National Council of Applied Economic Research
Opinion: Yashika Khattar and Palash Baruah.
The disparity between the coverage rates and actual reimbursements highlights the urgent need for comprehensive reforms in the design and implementation of health insurance schemes at both the Central and State levels.
While a growing number of households are being covered by health insurance schemes, the real test lies in how well those schemes support individuals when it comes to reimbursement of hospital expenses. This can be measured by the proportion of individuals (how many) receiving reimbursements for their healthcare costs and the extent of those reimbursements (how much).
The most recent data from the Comprehensive Annual Modular Survey (CAMS) of the National Sample Survey (NSS) 79th round (2022-23) offers valuable insights into the issues. According to the survey, 61.5 per cent of urban households and 59.9 per cent of rural households have at least one member covered by some form of health insurance. On the surface, these figures suggest a widespread adoption of insurance covera across the country, but the reality is more complex when we examine how much of the actual healthcare expenses are reimbursed.
The survey reveals a significant gap between the percentage of people covered insurance and the level of financial support they receive. In urban areas, only 23.1 percent of hospitalisation expenses incurred in the last year were reimbursed by insurance. Even more concerning, just 8.2 per cent of hospitalisation costs in rural areas were reimbursed. This means that in urban regions, a staggering 76.9 per cent of hospital costs are borne as out-of-pocket expenses by households, while in rural areas, this figure escalates to a troubling 91.8 per cent
Out-of-pocket expense
These numbers highlight the limitations of insurance schemes in providing adequate support to those in need and a high financial burden on individuals. The high out-of-pocket expenses can lead to significant financial strain, forcing many households to either delay or forgo necessary medical care altogether.
This disparity in reimbursement rates and out-of-pocket costs underscores a critical challenge for India’s health insurance system: while coverage has expanded, the effectiveness of that coverage in alleviating financial stress remains limited
A closer examination of the data reveals significant disparities across different income groups. In urban areas, the bottom 20 per cent of income earners receive reimbursements for only 9.1 per cent of their hospital costs, leaving them to bear nearly 91 per cent of the expenses themselves. In stark contrast, the top 20 per cent of earners in urban areas receive reimbursements for 31.8 per cent of their hospitalization expenses, more than three times higher than the lowest-income group.
In rural areas, even the wealthiest households still cover, on average, 90.2 per cent of their hospital costs out of pocket, while the lowest-income households are burdened with an even greater share, paying 94.2 per cent themselves. These figures underscore troubling reality: across all income levels, rural households, in particular, receive minimal support from their insurance coverage, exacerbating the financial strain they face.
Further analysis of the data reveals a similar trend across various types of insurance. We focus on two insurance schemes with the widest coverage in both urban and rural areas: Ayushman Bharat – Pradhan Mantri Jan Arogya Yojana (AB-PMJAY), covering 18.9 per cent of urban households and 29.5 per cent of rural households, and the State Health Insurance Scheme, covering 22.5 per cent of urban households and 26.8 per cent of rural households.
Focusing on households that are solely insured under AB-PMJAY (i.e., those with no additional coverage), we find that a significant 87.7 per cent of rural households that incurred medical expenses on hospitalization in the past year received no reimbursement at all. Among the small percentage that did receive reimbursement, on average, only 57.5 per cent of their total expenditure was covered. This means that for every 100 people insured under AB-PMJAY in rural areas, 87 people received no reimbursement, and the remaining 13 had only ₹57.5 reimbursed for every ₹100 spent. These numbers are concerning and indicate a need for urgent reform in healthcare spending and reimbursement policies. The percentage of households without any reimbursement varies slightly by income group, ranging from 80.9 per cent for the lowest income group to 88.3 per cent for the highest income group.
In urban areas, the situation is only marginally better. A staggering 86.7 per cent of households insured solely under AB-PMJAY that had hospitalisation did not receive reimbursement for their expenses. However, for those who did receive reimbursement, the amount was more substantial, with an average of ₹70 reimbursed for every ₹100 spent. The variation in reimbursement levels across income groups in urban areas is relatively narrow, ranging from 85.4 per cent for the lowest income group to 89.8 per cent for the highest income group. This suggests that the AB-PMJAY scheme is more consistently implemented in urban areas, offering slightly better support than in rural areas.
State schemes
The second type of insurance, State Health Insurance Schemes, which includes any insurance schemes launched by State governments, also cover a significant portion of the population. In urban areas, 17.4 per cent of households and in rural areas, 23.4 per cent of households are insured solely under these schemes. Among households insured only under State Health Insurance in urban areas, 79 per cent did not receive any reimbursement for their hospitalisation expenses. For those who did receive reimbursements, the average amount covered was ₹60.5 for every ₹100 spent. Interestingly, the percentage of households not receiving reimbursement increases slightly with income, ranging from 72.4 per cent in the highest income group to 80.2 per cent in the lowest income group.
In rural areas, 82.4 per cent of households insured under State Health Insurance Schemes did not receive any reimbursement for their medical expenses, with an average reimbursement of ₹60.8 for every ₹100 spent. Notably, the lack of reimbursement is fairly consistent across income groups in rural areas, with little variation between the highest and lowest income brackets.
Overall, the decentralised State Health Insurance Schemes appear to offer more consistency in coverage and reimbursement rates across both rural and urban areas and across different income groups, compared to the Central government’s AB-PMJA.
While neither scheme provides sufficient reimbursement, the State Health Insurance Schemes seem to offer a more predictable level of support
This analysis reveals a critical gap in India’s health insurance system. While high coverage rates are important, they are ineffective if insurance fails to reduce the financial burden when it is needed most. Though this issue spans all regions a income groups, it is particularly severe in rural areas and among the lowest-income groups in urban areas. The disparity between the coverage rates and actual reimbursements highlights the urgent need for comprehensive reforms in the design and implementation of health insurance schemes at both the Central and State levels.
Policymakers must focus on improving reimbursement mechanisms to cover a larger proportion of hospitalisation costs and ensure that vulnerable income groups receive fair and equitable support.
Khattar is Research Associate and Baruah is Fellow at the National Council of Applied Economic Research, New Delhi. Views are personal.