Health Insurance in India: Boon or Risk?

Health Insurance in India: Boon or Risk?

India’s journey towards Universal Health Care (UHC) stretches back more than seven decades, beginning with the recommendations of the Bhore Committee in 1946. Despite persistent efforts, a truly inclusive healthcare system remains elusive. The introduction of schemes such as the Pradhan Mantri Jan Arogya Yojana (PMJAY) and State Health Insurance Programmes (SHIPs) has expanded formal health coverage to a majority of the population. Yet, while these schemes provide immediate financial relief for medical treatment, they also raise concerns about sustainability, equity, and the overall development of India’s public health infrastructure.

Expansion of Health Insurance in India

PMJAY and SHIPs: Coverage and Budgets

Launched in 2018, PMJAY offers a maximum coverage of ₹5 lakh per household annually for inpatient care. By 2023–24, it covers over 58.8 crore individuals. In parallel, most Indian states run State Health Insurance Programmes that provide similar coverage at the state level, with a combined annual budget of around ₹16,000 crore. Overall, total spending on these schemes has reached approximately ₹28,000 crore, with growth rates ranging from 8% to 25% annually between 2018 and 2024.

Coverage vs Actual Utilisation

While these schemes boast high nominal coverage, utilisation remains limited. According to the Health Care Expenditure Survey (2022–23), only about 35% of insured hospital patients actually benefited from these schemes. Low awareness, procedural complexities, and reluctance from private hospitals to treat insurance patients contribute to this gap.

Fault Lines in Health Insurance Expansion

Bias Toward For-Profit Healthcare

A significant portion of PMJAY funds, around two-thirds flows to private hospitals. This emphasis on commercial providers reinforces a profit-driven healthcare system. Weak regulation and oversight can lead to overcharging, unnecessary procedures, and ethical compromises, undermining the promise of equitable care.

Neglect of Primary and Preventive Care

Insurance schemes predominantly reimburse hospitalisation costs, diverting attention and resources from primary care and preventive services. As India’s population ages, increasing demand for tertiary care risks further crowding out funding for rural primary health centres (PHCs) and outpatient services.

Barriers to Utilisation

Many beneficiaries are unaware of how to use insurance benefits. Additionally, private hospitals often discourage insurance patients due to low reimbursement rates, creating inequities in access. Marginalised communities face heightened difficulties in navigating these schemes, exacerbating healthcare disparities.

Discrimination Within the System

Insurance schemes sometimes create perverse incentives. Public hospitals may prioritise insured patients to gain extra funds, while private hospitals prefer uninsured patients who can pay higher fees. This dynamic deepens inequities and can compromise the quality of care received by the disadvantaged.

Financial Sustainability Challenges

The financial viability of these schemes is under pressure. PMJAY has pending dues amounting to ₹12,161 crore, which exceeds its annual budget. Over 600 hospitals have reportedly withdrawn from the scheme due to delayed reimbursements, highlighting the fragility of relying on insurance intermediaries for healthcare delivery.

Fraud and Corruption Risks

Instances of fraud have been flagged within PMJAY, with over 3,200 hospitals found to engage in unethical practices such as ghost patients, inflated bills, and unnecessary surgeries. Weak audit mechanisms and a lack of transparency in scheme portals amplify these risks, threatening public trust.

Structural Risks for Universal Health Care

India’s public expenditure on health remains one of the lowest globally, at just 1.3% of GDP in 2022, compared to the world average of 6.1%. A profit-driven insurance model further entrenches private sector dominance without ensuring quality or affordability. Despite extensive nominal coverage, out-of-pocket spending continues to be high, leaving households financially vulnerable.

International Comparisons

Countries such as Thailand and Canada demonstrate effective integration of social health insurance within UHC frameworks. These systems typically feature non-profit healthcare providers, universal coverage, and strong regulatory oversight. In contrast, India’s insurance-driven model is largely targeted, profit-oriented, and weakly regulated, which limits its potential to serve as a foundation for genuine universal health care.

Policy Way Forward

Strengthening Public Health Infrastructure

India must invest in primary health centres, rural diagnostic facilities, outpatient services, and local health workers. A shift from hospitalisation-centric funding to preventive care is essential to reduce long-term costs and improve population health outcomes.

Regulating the Private Sector

Strict enforcement of standard treatment protocols, price caps, and monitoring of empanelled hospitals can reduce profiteering and unethical practices. Transparent audits and grievance redressal mechanisms will enhance accountability and public trust.

Enhancing Awareness and Utilisation

Community outreach programs, digital literacy initiatives, and simplified claims processes can ensure that beneficiaries fully utilise insurance schemes. Awareness campaigns are particularly crucial in rural and disadvantaged areas, where healthcare literacy is low.

Ensuring Financial Sustainability

Timely reimbursement to hospitals is critical. Moving from insurance intermediaries to direct budgetary allocations for public healthcare could improve efficiency and reduce administrative delays, safeguarding the financial sustainability of health schemes.

Moving Towards True UHC

To realise the vision of UHC, India should aim to raise public health spending to 2.5% of GDP, in line with the National Health Policy 2017 targets. Transitioning from fragmented, insurance-based schemes to publicly funded, universally accessible healthcare will ensure equitable access to essential health services for all citizens.

Conclusion

While PMJAY and SHIPs provide immediate financial support and expand nominal coverage, they risk cementing a hospitalisation-focused, profit-driven system that fails to address underlying public health needs. True UHC in India requires strategic investment in primary care, robust regulation of private providers, and equity-oriented reforms. Without these measures, health insurance acts merely as a temporary remedy rather than a sustainable solution for India’s healthcare challenges.