Health insurance contributed ₹1.18 lakh crore in FY 24-25, which is around 36 per cent of general insurance premium in India. It has been in the news for both pricing and claims settlement issues. We analyse some asymmetries, issues and consider how these can be addressed to enhance welfare.
Health insurance is divided into three categories: individual, group (excluding government) and government business.
General and health insurers cover 57.28 crore lives with a premium of ₹1.07 lakh crore, per the IRDAI Annual Report 2023-24. Individual category covers only 5.58 crore lives with ₹41,501 crore (39 per cent premium; 10 per cent lives; average premium, ₹7,437), group health covers 25.59 crore lives with ₹55,666 cr (52 per cent of premiums; 45 per cent of lives; average premium, ₹2,175) and government schemes 26.11 crore lives with just ₹10,513 crore premium (39 per cent premium; 10 per cent lives; average premium, ₹402).
The data subsumes varying sums insured, but is however indicative of an imbalance, with retail health insurance covering fewer lives with higher premium share, while government schemes cover more lives reflecting lower sums insured and premium. The overall incurred loss ratio for health was high at 88.15 per cent, with individual at 75 per cent, group at 94 per cent with government schemes at 115.28 per cent
Further the insurers had a differential incurred claims ratio with public sector (103 per cent), private (89 per cent) and standalone health at 65 per cent reflecting their own strategy, pricing and trend over the last few years.
Spread: IRDAI Annual Report shows that about 64 per cent of the premium originates from four States and one Union Territory — Maharashtra (29.5 per cent), Karnataka (11 per cent), Tamil Nadu (10 per cent), Gujarat (7 per cent) along with Delhi (6.5 per cent) — indicating a lack of spread, with concentration of corporate group health in urban centres.
Provider network: NSSO data reveal that the health provider network is lopsided, with private sector infrastructure providing around 65 per cent of hospitalisation care in urban areas and 54 per cent in rural areas, and 74 per cent of outpatient care in urban and 67 per cent in rural areas. The private sector costs of treatment are also higher for in-patient treatments of severe illnesses such as cancer (3.7x), cardio (6.8x), injuries (5.9x), gastro (6.2x), and respiratory (5.2x) as per the Economic Survey. There is limited oversight of the health sector in the area of pricing.
Key issues, suggestions
Pricing: Health insurance pricing needs to be reviewed particularly for group health (excluding government) for the public sector as loss ratios have been consistently over 100 per cent. This can be with data-based pricing aided by Insurance Information Bureau/GI Council to ensure that group health is not being cross-subsidised by retail health premiums.
Claims as per the IRDAI Annual Report 2023-24, out of total health claims of general and health insurers of ₹1.17 lakh crore, only 71.31 per cent (₹83,493 crore) was paid; policyholders did not get 22.22 per cent (₹26,037 crore) of the claims. A significant amount of ₹15,100 crore i.e., 12.89 per cent, was disallowed as per policy claims and conditions, and ₹10,937 crore (9.33 per cent) was repudiated. This is indicative of a disconnect, as to contract terms as well as cost of medical care. This is compounded further by the ₹7,584 crore (6.47 per cent) pending for settlement as at the end of FY24.
Recently, IRDAI was asked to examine the settlement process of some companies. There are significant variations in the level of service rendered by insurers. Reviewing policy terms and riders along with Board level monitoring of health claims settlement data is essential.
Standard policy: The Arogya Sanjeevani policy — which has uniform terms and conditions across companies, with difference being only in pricing — needs to be pushed more as this has the potential of reducing disputes regarding coverage.
Provider network regulation: . There are significant variations in the costs of medical treatment for similar procedures across providers. Further, there are differences even within same hospital groups between cities, thereby impacting the categorisation, pricing and revisions in premium of health insurance products. Besides there is the need to factor in medical inflation, advanced technologies — for example, robotics and other procedures — into health insurance pricing.
A healthcare regulator is essential for optimal health insurance pricing, transparency and access to quality care by policyholders.
Health infrastructure: Building more public health infrastructure in tier-2/3 cities can be enabled through special financing measures like issuance of health infrastructure bonds of 10/15-year tenures by Municipal authorities /hospital networks. These can be included as approved securities for investments by insurers.
GST: Government should amend the GST rate on health insurance (currently at 18 per cent); it should be reduced to nil, especially for senior citizens.
Process improvements: Insurers should enhance processes by integrating data and adopting tech solutions to improve claims efficiency and meet regulatory timelines. Customer perceptions on service can be positively impacted. Effective fraud monitoring with embedded indicators is essential. Additionally, while brokers and banks aid in outreach, reducing intermediation costs, enhancing spread through direct sales and preventing mis-selling are important.
Public health measures: The PMJAY public health scheme, run by the National Health Authority, offers ₹5 lakh health coverage to eligible families based on the 2011 socio-economic caste census and now includes seniors over 70. Over 73.98 crore Ayushman Bharat Health Accounts have been created, emphasising inclusion. The 2025 Economic Survey highlights ₹1.25 lakh crore in reduced out-of-pocket spending due to PMJAY which is impactful, as also the operationalisation of 1,75,560+ health and wellness centres.
The General Insurance Council’s recent insurance awareness campaign is praiseworthy. However, private health insurance can deliver effective welfare benefits only if a comprehensive review of all issues is undertaken with steps to build an integrated end-to-end approach rather than piecemeal action.
The writer is a senior insurance professional