Health Insurance – Significance & Challenges – Explained Pointwise

Universal Health Care (UHC), envisioned by the Bhore Committee (1946), remains distant for India even after eight decades. While PMJAY and SHIPs have expanded formal coverage to over 80% of the population, they raise questions about sustainability, equity, and the future of India’s public health system.

Status of Health Insurance Coverage in India:

• National coverage rate: Approximately 55% of households have some form of health insurance (government or private), up from 41% in 2021.
• Ayushman Bharat–PM-JAY: India’s largest public health insurance plan now covers 107 million families (over 40% of the population).
• Private insurance: Over 30% of insured individuals are covered by private plans, with premiums ranging from ₹5,000–₹20,000 per person per year.

Significance of health insurance:

1. Preventing Catastrophic Expenditure: Health expenses, particularly for hospitalization (secondary and tertiary care), are a leading cause of families falling into poverty (About 7% of India’s population is pushed into poverty annually due to out-of-pocket healthcare expenses). Health insurance, especially schemes like PMJAY, absorbs these unpredictable & high costs.
2. Access to Quality Healthcare: Insurance enables timely access to private and public healthcare services, allowing for cashless treatment and routine or emergency procedures.
3. Formalizing the Healthcare Sector: Insurance requires detailed record-keeping, standardized billing, and adherence to treatment protocols. This forces hospitals to adopt better transparency and accountability, which is essential for improving the quality of care and curbing over-billing practices.
4. Social Impact & Health Equity: Health insurance schemes, especially government-led ones like Ayushman Bharat, improve inclusivity by covering low-income, rural, and vulnerable populations. They contribute to improved national productivity, lower mortality, enhanced wellbeing, and reduction of catastrophic health expenditures.

Various initiatives to expand the health insurance coverage:

1. Ayushman Bharat – Pradhan Mantri Jan Arogya Yojana (PM-JAY):
   • Launched in 2018, PM-JAY offers ₹5 lakh annual cover per family for hospitalizations.
   • Covers secondary and tertiary care, both public and private hospitals nationwide.
   • Significant extension in 2025 to individuals aged 70 and above.
2. State Health Insurance Programmes (SHIP):
   • Rajiv Aarogyasri (AP, Telangana): Focused on BPL and serious illnesses.
   • Arogya Karnataka: Universal coverage aspirations with diagnostics, hospitalization.
   • CMCHIS (Tamil Nadu), Bhamashah Swasthya Bima (Rajasthan), and others provide cashless treatment and significant annual coverage.
3. Health & Wellness Centres (HWCs): Transformation of over 1.7 lakh sub-centres and PHCs into HWCs by 2024, offering primary healthcare and linking insurance benefits closer to communities.
4. Ayushman Bharat Digital Mission (ABDM): ABDM is creating unique digital health IDs (ABHA) for every citizen. This infrastructure is vital for the future, as it will allow beneficiaries’ medical records and insurance claims to be linked digitally, making the entire process of enrollment and portability seamless. 
5. Mandated standardized policies (e.g. Arogya Sanjeevani), reducing complexity and improving transparency for customers.
6. Removal of GST from insurance premiums (2025) to make insurance more affordable.
7. NIRAMAYA: Special affordable health insurance scheme for persons with disabilities, covering OPD and diagnostics.
8. Mental Health Coverage: Expansion of benefits under Ayushman Bharat and private schemes to include mental health services.

Challenges related to health insurance in India:

1. High Out-of-Pocket (OoP) Expenditure: Even with the growth of insurance, over 60% of total healthcare spending is still paid out-of-pocket by patients. This is due to the lack of coverage for Out-Patient Department (OPD) expenses which constitute the bulk of everyday medical costs. Most insurance only covers hospitalization.
2. The “Missing Middle”: A vast segment of the Indian population is too wealthy to qualify for the highly subsidized PMJAY but too poor or informally employed to afford comprehensive private insurance. This group, estimated at around 30% of the population, often faces the greatest financial distress during a medical crisis.
3. Complex Exclusionary Clauses: Private insurance policies are often highly complex, containing numerous and difficult-to-understand clauses, especially concerning Pre-Existing Diseases (PEDs). PEDs typically involve waiting periods of 2 to 4 years, meaning individuals with chronic conditions (like diabetes or hypertension) cannot access coverage immediately, defeating the purpose of buying insurance when they need it most.
4. Claim Denial and Disputes: High rates of claim rejection or partial payment, particularly in the private sector, erode public trust. This often stems from ambiguity in policy wording, non-disclosure of health conditions by customers, or arbitrary interpretation of “medically necessary” treatment by insurers.
5. Privatisation of Healthcare & Profit-seeking Behaviour: Health insurance in India promotes for-profit medicine. About two-thirds of the PM-JAY budget is spent on private, mainly profit oriented hospitals. India’s healthcare system, however, is dominated by poorly-regulated profit seekers. Health insurance reinforces this bias rather than correcting it.
6. Misdirected Focus: Health insurance also tilts the focus of the healthcare system towards hospitalisation, when investments in primary & outpatient care may be more urgent. Focus on strengthening the PHC would not only ensure accessible treatment but also reduce unnecessary hospital visits & their financial burden.
7. Lack of Awareness & Serious Utilisation Problem: The combined coverage of PM-JAY & SHIP is estimated to be as high as 80% of the population. However, a large % of this population do not seem to know about these schemes or how to use them even if they are nominally enrolled. According to the 2022-23 Health Consumption Expenditure Survey – only 35% of insured hospital patients in that year were able to use their insurance. This is the main reason why there is no strong evidence linking the health insurance schemes with substantial reduction in OoP health expenditure.
8. Discriminatory Treatment: Targeted health insurance schemes create the issue of discrimination between insured & uninsured patients. Private hospitals prefer an uninsured patient because commercial charges for healthcare are usually higher for them – often much higher than the insurance reimbursement rates. Public hospitals, on the other hand, prefer insured patients because they get some money for their treatment. This creates the problem of discriminatory treatment & pressure to enroll for insurance on spot. 
9. Information Asymmetry and Fraud: Both government and private schemes struggle with fraud and unethical practices. This includes excessive billing or unnecessary procedures by healthcare providers to maximize claim amounts, which, in turn, increases the overall cost of insurance for everyone. The NHA has recently recommended action against 3200 hospitals for fraudulent activities under PM-JAY.
10. Regulatory Capacity: While the Insurance Regulatory and Development Authority of India (IRDAI) is active, ensuring compliance across thousands of hospitals and hundreds of insurance products requires enormous regulatory bandwidth, especially in monitoring billing practices and claim settlement integrity.

Way forward:

1. Universal Health Coverage:
   • Expand government schemes like Ayushman Bharat to cover the uninsured population (~400 million), especially focusing on outpatient care and chronic illnesses.
   • Bridge the “Missing Middle” Gap: Encourage insurers to offer highly flexible, modular plans that allow the “missing middle” to buy specific coverage at a lower cost, with the option to add comprehensive coverage later.
   • Increase public investment in primary and preventive healthcare, integrating insurance with wellness and early intervention programs.
2. Affordability & Product Innovation:
   • Standardize insurance policies with transparent coverage and limits (e.g. Arogya Sanjeevani) to eliminate confusion and mis-selling.
   • Develop plans tailored for seniors, women, and low-income groups, including wellness-linked benefits and cashless OPD coverage.
3. Mandatory Health Claims Exchange (HCX) Use: The government must mandate the use of the HCX platform by all hospitals and insurers (public and private). This standardized digital exchange will drastically reduce claim processing time, minimize disputes, and reduce fraudulent billing by creating an audit trail.
4. Strengthened Regulatory Framework:
   • IRDAI reforms to speed claim settlements, mandate cashless anywhere facilities, protect consumer rights, and regulate premium hikes.
   • Introduce composite licenses allowing insurers to offer life and health insurance products seamlessly.
5. Increased Awareness & Literacy:
   • Run public campaigns focused on the importance of insurance, especially in rural/underserved regions.
   • Promote financial literacy, especially around claim processes, policy selection, and benefits.
6. Paperless and Aadhaar-Linked Claims: The goal should be for 100% cashless and paperless claim settlement for all enrolled patients, using the ABHA (Ayushman Bharat Health Account) ID for authentication and record access.

Conclusion:
Social health insurance is definitely an important pillar towards achieving UHC, however, to truly achieve the UHC, the focus should be on not only overcoming the limitations of the existing health insurance programmes but also on investing in basic public healthcare infrastructure.