It is a devastating moment when you realise that the promise you bought as protection was not truly protection but merely a conditional and adversarial contract. That moment often arrives not at the time of purchase but at the insurance desk of a hospital where your claim is “under process”. It is when an insurance company invokes a clause from the fine print of that contract to tell you that your treatment falls outside the scope of coverage. In that moment, the abstraction of “health insurance” collapses, and with it, your trust.

I encountered this first hand a year ago when I rushed someone I care for to a hospital in Bengaluru. The insurance company, HDFC Ergo in this case, rejected the claim on the ground of “pre-existing condition not disclosed”, citing a 25-year-old hospital note that was handed to the treating doctor and had a mention of a suspicion of another ailment by a junior doctor.

The wrangling continued for a week, including escalation up to the CEO of the company, but it was of no avail. A consumer court may well have ruled in our favour, awarding the claim with interest. But litigation comes with its own shadow: the very real risk of being informally blacklisted by insurers in the future.

For the family, it was a dire moment. Their entire sense of security rested on that piece of paper that had been purchased in a time of normalcy, when illness felt distant, almost theoretical. They had bought a promise to safeguard against uncertainty.

But that promise failed them. What collapsed was not just a claim, but trust. The family’s trust in the policy, in the insurer, and in the larger architecture of healthcare financing. It felt like punishment without a crime.

India is now entering such a moment—at scale. We are seeing it across cities and towns as an arithmetic unfolds.

It is happening because medical costs are spiralling at rates that outpace both inflation and income growth. On the other side, public health spending remains modest. Therefore, out-of-pocket health expenditure dominates household spending.

Into this widening crack, and between illness and insolvency, health insurance entered two decades ago, as a protective buffer. What has emerged, however, is not a safety net but a system that prices, distributes, and profits from your health risk. It is now rapidly transforming into a technologically sophisticated, deeply stratified market product.

Erosion of the original promise

The story of India’s health insurance sector is often framed as one of growth: more policies sold, more lives covered, more capital flowing in, both foreign and domestic. But beneath this expansion lies a quieter shift: the erosion of its original promise as illness itself is segmented, priced, and traded with an increasingly singular focus on profit.

The question, therefore, is not whether India is insuring its population but what kind of system we are building.

Undeniably, there have been efforts to bring the uninsured into a safety fold through state-led programmes, starting with the Rashtriya Swasthya Bima Yojana in 2008.

The launch of Ayushman Bharat in 2018 marked a major milestone in this direction by planning to cover the hospitalisation expenses of nearly 10 crore vulnerable families in the first blueprint. It was heralded as the world’s largest publicly funded health insurance programme, designed to provide cashless secondary and tertiary care. Following its launch, the scheme was rapidly rolled out across States, subsuming many of the State projects, with a network of empanelled public and private hospitals and 40 crore beneficiary cards issued within a short span. As it evolved, cracks began to surface. Many beneficiaries found themselves left to fend for themselves because a section of private hospitals began turning away the cardholders.

Strained by delayed reimbursements, mounting dues, and the low tariffs offered under the scheme, perturbed private providers began quietly logging out of the Ayushman Bharat network. This, among several other factors, contributed to the faster growth of the private insurance business in the country, which took off after the government opened the sector to up to 26 per cent foreign investment in 2001.

The story of Indian health insurance is not one of expansion as we see today. It is the convergence of deeper epidemiological, economic, and institutional shifts that have reshaped both risk and care.

Growing burden of disease

Non-communicable diseases now account for the bulk of India’s disease burden. Conditions once associated with ageing, such as hypertension and metabolic disorders, are appearing in younger age groups and progressing faster. The cost of treating these conditions has escalated. Hospitalisation for a major cardiac procedure or cancer treatment can wipe out a family’s years of savings within days.

This growing burden of disease sits uneasily against a long-standing constitutional promise. It has been 30 years since the Supreme Court reaffirmed the “right to health and medical care” as a fundamental right under Article 21 of the Indian Constitution in Consumer Education and Research Centre v. Union of India. This ruling should have led to greater public investment and ensured that the state took responsibility for safeguarding the health of every citizen.

But the reality turned out to be different. Public health expenditure still languishes at around 2 per cent of the GDP. It is nowhere near the “Universal Health Coverage” goal laid out in the 2017 National Health Policy and its target government spending of 2.5 per cent of the GDP by 2025. The result is an unhealthy healthcare system heavily reliant on private providers where individuals pay directly for their treatment.

If this system has significantly benefited anyone, it is the private insurance industry and the foreign investors eyeing the sector. Reading the mind of investors, the government has eased the entry norms for foreign capital: from 26 per cent in 2001 to 49 per cent in 2015, 74 per cent in 2021, and eventually, 100 per cent in recent policy changes. Despite this governmental enthusiasm, no foreign insurance player has breached even the 74 per cent level yet. These moves may be justified on the grounds that increased capital would expand coverage, but the benefits to citizens remain far from clear.

To be sure, insurance has expanded access to healthcare for millions, offering a measure of financial protection that did not exist at this scale two decades ago.

“Medical costs are spiralling at rates that outpace inflation and income growth while public health spending remains modest. Out-of-pocket health expenditure dominates household spending.”

This emergence has been explained by foreign investment lobbies as being driven by broader socio-economic shifts. It is true that rising incomes and the expansion of the middle class created a new constituency for financial protection products. Tax incentives offered under Section 80D of the Income Tax Act, 1961, nudged households towards purchasing insurance, seen both as fiscal and healthcare prudence. The pandemic further accelerated this shift, as stories of medical emergencies captured mindspace through digital and social media.

Rapid expansion and diversification followed. Stand-alone health insurers such as Star Health, Care Health, and Aditya Birla Health grew alongside general insurers with footprints in healthcare, like HDFC ERGO and ICICI Lombard, competing over products, pricing, and distribution. According to industry estimates, the Indian health insurance market is projected to more than double to over $45 billion by 2030 from the current level of $15–16 billion.

Policies are no longer sold only through agents; they are embedded in digital ecosystems like comparison platforms, banking apps, social media, and even e-commerce flows. In brief, health insurance has become both a product and a layer within a broader financial interface.

Overseeing this rapid expansion is the Insurance Regulatory and Development Authority of India (IRDAI). It is a fact that over two decades of regulatory reforms have eased entry barriers for policy buyers, standardised policy terms, and attempted transparency. But the regulator and the regulations today operate within the parochial logic of market expansion, with the logic that expansion will discipline it.

At the centre of this evolving system are the insurers themselves. Their role extends beyond underwriting risk. They increasingly shape the contours of treatment through approvals, exclusions, network design, and claims management.

Gap between theory and practice

In theory, insurers are expected to discipline both overuse and inefficiency. In practice, however, this often translates into a regime of scrutiny and control, where decisions on what gets covered or denied are governed as much by cost considerations as by clinical need. The balance between financial prudence and patient care, therefore, remains deeply contested.

Hence, what emerges is not a balanced market but an increasingly complex one which is more issuer-friendly than policyholder-friendly.

Once upon a time, health insurance products, be it individual plans, family floaters, or group covers, were built around the idea of pooling risk. Some of the policies back then did come with caveats like waiting periods, sub-limits, exclusions, and room-rent caps.

But the new generation products far exceed these caveats. They rely on extreme actuarial models that incorporate age, geography, lifestyle, and medical history to price premiums. With the flooding of digital health data, this segmentation is becoming more granular. Wearables, health apps, and behavioural tracking tools feed into the system. It not only insures risk but also dynamically evaluates it and reprices policies.

It is precisely here that a deeper challenge begins to surface. What was once understood as a structural tension within insurance, between moral hazard (overuse of services) and adverse selection (high-risk individuals seeking coverage), is no longer being resolved through broader risk pooling. Instead, it is being managed through ever finer differentiation. Risk is not collectively absorbed as much as it is individually sorted.

Adding to this fundamental flaw are the accumulating administrative problems that the regulator and the government are struggling with.

Hospitals and insurers are constantly locked in disputes. Providers argue that insurers underpay and delay reimbursements; insurers counter that hospitals inflate bills and prescribe unnecessary procedures. The system is further complicated by bilateral agreements between hospitals and insurers. Arriving at each agreement consumes a lot of time and energy, resulting in widely varying rates for the same procedures across providers and payers.

At the heart of this pricing disorder lies a deeper institutional void. It is the absence of a regulator for healthcare providers. While insurers operate under the oversight of the IRDAI, hospitals function in a weakly regulated environment. There is no uniform framework governing tariffs across private providers, which allows the same procedure to be priced differently across hospitals, cities, and even patients. In such a landscape, negotiation replaces regulation, and price discovery becomes opaque, inconsistent, and often contentious.

It was only in late 2025 that the statutory industry body representing non-life insurers, General Insurance Council, stepped in, following the suspension of cashless facility by insurers at various hospitals across India. Its proposal envisaged a single tripartite standardised agreement between the council, hospitals, and insurers featuring uniform packages and rates across hospitals. Known as the “common empanelment” model, it is being worked out at the insistence of the IRDAI.

Yet, such interventions address only one layer of a far more complex system. What is emerging in this system is a multi-tiered architecture of risk, marked by multiple, overlapping layers, each carrying its own set of challenges and contradictions.

At the base lies state-funded coverage, exemplified by Ayushman Bharat, providing a safety net for the most vulnerable: nearly 40 to 50 crore citizens. Above this sits employer-provided group insurance (with the government and corporates as employers), covering a significant portion of the formal workforce. This is in the range of 34 to 46 crore insured. At the top are retail and premium products, offering extensive but costly coverage, subscribed by about 10 crore individual policyholders.

This stratification mirrors income hierarchies. Access to quality care increasingly depends not just on need but on the nature of one’s coverage, which is directly related to disposable income. And what we are creating thus is a divided society based on income levels when it comes to the foundational responsibility of the state, which is healthcare.

In this stratification, an estimated 40 to 60 crore citizens remain outside the purview of any meaningful protection. The government calls them the “missing middle”. For the industry, they are the “untapped market”, a vast, uninsured population suspended between state support and private affordability.

And in that uneasy space, illness does not just threaten health, it threatens livelihood, dignity, and the fragile stability of households. Neither the government nor the industry is too keen to tap this section, for reasons well known. It comprises mostly the lower middle class and therefore falls between state support and market viability: too affluent to qualify for subsidies, yet too financially constrained to afford private coverage.

That being the case, the private players are keenly watching their behaviour through data, economic and wellness. Insurance companies collect data frantically, both directly and through intermediaries. The health data collected through apps, devices, and digital platforms by healthcare startups, hospitals, and diagnostic centres becomes central in the decision-making to include them or not.

But it also raises concerns about privacy and discrimination. Individuals with chronic conditions or genetic predispositions may face higher premiums or restricted coverage, challenging the very idea of insurance as a collective safety mechanism.

The future may also see the integration of genetic data and real-time health monitoring into policy pricing, wherein premiums adjust dynamically on the basis of behaviour. Such models risk creating a system where insurability itself becomes conditional, contingent on compliance with behavioural norms.

All this while the state is closing its eyes to these outcomes. The deeper question, therefore, is what is the role of the state in ensuring access and affordability for all? What is the fate of universal health coverage? Where would it leave the fundamental right to health and medical care?

If insurance becomes the primary mechanism of healthcare access, public provisioning risks receding into the background. The burden of treating your illness will increasingly fall on you alone, mediated through policies and premiums.

Such a system will not be one of universal care but of managed access, which is structured, stratified, and financially mediated.

In that architecture, illness will no longer be a biological event. It will be a financial calculation—assessed, priced, and often contested.

Insurance promises certainty in the face of uncertainty. But, as the system evolves, that certainty will increasingly become conditional, dependent on clauses, categories, and classifications that lie beyond the control of an individual.

The question, then, is not simply how many are insured. It is who remains insurable and who is quietly priced out of care.

Ameer Shahul is the author of the bestselling book Vaccine Nation: How Immunisation Shaped India (Macmillan, 2025). His forthcoming title, The Silent Syndicate: Who Prices Your Health (Hachette, 2026), explores the changing dynamics of India’s healthcare ecosystem.

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