Group Health Insurance for Small Business in India

Overview

Group health insurance for small businesses in India is optional for most employers, although Employees’ State Insurance (ESI) obligations can apply. Eligibility and premiums depend on the insurer and workforce.

Key Details at a Glance

Average Cost: HDFC ERGO’s published Gold Plan rate chart lists ₹6,715 annually for individual coverage at ages 18–35 with ₹15 lakh sum insured, excluding Goods and Services Tax (GST).
Core Coverage: Indemnity plans cover eligible hospitalization expenses, with individual and family floater options. Additional benefits depend on the selected policy.
Major Perks: Employers can include eligible dependents, choose additional fixed-benefit covers, and deduct qualifying premiums paid from taxable business income.

Eligibility and Enrollment Requirements

Minimum Group Size: Requirements vary by insurer. Some accept seven insured lives, including eligible dependents.
Employee Eligibility: Coverage depends on employment status and insurer approval.
Adding New Employees: Employers can enroll eligible employees mid-year by paying the applicable proportionate premium.

When you're running a small business, every expense matters. Between salaries, rent, and daily operations, setting aside money for employee health insurance might seem like a luxury. But what happens when an employee faces a medical emergency and turns to you for financial help?

That's where group medical insurance can make a difference. And contrary to what you might think, it's not just for large corporations. Even businesses with a handful of employees can qualify for group health coverage.

In this guide, we'll break down the eligibility requirements, coverage options, costs, and tax implications.

Is Group Health Insurance Mandatory for Small Businesses in India?

No, group health insurance is generally optional for small businesses in India. However, certain statutory employee insurance requirements may apply.

The confusion dates back to April 2020, when the Ministry of Home Affairs (MHA) temporarily mandated medical insurance for workers during the COVID-19 pandemic. IRDAI also issued a circular on April 16, 2020, advising insurers to offer suitable policies. However, the requirement was later removed from revised lockdown guidelines and is no longer a general mandate.

That said, employers must check their obligations under the Employees' State Insurance (ESI) scheme.

Under the Code on Social Security, 2020, which took effect on November 21, 2025, ESI generally applies to establishments with 10 or more employees, subject to applicable conditions. The notified wage ceiling is ₹21,000 per month, and special provisions apply to certain notified hazardous occupations, even with fewer employees.

Important: ESI and private group health insurance are different. Purchasing a private policy doesn't automatically exempt employers from mandatory ESI contributions.

While private group health insurance is generally optional, it can help small businesses attract and retain talent while giving employees peace of mind about their medical expenses. However, employers must still check their statutory insurance obligations before deciding what coverage to offer.

Eligibility Criteria and Minimum Employee Requirements

You don't need hundreds of employees to qualify for group health insurance. Small businesses and startups can also purchase these policies, provided they meet the insurer's eligibility requirements.

Minimum Employee Requirements

India has no universal minimum employee count for group health insurance. Requirements vary by insurer and product.

For example, ManipalCigna's ProHealth group insurance policy requires at least 7 members. Similarly, Care Health's Group Care requires 7 insured lives for corporate eligibility, including eligible dependents. So, a business with 3 employees and 4 eligible dependents could qualify under Care's terms.

Other insurers may have different requirements, so smaller businesses should check eligibility before applying.

Other Eligibility Requirements

Employer-Employee Relationship: The business must have genuine employees. Groups cannot be formed solely to purchase insurance.
Employee Eligibility: Full-time employees generally qualify, while contract workers, interns, and part-time employees may be eligible depending on the policy.
Age Requirements: Entry-age limits vary by insurer and product. Employee age distribution also affects premiums.
Dependent Coverage: Spouses, children, parents, and parents-in-law may be covered, subject to policy terms and additional costs.
Required Documents: Insurers typically require employee names, ages, locations, and relevant business details.

Once approved, the business receives a master policy, and eligible employees are enrolled.

Types of Group Health Insurance Plans for Small Businesses

Group health insurance plans fall into two broad categories based on how they pay claims. These are indemnity-based plans and fixed-benefit plans. The coverage structure can also differ depending on whether the employer wants to insure employees individually or include their families.

1) Indemnity-Based Group Health Insurance

These plans cover eligible medical expenses incurred during hospitalization, up to the available sum insured. They generally cover expenses such as room rent, ICU charges, surgeries, and other treatments, subject to policy terms.

Employers can choose between two common coverage structures.

Individual Coverage: Each employee receives a separate sum insured. For example, if five employees have ₹5 lakh coverage each, one employee's claim will not reduce the sum insured available to the others.
Family Floater Coverage: An employee and eligible family members share a common sum insured. For example, if an employee, their spouse, and child have a ₹10 lakh floater, all three share that amount for eligible medical expenses during the policy year.

For example, ManipalCigna's ProHealth group insurance policy and HDFC ERGO group health insurance offer hospitalization coverage with individual and family floater options, subject to the selected policy terms.

Some insurers also offer group top-up or super top-up coverage that provides additional protection above a specified deductible. For example, ICICI Lombard's Group Health Assure super top-up offers additional coverage for eligible medical expenses, subject to the applicable deductible, sum insured, and policy conditions.

2) Fixed-Benefit Group Insurance

Unlike indemnity-based plans, fixed-benefit insurance pays a predetermined amount when a specified insured event occurs, regardless of the actual medical expenses incurred.

These benefits may be available through separate group policies or as optional covers within a broader group insurance plan.

Group Critical Illness Insurance: Pays a predetermined lump sum when an insured employee is diagnosed with a covered critical illness, such as cancer of specified severity or a qualifying heart attack, subject to policy conditions. For example, ManipalCigna's Lifestyle Protection Group Policy offers critical illness coverage.
Group Hospital Cash Insurance: Pays a fixed amount for each eligible day of hospitalization, subject to the policy's limits and conditions. For example, ManipalCigna's ProHealth Group Insurance Policy offers optional daily cash benefits.
Group Personal Accident Insurance: Provides specified payouts for accidental death or disability, depending on the coverage selected. For example, ManipalCigna's Lifestyle Protection group policy offers personal accident benefits, either separately or alongside critical illness coverage.

Ditto's Take: For small businesses, indemnity-based group health insurance should generally be the priority because it helps employees pay actual hospitalization expenses. Fixed-benefit covers can provide additional financial support, but they should not be treated as replacements for comprehensive health insurance.

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Group Health Insurance Costs for Small Businesses

Group health insurance premiums vary depending on the coverage selected. To give you an idea of costs, here's a breakdown from the official HDFC ERGO group health insurance rate chart for the Gold Plan with a ₹15 lakh sum insured.

Age Band	Individual Plan (1 Adult)	Family Floater (2 Adults)	Family Floater (2 Adults + 2 Children)
18–35 years	₹6,715	₹9,388	₹13,275
36–40 years	₹7,144	₹10,294	₹13,953
41–45 years	₹12,926	₹18,625	₹22,348
46–50 years	₹13,359	₹19,152	₹23,141
51–55 years	₹14,878	₹21,254	₹25,365

For example, a small business covering 10 employees aged between 18 and 35 would have an illustrative annual base premium of ₹67,150, before GST and any group-specific adjustments.

Important: These are indicative premiums taken from HDFC ERGO's published rate chart, not final quotations. Actual costs may differ based on the insurer, plan, and the following factors.

Group Size

The number of employees and dependents covered.

Age Profile

The ages of insured members, including older employees and dependents.

Sum Insured

The coverage amount the employer selects.

Coverage Benefits

Additional benefits such as maternity coverage, Outpatient Department (OPD) consultations, or pre-existing disease waiting-period waivers.

Cost Sharing Measures

Room rent limits, disease-wise limits, co-payments and deductibles.

Premium Insights

According to Sushant Khosla, Senior Manager at Ditto Insurance, internal quotes suggest annual premiums of ₹5,000 to ₹5,500 for ₹3 lakh to ₹5 lakh employee-only coverage and ₹5,200 to ₹13,800 for a ₹5 lakh family floater with maternity benefits.

For teams under 20, premiums typically start around ₹8,000 per employee. These estimates exclude GST and vary by age, group size, and benefits.

Tax Implications of Group Health Insurance for Small Businesses

1) Tax Benefits for Employers

Under Section 30(c) of the Income-tax Act, 2025 (previously Section 36(1)(ib)), employers can deduct qualifying group health insurance premiums paid for their employees when calculating taxable business income.

The premiums must be paid through a mode other than cash, and the insurance scheme must meet the prescribed conditions.

For example, if a small business pays ₹1 lakh annually for qualifying employee health insurance and is subject to an effective corporate tax rate of 25%, it could save ₹25,000 in taxes, assuming it has sufficient taxable profits. Actual tax savings depend on the applicable tax rate.

2) Tax Benefits for Employees

Employees generally do not have to pay income tax on qualifying group health insurance premiums paid by their employer, as these are excluded from taxable salary perquisites under Section 17(2)(c) of the Income-tax Act, 2025.

However, employees cannot claim a separate deduction for premiums paid entirely by their employer.

If employees personally contribute (in part or fully) toward eligible health insurance coverage, they may qualify for a deduction under Section 126 of the Income-tax Act, 2025 (previously Section 80D), subject to the statutory limits and payment conditions. This deduction is available only under the old tax regime.

3) GST on Group Health Insurance

Employer-sponsored group health insurance continues to attract 18% GST, even after qualifying individual health insurance policies became GST-exempt on September 22, 2025, as clarified by the Department of Financial Services.

For example, a business paying ₹1 lakh in annual premiums would incur an additional ₹18,000 in GST, bringing its total outlay to ₹1.18 lakh.

At its 57th meeting on October 8, 2026, the GST Council recommended removing ITC restrictions, potentially allowing employers to claim input tax credit on group health insurance premiums.

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Conclusion

Small business group health insurance can be a useful benefit, even for those with only a handful of employees. While it is generally not mandatory, the right policy can help protect employees from unexpected medical expenses.

Before choosing a plan, check the insurer's minimum group size, available coverage, and premium costs. You can also explore the group health insurance companies in India to understand your options. Make sure you understand your ESI obligations and the applicable tax benefits.

The goal is to find a policy that fits your business's budget while giving employees adequate medical protection.

Frequently Asked Questions

Is group health insurance available to small businesses with 5 to 10 employees in India?

Yes, group medical insurance for small business owners with 5 to 10 employees is available if they meet the insurer's minimum enrollment requirements. For example, Care Health requires at least seven insured lives, including eligible dependents. This means a business with five employees and two eligible dependents can meet that threshold. However, qualifying for enrollment does not guarantee approval. The insurer must accept the group and its proposed coverage.

Do small businesses need to cover all employees under a group health insurance policy?

No, there is no universal requirement to insure every employee under a voluntary group health insurance policy. However, the employer must follow the eligibility rules agreed upon with the insurer. For example, a policy can define coverage for a specified category of employees, provided the insurer accepts that structure. Employers should document these criteria clearly and ensure eligible employees receive details of their insurance protection.

Are small business owners eligible for coverage under their company's group mediclaim policy?

Yes, business owners can be covered if they qualify as eligible insured members under the policy. For example, a director employed by the company can be included if the insurer accepts their employment status. Sole proprietors and partners should specifically confirm their eligibility because owning a business does not automatically establish an employer-employee relationship. The insurer's underwriting decision and the final policy schedule determine whether the owner receives coverage.

Can different employee categories have different sum insured limits under a group medical insurance policy?

Yes, employers can offer different sum insured limits to defined employee categories, subject to the insurer's approval. For example, a company could provide ₹10 lakh coverage to some employees and ₹15 lakh to others. The policy should clearly specify these differences, with eligibility criteria established beforehand. Employers should also communicate the applicable coverage limits and benefits to employees to avoid confusion when claims arise.

Can a small business switch insurers if its group health insurance premium increases at renewal?

Yes, a small business can approach another insurer and obtain a new group health insurance policy if its existing renewal premium becomes expensive. However, the new insurer will assess the group, previous claims experience and offer coverage according to its underwriting requirements. Employers should compare exclusions, waiting periods, and employee benefits before switching. Don't assume that accumulated waiting-period credits or other continuity benefits will automatically transfer to the replacement group policy.

How can small businesses add new employees to their group health insurance policy mid-year?

Small businesses can add new employees during the policy year by submitting their details to the insurer or through the designated policy management portal. The insurer will verify eligibility and calculate any additional proportionate premium for the remaining coverage period. Once the insurer accepts the addition and the required premium is paid, it issues confirmation of coverage. Employers should check the effective coverage date before telling new employees they are insured.

Are part-time employees eligible for group mediclaim insurance?

Yes, part-time employees can be included in group mediclaim insurance if the insurer accepts them as eligible members under the employer's policy. However, their inclusion is not automatic. The business must disclose their employment status and confirm whether the policy covers part-time workers. For example, a startup employing part-time designers or administrative staff should establish their eligibility before enrollment and obtain confirmation that their names appear in the insured member records.

Does group health insurance cover employees working remotely from different cities?

Yes, a single group health insurance policy can cover eligible remote employees working in different Indian cities. For example, a company with employees in Bengaluru, Pune, and Kochi can insure them under one master policy. However, employers should check the policy's geographical coverage and cashless hospital network in each location. Remote employees must also be correctly enrolled, and their coverage remains subject to the same policy terms and exclusions.

Last updated on: 7 Nov, 2026

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