Increasing insurance costs is one of the significant problems for small and medium enterprises (SMEs) in India. Unlike the major corporations, SMEs run on tight budgets and have less money to invest in the best health insurance plans for their employees. In fact, only 3% of Indian small business owners have insurance coverage. Employer-sponsored health insurance remains optional for most companies, but increased medical costs and changing regulations add financial pressures to entrepreneurs. It is not an individual business problem; it extends into economic stability, workforce welfare, and general SME growth in India.

Health Insurance Costs for SMEs in India

A number of factors contribute to the increasing cost of health insurance plans for SMEs in India:

• The cost of hospitalisation, medical treatments, and medicines is rising, increasing insurance premiums.

• Government policies such as the ESI scheme and tax incentives for corporate health insurance also increase costs.

• SMEs cannot spread risk over a large workforce like large corporations, thus increasing per-employee costs.

• Most SMEs remain uninsured, limiting market competition and keeping premiums high.

Direct Financial Impact on SMEs

The cost burden of health care on SMEs impacts businesses in the following ways: 

Increased Business Costs  

The insurance costs for SMEs offering medical coverage are always rising. Even for those considering offering health benefits, the high costs usually deter them. Although government assistance programs may make coverage more affordable for employers, covering the cost is a significant hurdle.

Business Profitability

Rising insurance costs directly affect a business's profitability. Most SMEs operate on thin margins, so increased healthcare expenses limit funds that could otherwise be used for expansion, hiring, and innovation.

 Burden on Business Owners

Most SME owners shy away or offer minimum coverage. Health issues will always create monetary difficulties. Managing skyrocketing costs and happy employees is a long-term burden on the business sustainability of an SME.

Indirect Economic Impacts on SMEs

Apart from the direct influence on the business, the cost of health insurance plans has more significant implications for the SME's employees and, in turn, the nation at large.

Effect on Employee Wages and Fringe Benefits

Most SMEs offset the high cost of insurance by reducing some of the other benefits for employees, like bonuses or salary increments. Others resort to contractual or gig-based hiring to avoid providing health benefits.

Hiring, Retention, and Workforce Stability

Today, employees expect health benefits as part of their compensation package. With high attrition and recruitment costs, SMEs that do not offer insurance struggle to attract and retain skilled workers.

 Competitive Disadvantages in the Market 

Larger companies offer attractive healthcare benefits, which draws top talent away from SMEs. Consequently, small businesses lose out on skilled employees, impacting productivity and competitiveness.

Increased Business Closure and Market Concentration

While most SMEs cannot sustain the increase in operational costs, business closures are bound to happen. The lack of affordable health coverage discourages entrepreneurship and eventually impacts the contributions of the entire SME sector to economic growth.

Local Economic Consequences

SMEs form an integral part of India's economy. They contribute over 30% to GDP and employ millions. When businesses struggle with rising costs, job losses increase, consumer spending declines, and economic stagnation follows.  

 Broader National Economic Impact  

A weak SME sector impacts tax revenues and economic growth. Moreover, uninsured employees rely more on public health facilities, increasing the burden on government-funded health programs.

Health Insurance Schemes for SMEs

SMEs can avail of low-cost coverage options in the form of

• Group Health Insurance: SMEs can opt for low-cost group policies designed for small businesses.

• Employees' State Insurance Benefits: Organisations employing more than 10 employees and paying less than ₹21,000 per month can save using the Employees' State Insurance Scheme.

• Pay-Per-Use Insurance Models: Some insurers allow flexible, usage-based policies with cost savings.

SMEs are also entitled to avail of governmental schemes and benefits in the form of tax while purchasing health insurance. The organisation may get tax deductions for paying premiums for health insurance, which will further help in attaining tax benefits. Various states have subsidised health insurance schemes that are SME-friendly. The government also supports SMEs with various funding and incentives to help cope with financial stress from businesses.

Takeaway

Health insurance costs are increasing for SMEs in India. Even though government schemes and group policies work to provide some relief, it is not all that affordable for businesses. Insurance costs hurt hiring, retention, and general business growth. So, SME owners can benefit from low-cost insurance and tax benefits. Long-term planning, with awareness of policy and proactive maintenance of employees' health, can help SMEs find the right insurance coverage for their employees.