One year after the 18% GST on health insurance was removed, policyholders are seeing premium hikes of 25% to 41%. While the tax burden is gone, medical inflation of 13%–15% and the loss of input tax credits for insurers have driven up base premiums. Many consumers are responding by upgrading their coverage, keeping the overall cost of health protection high.
It has been one year since the government removed the 18% Goods and Services Tax (GST) on retail health insurance premiums, yet many policyholders are finding that their renewal costs have actually increased. While the removal of the tax was intended to lower costs for the public, renewal data from 2026 shows premium hikes ranging from 25% to 41% for many individuals. This creates a paradox for consumers who expected a direct 18% reduction in their insurance bills.
The primary reason for this trend is that insurance premiums are not static; they are heavily influenced by the rising cost of medical services. Medical inflation in India has remained elevated, estimated between 13% and 15% in 2026. This inflation is driven by the growing adoption of expensive diagnostic technology, the rising salaries of super-specialist doctors, and higher operational costs for private hospitals. Insurers must periodically adjust their base premiums to cover these rising treatment costs, otherwise, they risk failing to pay future claims.
A significant, often overlooked factor is the loss of input tax credits for insurance companies. Before the GST was zero-rated on premiums in September 2025, insurers could claim tax credits on the GST they paid for their own business expenses, such as IT services, office rent, and administrative supplies. With the removal of GST on premiums, that credit mechanism disappeared. Consequently, insurers now absorb those tax costs as part of their operating expenses and pass them on to consumers through higher base premiums. This shift effectively offsets much of the theoretical 15.25% relief that the tax removal was meant to provide.
From a financial perspective, insurers are also under pressure from high claim ratios, which frequently exceed 90% in the industry. This means that for every 100 rupees collected in premiums, insurers are paying out over 90 rupees in claims, leaving a very thin margin for other costs and profit. This financial reality leaves companies with little room to absorb inflationary shocks, forcing them to reprice products regularly. Executives at major players like Niva Bupa Health Insurance and Bajaj General Insurance have noted that premiums are also dynamic, changing as a policyholder ages, moves to a new geography, or reaches a new risk bracket, regardless of whether the tax status of the product has changed.
Interestingly, the market is seeing a change in consumer behavior. Rather than pocketing the savings from the removed tax, many policyholders are choosing to upgrade their plans. They are using the nominal tax saving to buy higher sums insured or add more comprehensive benefits to their policies. This trend suggests that while costs are rising, the demand for robust health protection remains strong.
For policyholders, the next important development to watch is how insurers manage their claim ratios over the coming quarters and whether medical inflation stabilizes. Investors and consumers should focus on the underlying base premium changes rather than the tax status of the policy, as the base price remains the most significant driver of the final amount paid at renewal.