For Indian startups, ensuring employee well-being isn’t just a perk—it’s becoming an essential part of business sustainability.
Offering health insurance is critical for attracting and retaining top talent, improving workplace productivity, and meeting legal obligations. But how does a startup determine the right health coverage? Does company size impact the requirements? And what are the key legal considerations?
1. Is Health Insurance Mandatory for Startups in India?
Yes, under specific conditions.
- As per the Employee State Insurance Act (ESI), 1948, any company with 10 or more employees earning below ₹21,000/month must provide ESI coverage. ESI covers medical care, disability, and maternity benefits.
- For employees earning above ₹21,000/month, Group Health Insurance (GHI) is not mandatory by law but is considered an industry best practice.
- The Code on Social Security, 2020 (yet to be fully implemented) aims to make comprehensive health and social security benefits more accessible for all employees, including those in startups.
2. Choosing the Right Health Insurance for Your Startup
Founders should evaluate four key factors when selecting a health insurance plan:
Startup Size & Growth Stage
- Early-stage startups (less than 10 employees): Individual or voluntary health insurance policies work initially, but as you scale, group health plans become more cost-effective.
- Growth-stage startups (10-100 employees): A basic Group Health Insurance (GHI) policy with hospitalization and OPD coverage is recommended.
- Mid-sized startups (100+ employees): Startups should consider customized corporate health insurance with add-ons like maternity benefits, mental health coverage, and family floater options.
Coverage & Benefits
- Hospitalization coverage (IPD & OPD)
- Cashless treatment at network hospitals
- Pre-existing disease coverage
- Maternity and newborn benefits
- Mental health and wellness support (a rising priority)
- Telemedicine & virtual consultations
Cost & Budgeting
- Premiums depend on factors like employee age, number of dependents, coverage limits, and claims history.
- Startups typically spend ₹5,000 – ₹12,000 per employee per year for a good Group Health Insurance plan.
- Policies can be co-funded by employees and employers to reduce financial burden.
Customization & Flexibility
- Founders should negotiate coverage terms to include mental wellness programs, preventive health checkups, and remote-work benefits.
- Flexi-benefits, where employees can choose additional coverage, make policies more effective for diverse teams.
3. Key Legal & Compliance Considerations
- Registration with ESI (if applicable) and compliance with Insurance Regulatory and Development Authority of India (IRDAI) regulations.
- Startups must document health benefits in employment contracts to ensure transparency.
- Tax benefits: Premiums paid by the employer for Group Health Insurance are 100% tax-deductible under Section 37(1) of the Income Tax Act.
- Data privacy compliance: With sensitive medical data involved, startups must comply with the Digital Personal Data Protection (DPDP) Act, 2023 when managing employee health records.
4. How Startups Can Enable Health Insurance for Employees
A Step-by-Step Guide for Founders
- Evaluate your team size & needs: Identify coverage needs based on demographics, health risks, and remote work flexibility.
- Partner with insurance providers or brokers: Compare policies from insurers like ICICI Lombard, HDFC Ergo, and Niva Bupa or work with insurtech platforms like Plum, Nova Benefits, or Pazcare for startup-focused plans.
- Structure co-payment options: Decide whether the startup will cover 100% of the premium or share costs with employees.
- Ensure seamless onboarding: Use HR tech integrations for policy management, claims processing, and renewals.
- Regularly review & upgrade coverage: As the startup scales, update policies to offer better health benefits aligned with company growth.
Final Thoughts: A Strategic Investment, Not a Cost
For Indian startups, health insurance isn’t just a regulatory requirement—it’s a powerful tool for talent retention, productivity, and financial risk management. With medical inflation rising at 14% YoY in India, lack of health insurance can expose employees to significant out-of-pocket expenses, reducing overall job satisfaction.
By investing in a robust health insurance policy, startups can build a resilient workforce, enhance employee well-being, and ensure long-term business sustainability.
