The perils of India's lack of medical insurance

Not covered by govt insurance schemes, India's 'middle' is particularly vulnerable to medical debt. Achieving universal health coverage needs our urgent attention

Recently, Bengaluru-based software professional Sumit Sen had to get his 68-year-old father admitted to the hospital twice. Here, his father spent 10 days the first time and seven days the next time. Both times the bill ran into a few lakhs, costing about Rs 60,000 to Rs 70,000 per day in the ICU.

Despite using the health insurance that his company provides, Sumit had to pay 20% of the bill by himself. He also spent an additional 10% of the bill on protective equipment and food.

"Only 70% is covered under the insurance. To ensure my parents, I have to pay Rs 11,000 a month to get a cover of Rs 10 lakh," Sen says. His father, a retired contractor for a leading public sector undertaking, and his homemaker mother are not covered under private or government insurance programmes.

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Many like Sen depend on employers for health insurance and do not opt for private coverage. Then there is a substantial part of the population — 30% as per Niti Aayog data — that has no health insurance of any kind. For this group and the ‘missing middle’ who do not fall under any insurance scheme, holistic health coverage remains a pipe dream.

Unexpected injury or disease can be catastrophic for families who constitute this ‘missing middle’. A study by the Ministry of Statistics and Programme Implementation placed the average cost of treatment in a government hospital at Rs 4,452 per day and estimated that a day of hospitalisation could cost Rs 31,845 in the private sector. Even long-term hospitalisation in government hospitals can put families in financial distress.

Without a regulatory mechanism to monitor the rise in costs of medical treatments, a lack of health insurance can be particularly devastating for low and middle-income families.

In fact, seven per cent of India’s population is pushed into poverty every year because of medical debt according to a study by Brookings India. A 2019 report by the National Statistical Office suggests that medical expenditure contributes to 11.9% of debt in rural areas and 12.7% of the debt in urban India.

Almost 63% of all medical expenditure in the country is spent out of pocket — the highest in the world. To reduce economic vulnerability, the Niti Aayog set the target of achieving Universal Health Insurance by 2022. Despite this, according to a 2021 Niti Aayog report, 40.5 crore individuals who are eligible are not covered under any insurance scheme.

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The report also shows that most people — about 69 crore — who are insured fall under the Ayushman Bharat scheme, followed by the Employees' State Insurance Scheme (ESIS). Coverage under private providers and the Central Government Health Scheme constitutes a minuscule part of India's health insurance scheme.

The 'missing middle' is not economically homogenous. It contains multiple groups with all expenditure quantiles.

The Niti Aayog report attributes the reason why the missing middle remains uncovered to, “the absence of a low-cost health insurance product, the missing middle remains uncovered despite the ability to pay nominal premiums. A comprehensive product designed for this segment....can expand health insurance coverage.”

Existing problems

Even people who are covered under these programmes are not safe from unexpected healthcare emergencies putting a dent in their savings.

Aruna Krishnaswamy (name changed), a media professional, had been making the rounds to one of Delhi’s top private hospitals with her now-deceased father. Despite being covered by her company’s health insurance scheme, long-term hospitalisation for a chronic disease like cancer put her family through financial distress. Eventually, she resorted to crowdfunding to support her father’s treatment.

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This financial pressure meant she had to ignore her own gynaecological ailments. “Every penny I earned would go into my father’s treatment. I have not yet been able to get medical treatment. I have nothing besides company health insurance which doesn’t suffice,” she says.

Even though a large portion of private hospital revenue comes from insurance, patients are still required to pay out of pocket. Called co-pay schemes, they require patients to pay some part of the bill. “Close to 70% of the revenue comes from insurance patients. It is rare that patients who pay out of pocket or in cash can afford to do so. They pay out of pocket because the insurance coverage is short of the bill amount or if they are not covered at all,” says Dilip Jose, the managing director and CEO of a network of hospitals.

“Some are elderly people who do not have insurance and cannot avail of one now,” he adds.

Another important question is what happens to those who do go to private hospitals for treatment but cannot afford to pay the bill. Many hospitals have in place a protocol through which they provide subsidised treatments for a few of those who cannot afford it.

“We cannot offer this to all patients but we do it when it is necessary. Pediatric congenital cases, dialysis, and cancer patients are some areas we have picked where we want to help our patients. However, we do not track how many patients we have helped”, says Jose. He adds that the hospital waives the doctor’s fees in such cases and only charges for equipment and the material which the hospital has to procure.

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Azad Moopen, chairman of a hospital chain, picks out some cases of patients who fall short of funds. The foundation helps them with crowdfunding to proceed with treatment.

But such initiatives are few and far between, resembling lottery tickets and in no way provide the security of insurance.

Then there is the issue of hospital accessibility. Even if people in tier II and tier III cities have insurance, they might not be able to access hospitals to seek treatment. A general lack of awareness among people is also a hindrance to achieving universal coverage.

The pandemic

During the pandemic, the percentage growth of the insurance industry actually slowed down from 16.63% in 2019-20 to 14.34% in 2020-21. There was also only a marginal increase in the number of people who claimed hospital bills. The claim ratio rose from 85.70% in 2019-20 to 89.51% in 2020-21.

Has the pandemic changed how Indians perceive health insurance in any way? Amit Chhabra, the head of health and travel insurance at an insurance firm explains that people often thought of insurance as a tax-saving product. “The pandemic has changed things. Three to four years ago, beyond the top 50 cities, our market was only 10% but now it has grown to around 30%. Earlier the number of people looking for a sum insured amount of Rs 20 lakh and above was negligible, now the number has grown to 20 to 30% of the sales volumes,” says Amit Chhabra.

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Chhabra adds that another major shift due to the pandemic is that youngsters have also started thinking about health insurance. In the past, Most enquiries came from middle-aged people with families to support.

Way out

A way out is to look at health insurance as an end-to-end coverage that pays for consumables and non-medical components as well, explains Ashish Yadav, head of products, at a health insurance company. He adds that now people are also looking for insurance with outpatient department benefits.

Krishnan ASV, an institutional analyst for a bank, believes that “greater financial awareness and higher per capita income are both crucial to increase the health insurance coverage in India. Since the per capita income can only improve gradually, during the interim, health insurance penetration will need a regulatory body and receive policy support through government subsidies.”

Healthcare expenditure in the country is at 4.5% of GDP – significantly lower than the global average, which also needs attention, he says.

As for the way forward, everyone in the ecosystem feels that once health insurance becomes more inclusive and the healthcare system reaches every small city in India, health insurance will become mainstream.

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