India’s Health Insurance Paradox: Expanding Coverage, Shrinking Protection | Aishwarya & A. M. Jose

Abstract: India’s health insurance sector has witnessed remarkable expansion, largely driven by government-backed schemes like Ayushman Bharat-Pradhan Mantri Jan Arogya Yojana (AB-PMJAY). However, despite increased enrollment, financial protection remains elusive for millions due to high out-of-pocket expenditures, delayed reimbursements, and systemic inefficiencies. This article explores the paradox of expanding coverage without corresponding financial relief, highlighting income disparities, bureaucratic barriers, and the disproportionate exclusion of informal and marginalized workers. Through real-life testimonies and data-driven insights, we argue that without structural reforms—such as streamlined claim processing, greater awareness, and stronger regulatory enforcement—India’s health insurance will remain a paper promise rather than a real safety net.

Keywords: Health insurance, Ayushman Bharat, reimbursement delays, informal sector, healthcare policy

Introduction: The Paradox of Coverage Without Protection

India’s health insurance sector has expanded rapidly over the past decade, largely due to government-backed schemes like Ayushman Bharat-Pradhan Mantri Jan Arogya Yojana (AB-PMJAY). Covering over 500 million people, it is hailed as a milestone toward Universal Health Coverage (UHC). The Union Budget 2025-26 reinforced this commitment with a 10.8% increase in health sector allocations, greater focus on infrastructure and medical education, and extended coverage for gig workers. Yet, despite these advances, a deeper analysis reveals a troubling paradox: millions of insured individuals still face high out-of-pocket expenses, bureaucratic inefficiencies, and delayed reimbursements, all of which undermine the very purpose of insurance.

This paradox—where increased coverage does not translate into financial security—exposes deep structural inefficiencies. The 79th National Sample Survey (2022-23) shows that while over 60% of Indian households have some form of insurance, financial relief is minimal. Only 23.1% of hospitalization costs in urban areas and 8.2% in rural areas are reimbursed, forcing millions into medical debt. If India is to achieve its Sustainable Development Goals (SDGs) by 2030, it must address these critical gaps in healthcare financing.
Despite Ayushman Bharat-PMJAY insuring 500 million, hospital refusals, delays, and high out-of-pocket costs push patients into debt. Cases of denied treatment and Aadhaar-related rejections highlight these failures. The Union Budget 2025-26 increased PMJAY’s allocation by 29% (?9,406 crore) and extended coverage to gig workers, yet healthcare remains financially crippling for millions.

The Coverage-Protection Disconnect

In theory, Government-backed insurance schemes, like PMJAY, promise ?5 lakh per family annually, yet most insured households receive little financial protection. Data shows 87.7% of rural PMJAY households got no reimbursement despite medical expenses. Those reimbursed covered only 57.5% of costs in rural areas and 70% in urban areas.

State-sponsored programs also fall short, with over 70% of beneficiaries bearing significant medical costs. The gap between coverage and real financial relief exposes India’s flawed health insurance model. Without addressing delayed and insufficient reimbursements, insurance will remain a statistic rather than a true safety net.

Who Actually Benefits? The Income Disparity in Reimbursements

Public health insurance in India disproportionately benefits higher-income groups, leaving the poorest vulnerable. In urban areas, the top 20% of earners receive 31.8% of reimbursements, while the bottom 20% get just 9.1% (Duggal, 2020). In rural India, the poorest pay 94.2% of medical costs out of pocket, compared to 90.2% among wealthier households (Baruah & Khattar, 2025). The reasons behind this disparity are systemic:

• Bureaucratic complexity: Wealthier households navigate claims more effectively, while low-income families face administrative barriers.

• Delayed reimbursements: Private hospitals discourage PMJAY patients due to delays in government payments, leading to treatment refusals (Pandey & Mishra, 2023).

• Limited hospital participation: Hospitals prefer privately insured patients due to higher reimbursement rates (Baruah & Khattar, 2025).

The Union Budget 2025–26 aims to expand Ayushman Bharat to gig workers, covering one crore individuals (Government of India, 2025). However, without simplified claims processing and strict enforcement of reimbursement timelines, public health insurance will continue to serve those who need it least.

Women and Informal Workers: The Forgotten Faces of India’s Healthcare Crisis

Despite being the backbone of India’s workforce, women and informal workers remain invisible in the health insurance system, denied benefits, burdened by debt, and trapped in bureaucratic hurdles, exposing a system that exists more on paper than in reality. These following real-life stories are not isolated incidents. They are proof of a system that fails its most vulnerable every single day (Similar life experiences were noted by us from over 200 migrant Women Workers in the National Capital’s urban informal sectors).

A Mother’s Despair: The Delusion of Ayushman Bharat: Reema, a migrant worker in a private institute, had just given birth via C-section. Her newborn was battling severe neonatal jaundice, yet instead of receiving support, she was made to walk to another department, weak, in pain, just to give a thumb impression so her child could be covered under Ayushman Bharat. Her husband, exhausted from the ordeal, ran from counter to counter, pleading for help, only to be told that most medicines needed to be bought from outside. In his own words:

“I feel like I am chasing a mirage. They told us we had insurance, but when we needed it the most, it was just an illusion accompanied by the loss of workers’ wages. How would we eat?”

Deepa’s Silent Suffering: When Insurance Means Nothing: Deepa, a domestic worker, was entitled to PMJAY benefits. But no one told her. No hospital staff, no officials. No one informed her that the medicines she was struggling to pay for were supposed to be free. So, after her C-section in a government hospital, she borrowed money to buy essential medicines, money she would struggle to repay.

Surekha’s Mother: Bureaucracy Over Humanity: Surekha’s mother was suffering from uterine tuberculosis—a treatable condition. She held an Ayushman Card, but the hospital refused to treat her. The reason? Her Aadhaar was not linked to the hospital system. Paperwork mattered more than a dying woman’s life.

Geeta’s Rs57,000 Nightmare: "Free" Treatment That Cost Her Everything: Geeta, a vegetable vendor, went through a hysterectomy in a government hospital. She should have been covered. But she wasn’t. PMJAY refused to cover procedural costs and medicines. She had no choice but to borrow ?57,000 to survive. Now, instead of focusing on healing, she is drowning in debt.

Radhika’s Punishment for Demanding Her Rights: Radhika, a sanitation worker, thought she could finally secure ESIC (Employees’ State Insurance Corporation) benefits—the only lifeline available to informal workers. But when she asked her employer to register her, he fired her on the spot. For daring to ask for basic healthcare, she lost her job and her dignity.
The Union Budget 2025-26 may claim to expand insurance to gig workers, but unless these systemic failures are addressed, women, daily wage earners, and informal workers will continue to be left behind—forced to choose between survival and crushing debt. Healthcare is a right, not a privilege. But for India’s working poor, it remains a cruel illusion (Sinha, 2020).

India’s health insurance system faces major challenges, especially for low-income and informal workers. Delayed reimbursements and claim denials are common, with 43% of policyholders reporting processing delays, leading to prolonged hospital stays and high out-of-pocket expenses (Das, 2024). Hospitals often reject claims on technical grounds, forcing patients to pay upfront and navigate complex bureaucracy, discouraging engagement with government-backed schemes.

Awareness is another issue, as nearly 40% of eligible individuals, particularly in rural areas, remain unaware of their benefits (Rani & Unni, 2009). Administrative barriers like ID issues and clerical errors further lead to claim rejections. Additionally, 90% of India’s workforce in the informal sector lacks employer-backed insurance, leaving gig workers, women, and daily wage earners without coverage under schemes like ESIS. Addressing these challenges requires comprehensive reforms to ensure effective health insurance coverage for vulnerable populations.

Policy Recommendations for Meaningful Reform

Firstly, India must move beyond insurance enrollment figures and ensure genuine financial protection for its citizens. Strengthening the reimbursement process is a crucial reform, as hospitals often delay or deny reimbursements, forcing patients to pay out of pocket. Implementing AI-based real-time verification can expedite claim settlements and prevent fraudulent denials (Jain, 2019). The government should enforce a minimum reimbursement threshold of 80% to prevent cost-shifting onto patients (Campos & Reich, 2020). Additionally, private hospitals engaging in claim manipulation must be penalized (Jain, 2021).

Secondly, Lack of awareness about health insurance, particularly in rural areas, leaves nearly 40% of eligible individuals unaware of their entitlements (Jain, 2019). Many do not use government health schemes due to misinformation. To bridge this gap, mobile-based community outreach programs should educate uninsured populations (Dhufera, 2024). Hospitals must also be mandated to inform patients about their insurance benefits before discharge, ensuring they can utilize their coverage effectively (Reich & Campos, 2020).

Thirdly, Administrative barriers further hinder healthcare access, with Aadhaar-linked claim rejections preventing many from receiving urgent care (Jain, 2021). Emergency treatments should not be denied due to Aadhaar verification issues. Instead, biometric verification at patients’ bedsides should be introduced, like home-based voting for elderly citizens. An independent grievance redressal body must be established to address unjust claim rejections (Hsiao & Shaw, 2007).

Most importantly, as India’s informal workforce, comprising 90% of the labor market, lacks employer-backed insurance or ESIC coverage (Garg, 1998), to protect them, ESIC must be expanded to include gig and contractual workers. Additionally, universal maternity benefits should be introduced for informal sector women, preventing financial hardship due to childbirth expenses (Dhufera, 2024). These reforms are essential to achieving true financial protection in India’s healthcare system.

Conclusion: Beyond Coverage, Towards Real Financial Protection

While India’s health insurance sector has expanded significantly, it fails to provide real financial security to those who need it most. The latest Union Budget 2025-26 brings promising reforms, including higher budget allocations for healthcare infrastructure and insurance expansion to gig workers, but without systemic improvements, these remain mere statistical achievements.

For India to achieve its Sustainable Development Goals (SDGs) and the vision of "Viksit Bharat @2047", the government must: Enforce hospital accountability to prevent financial exploitation, mandate faster reimbursements and remove bureaucratic obstacles, expanding real insurance access to informal and gig workers. Unless India fixes its broken health insurance system, millions will remain trapped in medical debt. A robust health insurance system should not just promise coverage, it must deliver real financial security. The time for reforms is now.

(Authors: PhD student, Amity School of Economics, Amity University Haryana and Teacher (Economics) Email:aishwarya2[at]s.amity.edu ; Professor & Head, Amity School of Economics, Amity University Haryana. Former Professor, Kerala Agricultural University, and National University of Rwanda. Email: amjose[at]ggn.amity.edu)

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