Deepak Dwivedi
NEW DELHI: India’s healthcare debate has reached a decisive moment. In the 2026-27 Budget, the Government withdrew GST on life and health insurance premiums – a move that immediately lowers costs for millions of households and signals that financial protection is a public good, not a taxable luxury. The reform is welcome. But it also sharpens a deeper question: can insurance-led expansion, even with tax relief, substitute for systemic public investment in health? The answer is no.
Insurance is a financing mechanism; it is not healthcare delivery. It pays for treatment after illness strikes. It does not build primary health centres, train nurses, stock district hospitals, or ensure rural diagnostics. In large swathes of rural India, the nearest wellequipped hospital may still be hours away.
An insurance policy is only as useful as the network of hospitals available to honour it.By removing GST, the Budget has reduced the immediate burden on policyholders and may encourage wider insurance penetration. Premiums had been rising sharply due to medical inflation, and taxation compounded the pressure. The relief may improve affordability and could deepen the risk pool, a necessary step towards broader financial protection. Yet affordability of premiums is only one side of the equation. Accessibility of care is the other.
India’s public health expenditure remains modest for a country aspiring to middle-income status
India’s public health expenditure, hovering around 2 per cent of GDP, remains modest for a country aspiring to middle-income status. Fiscal space is tight, but health spending is productive capital. A healthier workforce enhances labour productivity, reduces out-of-pocket shocks, and stabilises household consumption. When medical bills push families into debt, the macroeconomic consequences extend far beyond individual distress. Insurance penetration has improved over the years, aided by public schemes and private sector expansion. Urban India has embraced coverage more readily, supported by dense hospital networks and higher incomes.
Rural India, however, remains underinsured and often dependent on public facilities that are uneven in quality and reach. The result is a structural urban-rural divide. The GST withdrawal addresses financial friction but does not correct infrastructural gaps. If public hospitals remain overstretched and primary care underfunded, insurance claims will continue to flow disproportionately towards private providers. That dynamic risks driving up overall healthcare costs, reinforcing a cycle of rising premiums and escalating claims.
Preventive care is another missing link in an insurance-dominated model. Non-communicable diseases – diabetes, hypertension, cardiac conditions – require early detection and sustained management. Public health campaigns, screening programmes, and community health workers are indispensable. These reduce longterm costs and improve outcomes, but they depend on steady public investment rather than insurance reimbursements.
The Budget’s tax decision should, therefore, be seen as an enabling reform, not a standalone solution. By foregoing GST revenue, the Government has effectively acknowledged that financial protection deserves encouragement. The next step is to match that recognition with expanded capital outlays for primary health centres, district hospitals, medical training, and digital health infrastructure. The reform imperative is not insurance versus public investment. It is insurance anchored in strong public systems. A recalibrated health financing architecture must combine risk pooling, affordability, and delivery capacity. Without that integration, financial protection will remain partial and geographically unequal.
Withdrawing GST on life and health insurance premiums is a significant gesture, but the true measure of the reform will be whether every Indian can access timely, quality care.
