A minimal definition of universal health care (UHC) is that quality health care should be guaranteed to “all members of the community irrespective of their ability to pay” — as the Bhore Committee report put it as early as 1946. Nearly eight decades later, India is nowhere near this basic goal of human development, even as many other countries, rich and poor, have achieved it in substantial measure.
An illusion is being created today that UHC can be achieved by expanding health insurance. In the last 10 years, State-sponsored health insurance schemes have grown by leaps and bounds. The Pradhan Mantri Jan Arogya Yojana (PMJAY), launched in 2018 under Ayushman Bharat, is one landmark in this regard. Alongside PMJAY, every major State has its own State Health Insurance Programme (SHIP). Most SHIPs are modelled on PMJAY, with a maximum cover of ₹5 lakh a household a year. All these insurance schemes are restricted to in-patient care, with patients making a choice from a list of empanelled hospitals, public and private (roughly half-half). In 2023-24, PMJAY covered 58.8 crore individuals with an annual budget of about ₹12,000 crore (assuming that States contributed 40% of the total, as prescribed). Taken together, SHIPs covered a similar number and had a combined budget of at least ₹16,000 crore. The grand total of ₹28,000 crore or so is still a relatively small portion of public expenditure on health, but it is growing fast. In Gujarat, Kerala and Maharashtra, States for which relevant data are available, we found that the SHIP budget had grown at 8% to 25% a year in real terms between 2018-19 and 2023-24.
The faultlines can deepen
There is no doubt that the PMJAY and SHIPs provide some relief to poor patients when public facilities are overcrowded or substandard, by giving them wider options at reduced cost. However, these schemes are no substitute for a sound UHC framework. And they have major defects, some of which could worsen the fault lines of India’s health-care system.
First, health insurance promotes for-profit medicine. About two-thirds of the PMJAY budget is spent on private, mainly profit-oriented hospitals (corresponding figures for SHIPs are not available). A recent study of PMJAY in six major States found that the scheme made little difference to hospitalisation rates, but increased the utilisation of private hospitals. As is well understood in economics, the profit motive in health care is highly problematic. If profit-seeking private providers are allowed at all, they must be tightly regulated. India’s health-care system, however, is dominated by poorly-regulated profit seekers. Health insurance reinforces this bias rather than correcting it.
Second, health insurance also tilts the health-care system towards hospitalisation, when investments in primary and outpatient care may be more urgent. Strengthening primary care would not only ensure accessible treatment but also reduce unnecessary hospital visits and their financial burden. The ongoing induction of all elderly citizens (aged 70 years and above) in PMJAY, along with the rapid ageing of the population, involves a risk that expensive tertiary care will absorb a growing share of public health expenditure, even as many basic health services continue to fall short.
Third, there appear to be serious utilisation problems. Official figures suggest that the combined coverage of PMJAY and SHIPs is as high as 80% of the population. However, many people do not seem to know about the scheme or how to use it even if they are nominally enrolled. As a recent analysis of the 2022-23 Household Consumption Expenditure Survey shows, only 35% of insured hospital patients in that year were able to use their insurance. Other studies also report serious utilisation hurdles, especially among disadvantaged groups. Perhaps this is one reason why there is no strong evidence linking PMJAY or SHIPs with a substantial reduction in out-of-pocket health expenditure.
Hospitals and discrimination
Fourth, targeted health insurance schemes create issues of discrimination between insured and uninsured patients. Private hospitals prefer an uninsured patient since commercial charges for health care are usually higher, often much higher than the insurance reimbursement rates. One plausible reason why insurance utilisation is so low is that private hospitals discourage it in one way or another. Public hospitals, for their part, prefer insured patients since they get some money for their treatment. This creates its own problems, such as discriminatory treatment and pressure to enrol for insurance on the spot.
Fifth, health-care providers have their own complaints about health insurance, including low reimbursement rates and long delays. The first complaint may or may not be fair (one would expect to hear it), but the second is hard to dismiss. Indeed, the National Health Authority (NHA) itself revealed a few months ago that pending dues under PMJAY alone added up to ₹12,161 crore, more than the scheme’s entire annual budget. Many reports have emerged of private hospitals suspending services to patients under PMJAY or even withdrawing from the scheme, as bills remain unpaid for months. According to a recent statement of the Health Ministry, in the Lok Sabha, 609 hospitals have opted out of PMJAY since its inception.
Last but not the least, health insurance schemes are prone to corruption and abuse. The NHA recently recommended action against 3,200 hospitals for fraudulent activities under PMJAY. There are also regular media reports of irregularities from across the country. These include eligible patients being denied treatment, private providers charging insured patients, and unnecessary procedures being performed to milk the scheme. These irregularities defeat the purpose of health insurance by exposing patients to serious financial and health risks.
Tight monitoring and a battery of audits are supposed to prevent irregularities, but there is little evidence that these safeguards are effective. We were unable to find any trace of audit reports on the scheme portals. This is one symptom, among others, of a pervasive lack of transparency in health insurance.
The system is profit driven
In short, India’s health insurance schemes are a very poor way of arranging health care, especially for people who find it difficult to navigate the system. They cannot make up for India’s persistent failure to expand and improve public health facilities. No country has achieved UHC on this sort of foundation.
This is not to deny that social health insurance is a part of the UHC framework in some countries. Canada and Thailand are two examples. But PMJAY and SHIPs lack important features of social health insurance, such as universal coverage, and more importantly, a strong focus on non-profit health-care providers.
India’s profit-driven health-care system reflects decades of severe under-investment in public health facilities — few countries beat India in this regard. According to the World Bank’s latest World Development Indicators, public expenditure on health was still as low as 1.3% of GDP in India in 2022, compared with a world average of 6.1%. UHC cannot be achieved without a serious effort to address this deficit and transform health-care standards in the public sector. Some Indian States are moving in that direction, with encouraging results, but immense gaps remain. Health insurance is little more than a pain killer for a system that needs proper healing.
Anfaz Abdul Vahab is an independent researcher. Jean Drèze is a Visiting Professor at the Department of Economics, Ranchi University, Jharkhand
Published – September 02, 2025 12:16 am IST