Benefits of Providing Health Insurance to Employees: A 2026 Employer Guide

Health insurance has moved from being a perk to being a basic expectation at most organised-sector Indian employers. The reasons cluster into four categories: retention and recruitment, financial protection, tax efficiency, and operational benefits.

Retention and Recruitment

• Attrition reduction. Multiple workforce surveys point to medical benefits as one of the top three drivers of staying with an employer, alongside compensation and growth.
• Recruitment leverage. Candidates routinely compare benefits across offers. A clearly communicated, competitive group plan often closes deals.
• Family stickiness. When dependants are covered, employees are less likely to switch jobs because changing employers means rebuilding cover for parents or children.

Financial Protection for Employees

• Catastrophic cost coverage. Hospitalisation in a Tier 1 city can run into lakhs of rupees. Group cover absorbs this without depleting employee savings.
• Pre-existing condition coverage from Day 1. Group plans typically waive the IRDAI-permitted waiting period of up to 36 months for pre-existing diseases — a significant edge over retail policies, where the waiting period now goes up to a maximum of 36 months as per the IRDAI Insurance Products Regulations, 2024.
• No medical underwriting. Employees with prior conditions get cover that they may not be able to buy retail.
• Cashless treatment. Network hospitals settle bills directly with the insurer. The IRDAI Master Circular of May 2024 requires insurers to issue cashless pre-authorisation within one hour and discharge approval within three hours of complete documentation.

Tax Efficiency for Employers

• Section 37(1) deduction. Premiums paid by the employer for group health insurance are deductible as a business expense, reducing the company's taxable income.
• Not treated as a perquisite. Employer-paid health insurance premiums are not taxable in the employee's hands as a perquisite, unlike many other benefits.
• GST treatment after the September 2025 reforms. Following the 56th GST Council meeting, individual health insurance policies became GST-exempt with effect from September 22, 2025. Group health insurance, including employer-sponsored plans, continues to attract 18% GST. Input Tax Credit on group health insurance premiums remains blocked under Section 17(5)(b) of the CGST Act, except where the insurance is mandatory by law (such as for ESIC-covered workers or specific labour code obligations).

Operational Benefits

• Reduced absenteeism. Employees with insurance access early treatment rather than delaying care, leading to fewer prolonged absences.
• Lower presenteeism. Untreated conditions reduce productivity even when employees are at work; cover encourages timely care.
• Predictable cost structure. Annual premiums are budgeted and predictable, unlike ad-hoc medical reimbursements.
• Lower HR overhead. Modern benefits platforms automate enrolment, claims, and queries, freeing HR time.

Cultural and ESG Benefits

• Signal of care. Health benefits communicate that the company treats employees as people, not just resources.
• ESG reporting. Employee benefits feature in social pillar disclosures for companies reporting on ESG metrics.
• Mental health and wellness extensions. Modern group policies bundle teleconsultation, mental health support (with parity required by IRDAI), and preventive care, broadening the wellbeing footprint.

What Section 80D Means for Employees

Where the employer pays the full premium, the employee cannot claim Section 80D for that portion. If the employee co-pays — for example, for parents added to the plan — they can claim Section 80D up to ₹25,000 per year (₹50,000 if parents are senior citizens). Note that Section 80D is available only under the Old Tax Regime; employees opting for the New Tax Regime cannot claim this deduction.

How Plum Delivers These Benefits

Plum's group health insurance is designed for Indian companies starting at seven employees. Pre-existing conditions are covered from Day 1, dependants can include parents and parents-in-law, and the platform automates enrolment, claims, and renewals.

Frequently Asked Questions

Are employer-paid premiums taxable for the employee?

No. Employer-paid health insurance premiums are not treated as a taxable perquisite for the employee.

Can a company claim GST input tax credit on group health insurance premiums?

Generally, no. Section 17(5)(b) of the CGST Act blocks ITC on group health insurance premiums, except where the insurance is mandatory under labour law or part of a legally required employee benefit.

Does the September 2025 GST exemption on health insurance apply to group plans?

No. The exemption applies only to individual health insurance policies (including family floater plans). Group health insurance, including employer-sponsored plans, continues to attract 18% GST.

Can small companies afford group health insurance?

Yes. Per-employee premiums for basic cover for a young workforce typically start in the lower thousands of rupees per year. Cover is available for companies starting at seven employees through most insurers.