for in-patient treatment.

Besides, the service tax would also be levied on services provided by consultant doctors operating from premises of such hospitals.

"As input cost goes up in the form of increased cost of medication and hospitalisation services, insurance premiums too would go up," HDFC ERGO General Insurance Head (Retail Business) Karan Chopra said.

Insurers said that as the claims of policyholders rise, insurance companies would pass on the costs to policyholders.

"The basic average claim cost could rise by 5%. It would depend on how much the insurers pass on to the consumers, but there will be an increase in cost," Future Generali India Insurance Head (Health) Shreeraj Despande said.

The decision to impose 5% service tax on healthcare provided by private hospitals evoked sharp reaction from the medical community, which described the tax as "misery tax."

Demanding withdrawal of the proposed tax, the IMA in an open letter to Prime Minister Manmohan Singh had said,"Such efforts of the government to earn revenue from the misery of its citizens, reminds us of the salt tax imposed by the British government on innocent citizens -- the modern day salt tax -- ill-health tax."