Though India’s health insurance system is expanding it is failing to cover routine medical expenses, with most outpatient care still paid directly by patients, according to a report by Praxis Global Alliance and NATHEALTH released on Thursday.

The report finds that only about 2% of outpatient spending in India is covered by insurance, even as consultations, diagnostics and long-term treatment account for a large share of healthcare costs.

This gap points to a structural issue in how insurance products are designed, with coverage largely limited to hospitalisation while recurring healthcare expenses remain outside formal financing.

The mismatch is significant as disease patterns shift toward conditions requiring continuous care. Chronic illnesses such as diabetes and hypertension now drive a large share of healthcare demand, increasing dependence on regular consultations, medicines and diagnostic tests that are not covered by insurance, the report said.

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Even within insured segments, the report flags inefficiencies in how premiums translate into care. Standalone health insurers, which dominate the retail segment, paid out 62–69 paise of every premium rupee as claims in FY25, compared with 87–101 paise by public insurers and 85–88 paise by private general insurers, it said.

Distribution costs in retail policies account for 15–30% of premiums, significantly higher than global benchmarks, reducing the share available for claims.

To address this, the report recommends mandating a minimum Medical Loss Ratio of 80% across all policy types, requiring insurers to return a larger portion of premiums as claims.

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The report also highlights a funding constraint in healthcare infrastructure. India has about 1.6 hospital beds per 1,000 population, and meeting demand by 2030 would require up to 2.8 million additional beds.

However, the capital available with hospital operators remains limited, with the combined reserves of the country’s top hospital chains far below the investment required for expansion. The report recommends granting healthcare infrastructure priority sector lending status to improve access to financing.

Despite the expansion of insurance schemes, effective risk-pooled coverage remains limited, leaving a large share of healthcare spending dependent on households.

The report estimates that out-of-pocket expenditure currently accounts for about 44% of total health spending but could fall below 25% over the next decade if structural reforms are implemented.

India’s healthcare market is projected to reach $700 billion by 2030 and could expand to $1 trillion with improvements in financing, insurance design and infrastructure investment, the report said.

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Published on: Apr 30, 2026 5:52 PM IST