People's Democracy

Service Tax on Cashless Medical Insurance: Dangers Ahead

C T Suresh Kumar

THE union government introduced on July 1, 2010 a service tax of 10.3 per cent on every claim made after using the cashless facility for treatment. On the same day, insurance companies curtailed the cashless mediclaim facility by drastically reducing the number of eligible hospitals. This move made an instant impact by bringing the cashless mediclaim transactions to a virtual standstill in the metros. But the central government’s move to introduce a service tax on every cashless mediclaim settled has, paradoxically, gone unnoticed.

According to Jaslok Hospital CEO, Colonel M Masand, who is also the head of the Association of Hospitals, “the service charge component would not be visible to consumers as it is a sum that would be paid by the TPAs to hospitals after every cashless transaction.” If that is the case, then for an approval of cashless treatment facility costing one lakh rupees in case of a particular patient, the concerned TPA (Third Party Administrator for health insurance) will have to pay a sum of Rs 10,300 as service tax to the concerned hospital. But will the TPAs shell out such a huge amount as service tax from their kitty without burdening the policyholders, particularly when they are already feeling the heat due to the heavy outflow of cash under cashless mediclaim settlements? One notes that it was due to this reason that the health insurance companies have curtailed the number of hospitals eligible for the cashless mediclaim facility.

So, as is their wont, they may opt for the easiest route to pass this “extra burden” on to the policyholders. For doing this, they may adopt one of the following three options. One, they may incorporate a rider in the policy conditions by specifying the cashless treatment facility as a facility that would exclude the service tax. But incorporating such a rider in case of the existing policyholders may not stand the legal scrutiny. Nevertheless, by taking a leaf out of the Bhopal gas tragedy case, which is still dragging on even after twenty-six long years, some TPAs may claim this option to be a temporary measure to cushion the burden before they try to find a permanent solution.

If there are no takers for the first option, then as a second option they may increase the premium for the mediclaim policy with cashless facility. As mentioned earlier, the service tax payable for treatment costing one lakh rupees would come to Rs 10,300. For a mediclaim policy worth one lakh rupees, therefore, they may enhance the premium payable to them by a policyholder in order to cover this additional amount of Rs 10,300. But this again may invite public wrath and a possible danger of people opting out of cashless facility while taking a mediclaim policy. Still, maybe such people form only a small group and hence the health insurance companies may not pay heed to their outcry and go on imposing enhanced premiums.

In case the TPAs do not want to attract any public outcry and seek to avoid litigations, they may resort to a still another --- and silent --- option, which one may term as “compressor or squeezer method.” By resorting to this method, the TPAs would neither increase the premiums payable nor pass on the burden on to the policyholders. Instead, they can silently club the service tax and the treatment cost together into one single liability and thereby reduce the actual treatment coverage of the policy by 10.3 per cent. As an example, suppose a policyholder has got a mediclaim policy with an option of cashless facility for a sum assured of one lakh rupees. So, in case the concerned TPA takes recourse to the third option, that particular policyholder would actually get cashless treatment for up to Rs 9,0662 only, as the balance of Rs 9,338 will be adjusted towards the payable service tax and with that the entire sum assured would get exhausted. There is all likelihood that the health insurance companies might prefer this silent method as most of the policyholders may not even come to know of this hidden cost unless others explain it to them or they study it themselves or observe it from the hospital bill after the treatment.

Above all these, however, there is yet another danger lying ahead. The central government’s move to widen the service tax net is aimed at the mediclaim policies with cashless facility alone, leaving the other regular mediclaim policyholders who apply for reimbursement after treatment. This may be viewed as discriminatory, opposed and even challenged. In case the cries of opposition grow louder, the government may use two options --- either to withdraw the latest move or bring in all mediclaim policies under the service tax net. As we know from our past experiences, this government cares more for the corporate and big businesses than for the aam aadmi; this we have seen in the case of petro-product prices and the move to decontrol them in order to help the oil companies and also in the case of budgetary write-offs of tax for the super-rich and the corporate sector. So it is likely that the central government does not go back on its latest decision but, instead, bring in all the mediclaim policies, be it the cashless facility or the reimbursement option, under the service tax net.

No matter whatever happens following the government’s move to bring under the service tax net the mediclaim policies with cashless facility, the ultimate losers are the policyholders. Like the decision to decontrol the petro products and hike their prices, which the government says would reduce its financial burden and bring the deficit down, the current move to widen the service tax net aims to garner more revenue from the middle class people in the main. This is despite the fact that healthcare is one of the most important and essential basic needs of any society and should be among the top priorities of any government. In our country, the cost of treatment and hospitalisation are almost out of reach of the common people and health insurance is the only hope for them if they want to have specialised treatment when in need. Instead of providing free health care or making the health insurance cheaper, the government obviously considers it as a means of milking money, increasing its revenue and reducing its deficit, which is nothing but abandonment of its social obligations. Considering the socio-economic importance of cashless medical insurance, the central government must be asked to withdraw its decision to bring it under the tax net immediately, without making it a prestige issue.