Now, 10.3% tax on cashless mediclaim

After the sudden move by government-owned insurance companies to restrict cashless mediclaim facility, patients now have to contend with another insurance squeeze -- a service tax of 10.3% on every claim made using the cashless facility. While the introduction of the preferred provider network (PPN) by the public sector insurance companies had the instant impact of bringing cashless transactions to a virtual standstill in the metros, the service tax move had gone practically unnoticed though both moves were introduced on July 1. "It shrinks the total cover available to a patient," said consumer activist and lawyer Jehangir Gai. Dr Ajay Thaker, CEO of Jupiter Hospital in Thane, said the tax was discriminatory. "Only patients who claim cashless facility will have to pay the service tax while the patients who go in for reimbursement won't have to pay extra," he said.

The service charge component won't be visible to consumers. It is a sum that will be paid by TPAs (Third Party Administrators are firms that liase with hospitals on behalf of an insurance company that appoints them) to hospitals after every cashless transaction. "We have been told by TPAs that they will pay the service tax component along with the patient's claim. We hospitals, on our part, will forward this sum to the union government," said Jaslok Hospital CEO Colonel M Masand, who heads the Association of Hospitals.
But consumers may not find it so simple. According to Gai, "Consider that a patient with a cover of Rs 1 lakh has been allowed a claim of the full sum. Now, the TPA has to pay 10.3% of the claim as a service tax. As it cannot pay the hospital about 110% of the original policy sum that the patient purchased, it would have no option but to pay 90% of the original claim plus 10% as service tax." Thus, in effect, the consumer's policy could shrink by 10.3% to accommodate the service tax charges, said Gai, adding that it could even lead to long-term increase in premiums. Said Dr Nayan Shah of Paramount Health Services (TPA) Pvt Ltd, "TPAs had asked the insurance companies to clarify whether this new service tax would be claimed from the claim sum or from the existing service tax that is paid on the policy bought by a customer. They categorically told us that the service tax has to come from the claim sum." Dr Shah, however, clarified that "if a patient seeks reimbursement from insurance companies, this tax will not be applicable".

A high-ranking official of United India Insurance Co. Ltd. maintained that the service tax should not be looked at as a burden as TPAs would be reimbursed for it. "Moreover, it is paid by every sector. No one complains about paying service tax on motor vehicles," said the Chennai-based official.