A recent report by Praxis Global Alliance and NATHEALTH highlights a significant gap in India's healthcare system: only about 2% of everyday outpatient spending is covered by insurance. This leaves the vast majority of patients bearing the financial burden of consultations, diagnostics, and long-term treatments directly from their own pockets.
The Coverage Gap: Hospitalization vs. Routine Care
The core issue stems from how insurance products are currently designed. Most policies primarily cover hospitalization costs, neglecting the recurring expenses associated with routine medical care. This mismatch is particularly critical as India faces a growing prevalence of chronic illnesses like diabetes and hypertension. These conditions require continuous consultations, regular diagnostic tests, and ongoing medication, none of which are typically included in standard insurance plans.
As disease patterns shift towards conditions demanding continuous care, the reliance on out-of-pocket payments for essential, everyday healthcare services intensifies, posing a substantial challenge for millions of households.
Unpacking Insurance Payouts and Costs
The report also points to inefficiencies within the insured segments. Standalone health insurers, which dominate the retail market, paid out only 62–69 paise for every rupee collected in premiums as claims in FY25. In contrast, public insurers disbursed 87–101 paise, and private general insurers paid 85–88 paise.
A major contributor to this disparity is the high distribution cost of retail policies, which accounts for 15–30% of premiums – significantly higher than global benchmarks. This directly reduces the portion of premiums available for actual claims, further limiting the benefits for policyholders.
Path Forward: Recommendations for Reform
To address these systemic issues, the report proposes several key reforms. It recommends mandating a minimum Medical Loss Ratio (MLR) of 80% across all policy types. This would compel insurers to allocate a larger share of premiums directly to claims, improving value for consumers.
Furthermore, to bolster healthcare infrastructure, the report suggests granting it priority sector lending status. This would improve access to crucial financing, helping to meet the projected demand for up to 2.8 million additional hospital beds by 2030.
If such structural reforms are implemented, India's out-of-pocket healthcare expenditure, currently around 44% of total health spending, could fall below 25% within the next decade. The country's healthcare market, projected to reach $700 billion by 2030, could even expand to $1 trillion with these improvements in financing, insurance design, and infrastructure investment.