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Indians are quitting health insurance: GST and high premiums problem

Submitted by admin on May 13th, 2025

Even though, the premiums have risen to sky high figures and GST has also been implemented on premiums, the financial cost alone does not explain the number who are opting out of insurance.

These rising costs, when matched with higher claim rejections and a sense of inadequate insurance, are driving many people to consider their insurance alternatives.

Reasons behind the exit: High costs and claim uncertainties

Debroop Ghosh, a 38 year old man in professional occupation, had taken a Rs 5 lakh family floater health insurance policy in 2016 at total Rs 22, 000 per annum premium payment policy.

Finally, the premium went up to Rs 78,000 for the same coverage in 2025, which made Ghosh consider changing his insurance plan. Without the 10% no-claim incentive, premiums have more than doubled since the pandemic began, meaning financial sustainability is a real issue for him, a report in The Times says.

“How many Indians living would afford this?” Ghosh questions, indicating his irritation at the major premium increases.

The ability of Ghosh and others to balance income and premiums is getting harder. Srishti who is a legal executive in South Delhi also experiences the same hesitations.

Srishti who had put in an amount of Rs 3 lakh yearly on a Rs 40 lakh cover after her friend’s claim was rejected by her insurer decided to drop her policy for good.

Our annual payments in terms of premium are approximately Rs 3 lakh. She points out that a rejection on a claim can spoil the whole concept of paying premiums.

The argument about whether paying so much in premiums is worthwhile, considering they fail in emergencies too, is widespread.

An increased cost of premiums is a usual problem of many individuals. About 10% of health insurance policies that increased their premiums by 30%, this year remained unsold, according to Policybazaar statistics.

In India, the penetration of health insurance is quite surprising as only 51% of the population is covered, even though the number of government health schemes has increased. As insurers seek to increase premiums, more and more people are left with restricted choices to obtain low-cost health cover.

Corporate insurance growing fastest

The struggle: Rejected claims and unmet expectations

Many complain that the most discouraging thing about health insurance is seeing rejected claims. Rupesh Sharma, a 42-year-old IT expert from Mumbai, remembers how his faith in his health insurance was sent to the dogs when he paid for gallstones treatment in the year 2024.

With even a policy covering upto Rs 10 lakhs, he got reimbursement of only Rs 1.8 lakhs out of an Rs 2.5 lakhs hospital bill, which left the patient to pay a handsome sum of his own.

Sharma narrates that his insurer denied pre-operative tests and consultations based on detailed conditions which he did not see and he had to wait for two months after a series of communications before eventually receiving reimbursement.

This experience has eroded confidence in the industry of insurance, as a whole.

Health insurance

Sharma has found compensation for payments of premiums, while investing over Rs 6 lakh in the past 10 years for her family, as a normal disappointment among policyholders.

Srishti, for instance, decided to deposit her premium amounts into a saving arrangement with her bank rather than renewing her insurance policy because the coverage seemed inadequate to meet her level of expectation.

Although the rejections are annoying, the feeling that premiums are too high for the value they provide is in itself very annoying.

“Soon, I’ll end up paying in actual money terms more than what I have as coverage,” laments Ghosh, who feels that his premium payments are approaching the value of his cover.

This sense of paying for nothing is a common complaint among long-term policyholders.

GST and premiums: The double-edged sword

The policyholders have had their costs compounded by the 18% GST on health insurance premiums. With regards to the GST she pays on her annual premium of almost RS 3 lakh, Srishti calls it “downright cruel”.

Also in Ahmedabad, Bhumi Shah has reported soaring insurance premiums in recent days. A Rs 5 lakh family floater was worth Rs 12,000 back in 2010; today it’s Rs 48,000, making her reconsider a new plan.

‘Premiums have rocketed, becoming unaffordable but healthcare insurance is important’. The notion of not having insurance stress and fear consumes me, she says.

Reported by experts in the industry, there has been almost double growth in premiums over the last five years with those for senior citizen cover increasing significantly.

In combination with GST, the increase in premiums has frustrated many consumers from rationalizing the expense.

These premiums have been made more expensive with the application of 18% GST applied. An insurance consultant in Ahmedabad notes that though there’s a deduction of up to Rs 25,000 on Section 80D premiums, this is not enough to compensate for increases in the costs,” he adds.

Consumers are becoming more than ever before dependent

Continuous rise in costs has led to the emergence of new methods of addressing the insurance needs of some individuals. Jaipur-based Varsha, 42, a marketing executive is now switching from corporate top-ups and individual covers to Systematic Investment plans (SIPs).

In Bhumi’s case, changing the existing policies, or changing the structure of the coverage has become a strategy for balancing affordability and protection if not management. Bhumi changed to a policy for her parents, which helped her lower her premiums and elevate the benefits for her parents who were growing older.

However, such adjustments come with risks. Many people are migrating to new insurance policies in search of better rates, but doing so often means dealing with waiting periods and restrictions.

Ashish Soni, MD of Troth Insurance Broking, notes that insurers may not offer family floater policies for dependents over the age of 65, forcing policyholders to opt for individual policies with much higher premiums.

For seniors like Madhusudan Arora, who had to discontinue his policy due to rising premiums, the lack of affordable options means being uninsured for long periods—a frightening prospect in the face of health risks.

The growing dissatisfaction with health insurance in India has prompted many to call for reforms.

Ghosh suggests that the government needs to regulate private hospital rates and encourage insurers to negotiate better prices with hospitals.

“Govt needs to keep private hospitals in check. Insurers need to negotiate better rates with hospitals. Why can’t standardised rates be agreed for procedures? There can be variation, but if one is going for, say, an angioplasty, they should know that the cost cannot exceed a certain sum, no matter where you go. Why can’t insurers and hospitals reach common ground on this? It’s better for everyone. The health insurance sector has turned ‘consumer is king’ on its head. Here, the consumer is a beggar,” Ghosh says.

Thus as the introduction says even though, the premiums have risen to sky high figures and GST has also been implemented on premiums, the financial cost alone does not explain the number who are opting out of insurance.

These rising costs, when matched with higher claim rejections and a sense of inadequate insurance, are driving many people to consider their insurance alternatives.

Final Statements

“The health segment is witnessing high costs. Insurers are becoming choosy… they are targeting young people who are paying lower premium. But it’s a profitable portfolio,” said an insurance sector official. The alarming jump in hospitalisation expenses indicates the surge in healthcare costs and medical inflation in the country.

“The rise in health insurance premiums can be attributed to several factors. According to the industry data, the average cost of healthcare services has increased by 15 per cent over the past year, driven by advancements in medical technology and rising labour costs. Additionally, the growing prevalence of lifestyle diseases, such as diabetes and hypertension, has resulted in a higher number of claims,” said Rakesh Jain, CEO, Reliance General Insurance. In fact, industry claims data shows that lifestyle-related diseases account for over 30 per cent of all health insurance claims, he said.

“However, as the pandemic’s impact subsided, the surge in demand has gradually normalized, leading to a tapering effect on growth. The implementation of a revised premium recognition methodology has impacted the segment’s growth,” Jain said.