The Government of India’s strategy to address its citizen’s health rests on two main pillars: strengthening primary care through Health and Wellness Centres (HWCs) and expanding health insurance coverage through the Ayushman Bharat Pradhan Mantri Jan Arogya Yojana (AB-PMJAY) for secondary and tertiary care. The Indian health insurance system is fragmented, with numerous schemes operating under different governance structures and offering varying benefits.

• Social Health Insurance (SHI) schemes cover occupation groups, managed by separate ministries (health, labour, railways, defence), with different networks of providers.
• Tax-funded schemes target the bottom 40% of the population, primarily for inpatient services at secondary and tertiary levels, with lower benefits compared with SHI schemes. Implemented by individual states with varying coverage and benefit packages, often with deviations from the central PM-JAY model.
• Commercial health insurance caters to a small segment of the population who can afford premiums, characterised by high costs, market failures (like risk selection), and limited regulation.

This fragmentation leads to significant inequities in access to services and financial protection. While the combined coverage of various insurance schemes reaches a significant portion of the population, approximately 300 million people remain uncovered, largely comprising the informal workforce and the ‘missing middle’—those who are not poor enough for targeted schemes but cannot afford private insurance. Moreover, existing schemes often lack coverage for outpatient care and essential diagnostics, which contribute significantly to OOPE, especially for lower-income households.

This paper highlights some of the gaps that remain to be filled within the Indian health insurance landscape:

• Financial constraints: Insufficient funding for PM-JAY, under-utilisation of allocated funds, and varying State capacity to bridge financing gaps pose significant challenges to achieving UHC goals. Low package rates and delayed reimbursements discourage private sector participation.
• Enrolment: Inconsistent enrolment processes across States, low awareness of available schemes among beneficiaries, and errors in beneficiary registrations lead to lower than optimal enrolment rates.
• Provider gaps: Low private sector engagement due to inadequate package rates and delayed reimbursements, low quality of services in both public and private facilities, and instances of malpractice among providers affect both access and quality of care.
• Institutional gaps: Weak institutional mechanisms for quality assurance, transparency, accountability, and grievance redressal in many states undermine the effectiveness of insurance schemes. Limited capacity of purchasers, high claim rejection rates, and weak capacity of SHAs and district-level implementation units further exacerbate these challenges.
• Outcomes: Low utilisation of services in some states, inadequate coverage for primary prevention, limited focus on outpatient care, and persistent OOPE despite increased insurance coverage point to gaps in achieving desired outcomes.

This paper draws insights from the experiences of select countries (particularly Brazil, China, Indonesia, Mexico, Thailand, and Turkey) that have implemented health system reforms using demand-side financing and insurance models. Key insights include:

• Revenue: Increased government subsidies, often combined with voluntary contributions from the informal sector, have played a crucial role in expanding coverage. Countries comparable to India in terms of economic status have achieved greater progress towards UHC by allocating a larger share of government resources to health. Legislation mandating UHC has proved effective in ensuring budget allocation and consistent policy implementation.
• Pooling: Merging fragmented risk pools into larger, more inclusive pools has improved equity, efficiency, and risk management. This approach allows for cross-subsidisation across income groups and addresses the challenge of adverse selection. While a single pool is the ideal scenario, merging schemes with similar features can be a starting point.
• Purchasing: Strategic purchasing, involving the separation of purchasing and provisioning functions, has demonstrated its effectiveness in improving efficiency and ensuring accountability. Key elements of strategic purchasing include designing and costing benefit packages, empanelling providers based on quality criteria, and establishing performance-based payment mechanisms. Close collaboration with private sector stakeholders in package design and costing ensures their buy-in and participation.
• Institutional reforms: These proved crucial for supporting effective strategic purchasing. Creating independent purchasing agencies with clear mandates and responsibilities, strengthening regulatory frameworks for providers, and establishing robust quality assurance mechanisms are critical for success.

Based on the analysis of the current landscape in India and insights from global experiences, the paper proposes potential pathways for strengthening demand-side health financing in India:

• Increasing revenue: Raising government spending on health through increased tax allocation or earmarked taxes, mandating contributions from the informal non-poor population, or introducing voluntary co-payments under a basic benefit package are options to explore.
• Consolidating risk pools: Merging existing fragmented pools into a single pool or merging those with similar features would improve equity, efficiency, and governance. Introducing a tax-funded universal common benefit package as a subset of existing schemes or expanding existing schemes for the poor and informal sector with partial contributions and state subsidies are potential interim steps.
• Introducing strategic purchasing: Implementing a universal limited benefit package for high-cost care or primary care, offering a comprehensive package by merging existing schemes, and mandating health insurance for all, are potential options to consider. Tax-funded packages with differentiated costing rates adjusted to the local cost of living, with opportunities for voluntary co-payments by uninsured individuals proportionate to coverage tiers, can encourage participation and address equity concerns.
• Strengthening payment mechanisms: Moving towards output-based financing using blended payment methods such as DRG-based payments for secondary and tertiary care and capitation-based payments for primary care can improve efficiency and control costs. Integrating pay-for-performance incentives can enhance quality and accountability.

Consolidating purchasing functions under a single agency with a separate organisation (independent of both the purchaser and provider) for regulation, quality control, and policy research may further enhance governance and accountability.

Demand-side health financing offers a promising pathway to achieving UHC in India. However, realising this potential requires addressing the existing fragmentation, strengthening institutional capacities, and increasing the financial resources allocated to health. The PM-JAY serves as a foundation for many of these reforms but needs to be significantly strengthened and expanded in scope to achieve its full potential. Ultimately, the success of India’s journey towards UHC will depend on the will to prioritise healthcare, the ability to build consensus among stakeholders, and the effectiveness of implementation mechanisms.

This paper can be accessed here.

This article is authored by Madhurima Nundy, former fellow, Alok Kumar Singh, research associate and Sandhya Venkateswaran, senior fellow, CSEP, New Delhi.