Increasing Health Insurance Coverage, Growing Distress

UPSC Syllabus: Gs Paper 3- Issues relating to development and management of Social Sector/Services relating to Education

Introduction

Health insurance coverage has expanded significantly in India, as shown by the National Sample Survey (NSS) 80th round (2025), mainly due to government-financed schemes. However, this increase has not improved healthcare access or reduced financial burden. Hospitalisation rates remain low, dependence on private healthcare has increased, and out-of-pocket expenditure has sharply risen. This reflects a clear mismatch between insurance expansion and actual healthcare outcomes, raising concerns about the effectiveness of the current insurance-led approach.

Current Status of Health Insurance in India

1. Rapid Expansion of Coverage: Health insurance now covers 47.4% rural and 44.3% urban households, mainly due to a more than 2.5 times increase in government-financed schemes.
2. Government Schemes Driving Growth: This expansion is mainly due to Government-Financed Health Insurance (GFHI) schemes like Pradhan Mantri Jan Arogya Yojana and State schemes, while ESIS and CGHS have minimal contribution.
3. Rising Role in Household Financial Assets: The share of insurance and pension funds in household financial assets increased from 28.6% (2018-19) to 29.6% (2024-25), showing growing financial participation.
4. Health Insurance Becoming Dominant Segment: Health insurance now contributes 41% of non-life premium, becoming the leading segment, surpassing motor insurance.
5. Coverage Not Translating into Utilisation: Despite higher coverage, hospitalisation rates remain below 2014 levels, with only a marginal rise in rural areas and decline in urban areas, indicating weak utilisation.

Major Concerns Related to Health Insurance in India

1. Shift Towards Private Healthcare: There is a clear shift towards private hospitals for treatment and childbirth, while the use of public facilities has declined, especially in urban areas. This reflects reduced reliance on public healthcare services.
2. Sharp Rise in Out-of-Pocket Expenditure: Out-of-pocket expenditure on hospitalisation has more than doubled between 2017-18 and 2025. This shows that financial protection from insurance remains weak.
3. Hidden Costs in Public Healthcare: Even in public hospitals, patients spend due to lack of medicines, diagnostic services, and high transport and other non-medical costs. This reduces the benefit of subsidised care.
4. High Cost Burden in Private Sector: Treatment in private hospitals leads to very high expenses, with costs rising by 70% in rural areas and 80% in urban areas, increasing financial distress.
5. Inequitable Utilisation of Insurance Schemes: Although schemes target the poor, better-off groups benefit more, and only 13% of urban beneficiaries belong to the poorest class.
6. Inclusion of Non-Poor Increasing Burden: Extending coverage to non-poor households increases utilisation but also raises fiscal burden and weakens targeting efficiency.
7. Rising Fiscal Pressure on States: States like Haryana and West Bengal spend around 15% of their health budgets on GFHI (Government-Financed Health Insurance), creating financial stress.
8. Delays and Dependence on Private Providers: Fiscal pressure leads to delays in payments to private hospitals, while the insurance model channels public funds towards private providers.
9. Profit-Oriented and Weakly Regulated Private Sector: The private sector works on profit maximisation with limited regulation, and patients are often charged extra despite insurance coverage.
10. Structural Imbalance in Healthcare Approach: The system reflects an imbalance where schemes appear “of the rich, for profit, by the poor”, raising concerns about fairness.
11. Neglect of Primary Healthcare System: Ayushman Arogya Mandir has potential for comprehensive care but remains underfunded, similar to the National Health Mission, showing a gap between curative insurance focus and preventive care needs.

Recent Policy and Regulatory Measures for Health Insurance in India

1. Vision of “Insurance for All by 2047”: The Insurance Regulatory and Development Authority of India aims to expand insurance coverage to all citizens.
2. Sabka Bima Sabki Raksha (Amendment) Act, 2025: The law amended key insurance Acts to expand coverage, improve protection, and strengthen the sector, while supporting ease of doing business.
3. Legislative Reform to Strengthen Sector: The Insurance Laws (Amendment) Act, 2025 increased FDI limit to 100%, simplified compliance, and aligned laws with digital data protection.
4. GST Exemption on Health Insurance: From September 2025, 18% GST was removed, making health insurance more affordable and encouraging wider adoption.
5. Reduced Moratorium Period: The moratorium period was reduced from 8 years to 5 years, limiting claim rejection after this period except in fraud cases.
6. 30-Day Free-Look Period: A standard 30-day period allows policyholders to review and exit policies, improving transparency and trust.
7. Guaranteed Policy Renewal: Insurers must renew policies and cannot deny renewal based on past claims, ensuring continuity of coverage.
8. Portability and Migration Benefits: Policyholders can switch insurers or plans while retaining waiting period credits and no-claim benefits, increasing flexibility.
9. No Claim Bonus (NCB): Policyholders are rewarded with higher coverage or lower premiums if no claim is made, promoting responsible usage.
10. Performance Monitoring of TPAs: Insurers monitor Third Party Administrator (TPA), and penalties based on customer feedback ensure better service delivery and accountability.

Major Health Insurance Protection Schemes

1. Pradhan Mantri Jan Arogya Yojana (PMJAY): PMJAY is the largest scheme driving coverage expansion, contributing to a more than 2.5 times increase in insurance coverage between 2017-18 and 2025, with 43.52 crore Ayushman cards issued.
2. Swasthya Saathi (West Bengal): This State-level scheme has supported the expansion of coverage under GFHI (Government-Financed Health Insurance), especially in West Bengal.
3. Employees’ State Insurance Scheme (ESIS): ESIS provides social security and healthcare to workers, but its contribution to recent coverage growth is very limited.
4. Central Government Health Scheme (CGHS): CGHS mainly covers government employees and has minimal role in expanding overall insurance coverage.
5. State Government Health Insurance Schemes: Schemes for State government employees are part of GFHI, but their contribution to overall expansion remains limited.
6. Ayushman Arogya Mandir (AAM): AAM focuses on comprehensive primary healthcare, including non-communicable diseases, but remains severely underfunded.

Conclusion

The expansion of health insurance has not translated into better care or financial protection. Rising out-of-pocket costs, growing dependence on private providers, and unequal access show deep structural problems. Public funds are increasingly supporting private profit, while primary care remains neglected. There is a need to rethink the insurance-led model and prioritise strengthening public healthcare to ensure universal, equitable, and affordable access for all sections.

Question for practice:

Discuss how the increase in health insurance coverage in India has failed to improve healthcare access and financial protection, as reflected in recent data.

Source: The Hindu and PIB