A Rude Awakening? 5% GST On Hospital Beds Comes Into Force

Indians depend heavily on private healthcare – one of our highest out-of-pocket expenditures. Five out of 10 urban households and 40% of rural households choose private healthcare facilities. As of 2021, 29% of the total current healthcare expenditure is towards private hospitals, while 17% is towards government hospitals.

On July 17, a gloomy Sunday morning, media houses were abuzz with the latest shock to the system: “Customers will have to pay 5 per cent GST on pre-packed, labelled food items like atta, paneer and curd, besides non-ICU hospital rooms with rent above ₹5,000 from Monday with the GST Council's decision coming into force.”

Taxing the sick or taxing the rich?

Within minutes, Twitter erupted in verbal diarrhoea of all kinds, representing all points of view:

Slamming the Narendra Modi government, Chartered Accountant Anup said, “In a country with zero social security, if paying 18% GST on health insurance wasn't stupid enough, they have now charged 5% GST on hospital beds > 5k. The problem of this Govt is not that it takes stupid economic decisions, but problem is that it is immensely proud of its stupidity.” Drishti Dutta from West Bengal pointed out, “India's medical system was on its knees during the pandemic and the govt is imposing 5% GST on hospital beds which were widely unavailable at that time regardless of what their prices were. An increase in its price now means nothing but brutal to living as a whole.”

‘Profiteering from the suffering of the sick’: IMA and NATHEALTH speak up

India’s largest body of doctors, the Indian Medical Association (IMA) wrote an open letter to Union Finance Minister Nirmala Sitharaman to withdraw the proposed 5 per cent Goods and Services Tax (GST) on hospital bed rent, saying that the implementation equals “profiteering from the suffering of the sick.”

In the letter, the IMA called the imposition “unfortunate and unfair” to people who are largely dependent on the private sector for healthcare services.

The proposed GST to be effective from July 18 will add to healthcare costs, echoing concerns expressed by a hospitals’ association on June 30 that healthcare establishments are likely to transfer the tax burden to patients.

“We request you to immediately withdraw any GST on healthcare services,” the IMA wrote.

The country's healthcare system is already off track owing to bare minimum government spending on health. People depend on the private sector with high out-of-pocket expenditure. “The decision to add GST will simply raise the basic bed rates,” members of the IMA argued, predicting that healthcare institutions that keep hospital room rent below ₹5,000 will be compelled to augment other charges.

Terming it an “additional burden on the sector”, the Healthcare Federation of India NATHEALTH asked the government to suspend the recent 5% GST on hospital rooms with a rental value of above ₹5,000 per day.

The pro-GST brigade: 'The rich can pay an additional ₹250'

Many lauded the Government’s active regime to “Tax the Rich”, pointing out that imposing a higher GST on hospital beds reaches into profits made by private hospitals

In an interactive session by CII, Revenue Secretary Tarun Bajaj insisted, "I don't know there would be hospitals in smaller towns like Panipat or Meerut where the hospital rooms would be costing ₹5,000 or above. I would also like to know how many hospital rooms are there in the country and out of those what is the percentage of rooms which are charging above ₹5,000. I think it will be minuscule. So if I can spend ₹5,000 on a room, I can perhaps spend ₹250 on GST. This GST, which comes into a common pool, will be used for the poor."

Retired tech professional, Srinivasan, wrote: "Hospital beds under GST, to cost more" Screaming headlines of our media. How many of the average citizens can afford ₹5,000+ per day bed in a hospital? And for those who can afford a ₹5,000 bed, would a 5% GST on it – all of ₹250 – rob them of their riches? Can a person who can afford to pay ₹5,000 or more per day for non-ICU hospital beds be said to belong to the middle class?”

Increased demand for Group Health Insurance

Almost 400 million Indians, most of whom belong to lower-income groups, are uninsured and are expected to be hit the hardest by the new norm.

For the insured, the effect on claims may increase premiums, eventually resulting in a higher need for your workplace to cover you. The only long-term solution is strengthening the public healthcare system so that patients have access to affordable quality healthcare and strengthening the health insurance system in the country.

As part of a larger tax rate rationalisation exercise, shares of insurance stocks such as HDFC Life, SBI Life, ICICI Prudential and ICICI Lombard were trading higher on Monday, July 18. Experts believe that insurers can enforce revised plans and policies with preferred provider networks and partner hospitals so that those insured can avail of maximum benefits on higher covers for room rent.

Experts believe that a higher GST rate pushes people to renew their health insurance policies or opt for better ones, offering a larger sum insured with more benefits. Those working in companies that provide corporate health cover may decide to stay with their firms owing to the Group Health Insurance (GHI) benefits. More Indians are expected to choose jobs that come with corporate healthcare cover, not because it is less expensive but because they need it. So, a higher GST rate is likely to encourage more people from seeking health insurance coverage and GHI plans.