Rise and Risks of Health Insurance in India

The Rise and Risks of Health Insurance: India’s Detour from Universal Health Care

India's rapidly expanding health insurance coverage—spearheaded by schemes like Pradhan Mantri Jan Arogya Yojana (PM-JAY) and State Health Insurance Programmes (SHIPs)—is mistakenly celebrated as progress toward Universal Health Coverage (UHC). This assertion skirts around the reality of fragile public health infrastructure and risks entrenching systemic inequities in healthcare delivery.

The thesis here is stark: Health insurance, positioned as a panacea for healthcare woes, is diverting resources from building a robust, accessible health system. While such schemes provide temporary relief to hospitalised patients, they exacerbate long-standing deficiencies in primary healthcare, regulation, and public spending.

The Institutional Landscape: Expansion Without Foundation

India’s health insurance push is largely driven by flagship government schemes. As of 2023–24, PM-JAY alone covers 58.8 crore individuals, accounting for ₹12,000 crore annually. SHIPs extend this coverage further with an annual outlay of ₹16,000 crore. Combined spending has reached approximately ₹28,000 crore—double the allocation from a decade ago.

Yet, this rise must be contrasted against India's woefully inadequate public health budget. Official figures from 2022 reveal public health spending at just 1.3% of GDP, a glaring deficiency compared to the global average of 6.1%. While ₹28,000 crore may seem substantial, it pales before the system-wide investment required to meet the Bhore Committee’s 1946 vision of universal, equitable healthcare.

Additionally, these insurance schemes reflect a growing reliance on private hospitals. Two-thirds of PM-JAY’s funds are funnelled to private institutions, often unregulated, profit-driven, and inaccessible for vulnerable populations. Such structural imbalances raise questions about who truly benefits from this insurance-centric model.

The Argument: Insurance Alone Cannot Deliver UHC

India’s reliance on health insurance as a proxy for UHC has drawn sharp criticism from policy analysts, and rightly so. Despite its vast coverage, systemic flaws undermine the efficacy and equity of these schemes.

• Bias Towards Hospitalisation: PM-JAY and SHIPs focus exclusively on in-patient care, neglecting essential outpatient and primary services. This bias leads to disproportionate funding for costly tertiary care, while preventive healthcare remains underfunded. With India’s ageing demographic, this imbalance threatens to overwhelm the health budget.
• Low Utilisation Rates: Government claims of 80% population coverage are misleading. NSSO data from 2022–23 revealed that only 35% of hospitalised patients could access insurance benefits. Procedural hurdles, lack of awareness, and selective denial by private hospitals are critical bottlenecks.
• Discrimination in Delivery: Insurance schemes inadvertently foster differential treatment. Private hospitals often favour uninsured patients, who pay out-of-pocket, while public hospitals prioritise insured patients for revenue. Both dynamics undermine the equitable distribution of care.
• Corruption and Fraud: PM-JAY’s auditing process is weak, allowing fraudulent practices like inflated billing and unnecessary procedures to flourish. In 2023 alone, thousands of hospitals faced action for misconduct, yet pending dues exceeded ₹12,000 crore.

Counter-Narrative: Insurance is Still Better Than No Shield

The strongest argument for insurance is its potential to provide financial protection against catastrophic health expenses. Schemes like PM-JAY have undeniably reduced out-of-pocket expenditure for millions, shielding households from medical debt. For those prioritising immediate relief, insurance is arguably a step forward from absolute reliance on unaffordable private care.

Moreover, insurance enhances healthcare access in traditionally underserved regions. PM-JAY data from 2023 shows increased utilisation in states like Bihar and Uttar Pradesh—regions long plagued by poor public health infrastructure. This trend gives proponents ammunition to defend insurance as a pragmatic alternative while state systems catch up.

While these points are valid, they do not absolve the deeper structural problems that remain unchecked. Universal access cannot rely on patchwork financial instruments alone; it requires systemic investment and governance reform.

International Perspective: Lessons from Thailand’s Health System

Thailand’s expansive healthcare reforms provide a stark counterpoint to India’s insurance-centric model. Thailand's Universal Coverage Scheme, launched in 2002, integrates social health insurance into a government-led public health system. Non-profit providers dominate this landscape, ensuring regulation and accessibility.

The key difference lies in governance. Thailand’s public spending on health exceeds 3.8% of GDP, alongside strict accountability mechanisms for providers. Outpatient and primary care form the backbone of Thailand's framework, unlike India’s hospitalisation-centric insurance schemes. As a result, Thailand has achieved better outcomes for maternal health and life expectancy—all without the systemic gaps seen in Indian schemes.

Assessment: A Detour From Universal Health Coverage

India’s centennial independence goal of universal health insurance by 2047, as outlined by IRDAI, risks being another illusion if the current trajectory continues. For true UHC, insurance schemes cannot substitute public health systems; they must complement and bolster them through equitable, accessible care for all.

What is needed first is decisive action to address structural deficiencies:

• Raise public-health investment to at least 3% of GDP by 2030.
• Expand primary healthcare networks in rural and underserved urban zones.
• Regulate private providers more stringently, ensuring accountability and compliance.

Only then can India begin to inch toward the Bhore Committee's comprehensive vision of UHC. Until these systemic reforms are undertaken, health insurance will remain, at best, a Band-Aid treatment for deeply entrenched structural inequities.

Practice Questions for UPSC

Prelims Practice Questions

Frequently Asked Questions