Is the Indian healthcare industry set for a transition?

  • Status of public healthcare spending in India
  • Impact of PMJAY on the industry
  • Status of health coverage and insurance industry


Government healthcare spending pattern in India

The government expenditure on healthcare has remained constant, but low in India. The general government health expenditure has remained between 0.9-1% of the GDP in the 2011-15 period, however it increased marginally in 2016-17 (revised budget estimates) at 1.17% of the GDP. Moreover, despite a marginal improvement, the government’s contribution towards healthcare is low as compared to the 6% world average. However, the National Health Policy proposes to increase this to 2.5% of the GDP by 2025.

Furthermore, India’s total healthcare expenditure was 3.9% of the GDP in 2015 and out of this the government’s share was an abysmal 26% and the remaining (74%) was contributed by the private segment. The government’s share is low in India in contrast to other developed and developing countries like China (60%), Indonesia (38%), the UK (80%), the US (50%) and lower-middle-income group average countries (32%).

There is a perfect inverse relationship between government’s healthcare expenditure vs households out-of-pocket healthcare expenditure. Further, with the rise in government healthcare outlay there is a significant reduction in out-of-pocket healthcare expenditure from domestic households as can be seen from the below chart. The reason for this reduction is a precursor of universal healthcare as well as the quality public healthcare system in a country.

As the share of private health expenditure in India is already high, the burden of healthcare costs falls on the savings and household income because of the low insurance penetration due to which 7% of the people are pushed below the poverty threshold each year. 

Financing sources for the current healthcare expenses

As per the latest available data from the Household Health Expenditure survey 2013-14, around 69% of the health expenditure is borne by consumers in India and the same is funded (up to 71%) by household income. Further, since out-of-pocket expenditure is the payment made by a person towards healthcare, which is not covered under any scheme, this poses a burden on his/her savings and income.

The major out-of-pocket health expense is made towards medicines (~52%), which are costly and the further breakup of the total out-of-pocket expenditure in terms of inpatient and outpatient care were 32% and 68%, respectively. This means that the majority of the expenses made by households are on outpatient care which is not covered under any insurance scheme (neither public nor private). Although the treatment in primary centres and public hospitals are free, a majority of the people prefer private hospitals because of multiple reasons such as low quality of healthcare in public hospitals, unavailability of staff (doctors), limited stock or lack of free prescribed medicines and a poor state of hygiene among others. 

State of health insurance in India

The current state of health insurance in India can be measured from the insurance penetration and insurance density. The nation among its Asian peers stands at the second place just above Pakistan in relation to the insurance penetration, which measures the ratio of premium paid to the GDP in the USD terms. This reflects the amount of premium paid for non-life insurance (include general and health) vis-à-vis GDP, although improving, it has stayed below one during the past five years (2013-17). 

In terms of insurance density, which measures the premium paid (USD) per capita, this is much lesser than other Asian countries and far below than the developed counterparts. The average insurance density in India during 2017 stayed at US$ 18/person. This ratio has also gradually improved from 11 to 18 over the period of 2013-17. However, the nation is still far below its Asian peers and will take time to catch up with them.

Furthermore, under the health insurance ambit, even though group and individual policies pay most of the premium (89% combined), the persons covered are mostly under the government-sponsored programs (75% covered under public programs). This means that the people covered under the public schemes have comparatively less amount of cover than the group and individual policies. Additionally, the net incurred claims ratio (ICR), which measures the claims incurred against a premium received, improved slightly over the previous year but remained above 115 for government business. Above 100 means that the insurance company is in a loss and will increase premium according to the estimated claims incurred. ICR for the group health policy and individual business stands at 107 and 71, respectively.

Announcement of PMJAY

On Sep. 23, 2018, the Indian Prime Minister Mr Narendra Modi launched ‘Ayushman Bharat’, which is the world’s largest government-funded healthcare scheme and covers (10.74 crore families) over 500 million people. The scheme entitles a family floater cover of Rs. 5 Lakhs (USD ~6950) per year for secondary and tertiary care hospitalisation. The scheme is targeted towards poor, deprived rural families and has identified the occupational category of urban workers' and their families on the basis of 2011 Socio-Economic Caste Census (SECC) data. The insurance coverage is targeted for the secondary and tertiary health care levels by subsuming two major public healthcare initiatives, namely Health and Wellness Centres and National  Health Protection Scheme. The scheme was later renamed as the Prime Minister Jan Arogya Yojna (PMJAY) and became effective from Sep. 25, 2018, in all the states and Union Territories of India (except those states/UTs which did not sign under the scheme).

Salient features of PMJAY:

  • PMJAY is the boldest public healthcare scheme in its scope due to its grand coverage of 40% of the Indian population by providing a health cover of Rs. 5 Lakh per annum per family.
  • Since it is an entitlement-based scheme, the entitled families will be covered based on the SECC data without any formal enrollment process from the insurer.
  • There is no such cap on the family size and age, in order to ensure no one is left out from its ambit.
  • The benefits of the scheme are portable across states/UTs in India.
  • There will be cashless and paperless claim settlements across public hospitals and empanelled private hospitals.
  • The covered families will not be required to pay any charges/premium for benefits, and they will receive pre and post hospitalisation expenses under the coverage.
  • Center and States will share the burden of the premium in the ratio of 60:40, respectively.
  • The treatment will be done on the package rates decided by the health ministry and the scheme will cover medical and hospitalisation expenses for almost all the secondary and tertiary care procedures.


PMJAY is an entitlement-based scheme which will cover the target people automatically based on the deprivation and occupational criteria defined in the SECC database. For rural areas, beneficiaries will be identified based on the deprivation criteria (D1, D2, D3, D4, D5 and D7), however, for urban areas, 11 occupational criteria have been identified to determine entitlement. Hence, based on the SECC 2011 data, 8.03 crore families in rural and 2.33 crore households in urban areas are entitled to be covered under the scheme. In addition, Rashtriya Swasthya Bima Yojna (RSBY) beneficiaries in states, where the scheme is active are also included under the same.

Impact of PMJAY on the Indian healthcare industry

PMJAY is a good step in the right direction, however, there are certain deficiencies under the scheme. The initial outlay for the PMJAY is Rs 10,000 crores, but the allocation may need to be increased as utilisation goes up and insurance companies succeed in hiking premium rates. This is consistent with the experience of the Rashtriya Swasthya Bima Yojana (RSBY). Addedly, the newly proposed health and wellness centres will require higher fund allocation to function optimally, which serves as the primary point of care. Financial crunch for wellness centres will put a burden on the already crippled public healthcare system and in the absence of a significant rise in the total health budget, the PMJAY may usurp funds from other important areas such as primary care.

The High-Level Expert Group of the Planning Commission has emphasised on a higher allocation for the PMJAY and there were inadequate investments for the health and wellness centres, in a way crippling primary care which is getting much lesser emphasis. As primary care serves as the preventive care and is a precursor for secondary and tertiary care, the PMJAY puts special emphasis on inpatient care, whereas households spent a much higher amount on outpatient care. According to Indrani Gupta, professor and head of the health policy research unit at the Institute for Economic Growth, New Delhi, ‘between PM-JAY and health and wellness centres, the priority should have been on the health and wellness centres.’

In conclusion, it can be stated that the positive aspect about this scheme is that it will increase the health insurance penetration in India along with the spread of awareness among people towards health insurance policies. The regulators will ensure to create standardisation in health insurance policies from different companies so that the flow of information remains constant and customers are treated fairly while they file for claims. Also, this will be a big positive for the entire health ecosystem because of the public-private partnership, which is needed to cater to large number of people under the PMJAY. Since there is a lack of proper medical infrastructure under public hospitals along with huge disparities in quality healthcare between urban and rural centres, the empanelled private hospitals under this scheme will fulfil the requirement of beds and doctors to serve the public along with setting up of critical infrastructure across diverse geographies.


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