Group Health Insurance in India: A Guide for Small Employers

The Short Answer

Group health insurance, also called a group medical cover or GMC, is a single health policy that an employer buys to cover its employees, and often their families, under one contract. The employer pays the premium. Employees get cashless hospitalisation at network hospitals and reimbursement elsewhere, usually without the waiting periods that apply to individual policies.

For the employer, the premium is a deductible business expense when paid by any mode other than cash. For the employee, it is not a taxable perquisite. The catch is on the employee’s side: the cover belongs to the job. It ends when the job ends, and it is usually smaller than a family really needs.

Group cover is a strong benefit and a weak plan. It should sit on top of a family’s own health policy, never in place of it.

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How It Works

Group health vs an individual policy

	Group health insurance	Individual or family policy
Who buys it	The employer, for the whole group	You, for yourself and your family
Who pays	The employer (sometimes shared for dependants)	You
Medical tests to join	Usually none	Often, depending on age and cover
Waiting periods	Commonly waived, including for existing illnesses	Up to 36 months for pre-existing diseases, plus other waiting periods
Who controls the terms	The employer, renewed each year	You, with a right to renewal
What happens when you leave	Cover ends with employment	Continues as long as you renew

The waived waiting periods are the biggest advantage. An employee with diabetes or a heart condition can be covered for it from the first day, which no individual policy will offer. That advantage disappears the day they leave, which is why the individual policy still matters. We explain the individual side in how to choose health insurance.

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Who It Suits

Is group health insurance right for a small business?

IRDAI does not fix a minimum group size, but most insurers write group health for a minimum of around seven employees. Below that, many small businesses find it simpler to fund individual or family floater policies for their staff.

Check ESI first. If your establishment falls under the Employees’ State Insurance scheme, now part of the Code on Social Security, 2020, employees earning up to the ESI wage ceiling (₹21,000 a month at the time of writing) are already covered through ESI contributions. Generally, ESI applies to establishments with ten or more employees, though some states set a higher threshold. In that case, group health is mainly for employees above the ceiling, or as a better-quality top-up for everyone.

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Designing The Policy

The choices that decide cost and value

• Sum insured. Either a flat amount for everyone or graded by seniority. A floater shared by the employee’s family is cheaper but stretches thin if two members are hospitalised in the same year.
• Who is covered. Employee only; employee, spouse and children; or parents too. Parents are the single biggest cost driver, so many employers cover them only with a co-payment, or let employees add them at their own cost.
• Room rent and sub-limits. A room-rent cap keeps premiums down but triggers proportionate deductions on the whole bill if an employee takes a pricier room. Choose caps that match the hospitals your staff actually use.
• Maternity and newborn cover. Valuable for a young workforce and usually available only in group policies without a long waiting period.
• A corporate buffer. An extra pool the employer can release when an employee’s individual cover runs out in a serious case.

Premiums are priced on the group’s age profile and its claims history. A year with heavy claims usually means a higher renewal premium, so review the policy terms, not just the price, at every renewal.

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The Tax Position

How group health insurance is taxed

The Income-tax Act, 2025 has applied from 1 April 2026; earlier section numbers are shown for reference.

Item	Treatment	Income-tax Act, 2025	Earlier (1961 Act)
Premium paid by the employer	Deductible, if paid through any mode other than cash under an IRDAI-approved insurer’s scheme	Section 30(c)	Section 36(1)(ib)
The same premium, for the employee’s own cover	Not a taxable perquisite	Section 17(2)(c)	Proviso to section 17(2)
Employer reimbursing premium the employee paid for self or family	Not a taxable perquisite, under an approved scheme	Section 17(2)(d)	Proviso to section 17(2)
Health insurance deduction for the employee	Available only for premium the employee pays personally, not for the employer-paid group premium	Section 126	Section 80D

Pay the premium by bank transfer or cheque: a cash payment loses the employer’s deduction. Where the group policy also covers family members and the employee contributes towards their premium, that contribution is the employee’s own payment and can count towards the health insurance deduction in the old tax regime.

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For Employees

What employees still need on their own

A group policy is an excellent first layer. It is a poor only layer, for three reasons. It ends when the job ends, including on retirement and at the worst moment, such as a layoff during an illness. The sum insured is usually modest against today’s hospital bills, a gap our guide to how much health insurance you need measures. And the employer can change the terms at any renewal.

The practical answer is to hold a personal family policy of your own, even a basic one, and add a super top-up for large claims. Waiting periods on the personal policy then run out while the group cover protects you, so by the time you leave the job, your own policy is fully mature.

If you leave without a personal policy, IRDAI rules let you migrate from the group policy to an individual policy with the same insurer, with credit for the waiting periods you have already served, provided there is no break in cover. The insurer may underwrite you afresh, and the request has to be made before your group cover ends. Once on an individual policy, you can later use portability to move to another insurer.

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Avoid These

Common group health mistakes

1. Buying on premium alone

The cheapest quote often hides tight room-rent caps and sub-limits that turn into large out-of-pocket bills. Compare the terms that decide claims, not just the price.

2. Not explaining the cover to staff

Employees who do not know the sum insured, the network hospitals or the claim process cannot use the benefit well. A one-page summary at joining and at each renewal pays for itself.

3. Ignoring ESI

Covering employees who are already within ESI duplicates cost. Map which employees fall under ESI before deciding who the group policy needs to cover.

4. Paying the premium in cash

The employer’s deduction depends on a non-cash payment. A cash premium is an avoidable tax cost.

Questions

Frequently asked questions

What is the minimum number of employees for group health insurance?

IRDAI does not set a fixed minimum. Most insurers write group health for groups of around seven employees or more; smaller businesses often fund individual or floater policies instead.

Is group health insurance premium taxable for employees?

No. Premium paid by the employer for the employee’s health under an approved insurer’s scheme is excluded from perquisites under section 17(2)(c) of the Income-tax Act, 2025.

Can the employer claim the premium as an expense?

Yes, under section 30(c) of the 2025 Act (formerly 36(1)(ib)), provided the premium is paid through a mode other than cash.

Can employees claim the section 80D deduction for group health cover?

Not for premium paid by the employer. The deduction, now under section 126, is for premium the employee pays personally, for example their contribution towards family cover or their own top-up policy, and applies in the old tax regime.

What happens to group health cover when an employee leaves?

It ends with employment. The employee can apply to migrate to an individual policy with the same insurer before the group cover ends, with credit for waiting periods served, subject to the insurer’s underwriting.

Do employees covered by ESI also need group health insurance?

Not necessarily. ESI already provides medical benefits to employees within its wage ceiling. Many employers use group health for staff above the ceiling, or as an additional layer for everyone.