NPS Swasthya explained: How it compares with regular health insurance policies

NPS Swasthya is a PFRDA-backed pilot healthcare funding facility launched under the sandbox framework for NPS subscribers. It allows users to withdraw a portion of their retirement savings to pay for medical expenses such as hospitalisation, diagnostics, pharmacy and dental care. Payments are made directly to hospitals or through TPAs, helping users arrange funds quickly during emergencies.

NPS Swasthya acts as an additional source of emergency healthcare funding. While comprehensive health insurance mainly covers hospitalisation costs, Swasthya can also support costs for medicines, tests and dental treatment that may not always be fully covered under standard policies.

Existing NPS subscribers or those opening a regular NPS account can enrol in Swasthya. Non- government subscribers aged above 40 can transfer up to 30% of their contributions from the common NPS account into the Swasthya account.

The first withdrawal is allowed only after at least Rs 50,000 has been accumulated under the scheme.

Under regular NPS rules, subscribers can withdraw up to 25% of their own contribution only four times during the account tenure. However, Swasthya removes the restriction on the number of withdrawals for healthcare needs.

It also enables quicker authorisation and direct payment to hospitals or healthcare service providers, reducing the burden of arranging funds during emergencies.

One major concern is that frequent withdrawals may dilute the primary objective of NPS: retirement savings. Also, withdrawals are restricted to 25% of one's own funds for regular needs. Since funds remain market-linked, there is also a risk of volatility during emergencies.

Unlike mutual fund redemptions, which may take 2–3 days for money to reach the investor’s account, Swasthya enables almost instant authorisation of payments directly to healthcare providers. Another advantage is taxation. Mutual fund gains may attract capital gains tax, but withdrawals made through NPS Swasthya are completely tax-free.