The growing buzz around NPS Swasthya as a “game changer” in healthcare planning has caught the attention of many investors. However, financial experts are urging caution, warning that the scheme should not be mistaken for a replacement for traditional health insurance.
Abhishek Kumar, a Sebi-registered investment adviser and founder of Sahaj Money, has raised concerns over what he describes as a widespread misunderstanding of the product’s purpose and limitations.
Not insurance, but savings-based access
At its core, NPS Swasthya operates very differently from a standard health insurance policy. Unlike insurance plans that provide a fixed sum insured regardless of individual contributions, this scheme allows users to access only the money they have accumulated.
“This isn’t insurance. It’s your own money,” Kumar explained, stressing that there is no external financial protection beyond personal savings.
For instance, while a traditional health policy with a ₹10 lakh cover pays the insured amount during a claim, NPS Swasthya limits access strictly to the available corpus. If an individual has saved ₹1 lakh, that becomes the maximum usable amount.
Experts point out that this structure resembles a savings mechanism rather than a risk-cover product.
Limited withdrawals may fall short
Another key feature of the scheme is the 25% withdrawal rule, which allows partial access to funds for medical needs. While this may appear beneficial, experts say it is often inadequate in real-world scenarios.
Kumar illustrated this with a simple example: if a person contributes ₹25,000, they can withdraw only ₹6,250. In contrast, a single day in an ICU at a tier-1 hospital can cost upwards of ₹40,000.
This mismatch between accessible funds and actual medical expenses raises concerns about the scheme’s effectiveness during emergencies.
Impact on long-term retirement goals
Financial planners are also highlighting the long-term consequences of using retirement-linked savings for healthcare expenses. Since NPS Swasthya is tied to retirement planning, any withdrawal directly reduces the corpus meant for the future.
“Every rupee you pull out is a rupee not compounding for the next 25 years,” Kumar noted.
He added that withdrawing ₹50,000 at the age of 35 could translate to a loss of nearly ₹5 lakh by retirement, due to the impact of compounding over time. This makes frequent or early withdrawals potentially costly in the long run.
Entry barrier delays usability
The scheme also comes with a minimum accumulation threshold of ₹50,000 before health-related withdrawals can be utilised. For many households, especially those already managing ongoing medical costs, reaching this level may take considerable time.
Kumar pointed out that during this period, a regular family floater health insurance policy could have already covered multiple claims, offering immediate financial protection.
This delay in usability could reduce the scheme’s relevance in urgent situations.
Risk of false financial security
Experts believe the most significant risk associated with NPS Swasthya is the false sense of security it may create. Some individuals may assume they are adequately covered for medical emergencies simply by having this scheme.
Kumar warned that relying solely on such a structure could prove dangerous, particularly in high-cost medical situations. A scenario where a patient faces a ₹12 lakh hospital bill but has only ₹2 lakh saved could lead to severe financial strain.
Without comprehensive insurance coverage, families may be forced to dip into savings, take loans, or liquidate assets.
Where NPS Swasthya fits in
Despite the concerns, experts are not dismissing NPS Swasthya altogether. Instead, they emphasise its role as a supplementary tool within a broader financial strategy.
According to Kumar, the ideal approach includes three layers: a base health insurance policy, followed by a super top-up plan for higher coverage, and finally NPS Swasthya as an additional buffer.
In this framework, the scheme can provide support for minor or intermediate expenses without replacing core insurance protection.
Conclusion
While NPS Swasthya offers a structured way to set aside funds for healthcare, experts caution against viewing it as a standalone solution. Its limitations in coverage, withdrawal restrictions, and impact on retirement savings make it unsuitable as a replacement for health insurance.
Used wisely, it can complement an existing financial plan. However, confusing it with insurance could expose individuals and families to significant financial risk during medical emergencies.
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