10.3% Service Tax on Cashless Mediclaim
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12 July 2010
By Malathy Iyer
As if the sudden move by government–owned insurance companies to curtail the cashless mediclaim facility to fewer–than–before hospitals wasn’t enough, consumers now have another insurance squeeze to contend with. The Union government has introduced a service tax of 10.3% on every claim made using the cashless facility. Both these moves were introduced on July 1.
While the introduction of the preferred provider network (PPN) by public sector insurance companies has had the instant impact of bringing cashless transactions to a virtual standstill in metros, the service tax move has practically gone unnoticed.
Experts, however, say the tax certainly has an impact on consumers and their insurance cover. “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, felt that the service tax was discriminatory. “Only patients who claim the cashless facility will have to pay the service tax while the patients who go in for reimbursement won’t have to pay any extra sum,” he said.
A high–ranking official of United India Insurance Co Ltd maintained that the service tax should not be seen 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,” the Chennai–based official said.
Incidentally, the service charge component won’t be visible to consumers. It is a sum that will be paid by TPAs (Third Party Administrators—firms that liaise with hospitals on behalf of the 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) will forward this sum to the Union government,” said Jaslok Hospital CEO Colonel M Masand, who heads the Association of Hospitals.
‘New service charge to come from claim sum’
Mumbai: A new 10.3% service tax has been introduced on all cashless mediclaim transactions from July 1, to be paid by Third Party Administrators (TPA) to hospitals later.
What does this mean for consumers? According to lawyer and consumer activist Jehangir 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, Gai said, adding that it could even lead to a long–term increase in premiums.
Then, there also is overall concern over slow transactions. Patients have to wait for three to four hours for discharge until their papers are cleared.
“Surely with the levying of a service charge, patients should get quicker service,” said a doctor.
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.”
Shah, however, clarified that “if a patient seeks reimbursement from insurance companies, this tax will not be applicable.”