Policyholders in for a double whammy

With the Finance Bill 2010-11 proposing payment of 10.3 per cent service tax by hospitals on cashless settlements, it may be a double whammy for policyholders: Higher premiums as well as soaring hospital bills.

According to the Bill, tax will be levied on "a person covered by health insurance scheme, for any health check-up or treatment, where the payment for such health check-up or treatment is made by the insurance company directly to such hospital, nursing home or multi-specialty clinic".

This will be only applicable to cashless insurance claims. This provision was introduced by the tax department in mid-2009. However, it was not made operational because hospitals said that insurance companies should be paying the service tax. The Bill, however, makes it clear that hospitals will have to pay this service tax.

Hospitals are already saying that the tax burden will be passed on to the patient. Trustee and medical director of Mumbai-based Kaushyla Medical Foundation, Mohan Sohoni, said, "If the hospital pays the service tax for treating any patient, it will have to add the tax amount separately to the patient's bill."

Insurance companies, on their part, also believe that the premiums should go up because they would be bearing the service tax burden.

ICICI Lombard MD & CEO Bhargav Dasgupta said, "The proposal to impose service tax on payments made to hospitals under health insurance schemes could push up costs for end customers."

Others like Bajaj Allianz MD & CEO Kamesh Goyal felt that though there would be an additional cost, it may not pinch the customer.

Without even being hospitalised, policyholders will have to pay a higher premium. And if they were to be hospitalised, the bill will get inflated by 10 per cent to accommodate the service tax.

Also, the inflated bill will reduce the remaining amount, once the person has been hospitalised. For example, an individual with a life cover worth Rs 3 lakh and a hospital bill of Rs 1.5 lakh will have to pay an extra Rs 15,000, taking his total bill amount to Rs 1.65 lakh. This means his assured limit reduces by Rs 15,000 because of the service tax.

Experts felt that there could be more issues as well. Some felt that hospitals may not register themselves to save the service tax burden.