By Yashaswini Sirwar
Abstract
India’s health system is expanding insurance coverage through public and private schemes that promise financial protection. The country has positioned insurance as the main tool for managing the cost of illness, especially for low-income households. Chronic diseases such as diabetes, hypertension, and heart conditions now make up a large share of India’s disease burden. These conditions need steady outpatient care rather than sudden hospitalisation. Insurance schemes in India focus on inpatient treatment, while outpatient visits, medicines, and diagnostics are usually left out. This has created a mismatch between the diseases that households face and the services that insurance covers. The outcome of this is a system where long-term health risk is pushed onto families instead of being reduced by policy. This piece looks at how this mismatch developed, why it persists, and what it means for Indian health policy going forward.
Introduction
Chronic illness has become a defining feature of public health in India. The India State-level Disease Burden Initiative reported that non-communicable diseases account for a majority of total deaths in the country. These conditions unfold over years through repeated consultations, diagnostic tests, and regular medication. The costs do not arrive as a single shock. They accumulate and stretch household budgets over long periods of time.
At the same time, insurance has become the centrepiece of India’s approach to financial protection in health. Schemes such as Pradhan Mantri Jan Arogya Yojana (PM – JAY), along with a range of private insurance products, aim to reduce the cost of treatment. Their promise is simple: households should not fall into debt because of illness.
The difficulty is that insurance, as currently structured, protects people from a different kind of health expense. Insurance products pay for hospitalisation, surgeries, and acute emergency care. Chronic conditions rely on outpatient visits, medication, monitoring, and long-term follow-up. These expenses are usually outside the insurance package. This creates a gap between the protection that households expect and the treatment costs they end up having to pay.
Policy Landscape
India’s health financing system is built on a mix of public insurance schemes, employer-linked coverage, and private insurance. PM – JAY is the largest public sector scheme. It aims to provide healthcare cover for inpatient care to low-income households and has been rolled out across most states. State-level schemes function alongside PM-JAY, and some states run their own programmes with different benefit packages.
Employer-based systems, such as the Employees’ State Insurance Scheme (ESIC), offer more comprehensive care, but they reach a limited formal workforce. Private insurance companies have expanded their presence over the past decade. IRDAI reporting shows growing premium volumes and enrollment in private policies.
Across these systems, inpatient care is the core benefit. Insurance pays for treatment if the patient is admitted to a hospital for a specified minimum period. Surgeries, inpatient procedures, and emergency admissions are included in the package. Outpatient consultations, regular blood tests, long-term medication, and the daily management of chronic disease often fall outside it. Some private insurers offer outpatient cover, but it is limited and adds a significant premium.
This approach reflects the way insurance has developed in India. The policy logic prioritises high-cost, low-frequency events. It is easier to price and administer inpatient care because it is discrete and well-documented. Outpatient care is frequent and varies widely across individuals. Actual modelling is harder and more expensive. As a result, insurance systems have grown around a narrow definition of “financial protection” that focuses on hospital bills and not the long-term costs of chronic conditions.
Where the Mismatch Comes From
Chronic disease care and insurance do not align. Diabetes, hypertension, and heart disease require regular monitoring. Medicines must be purchased repeatedly throughout the year. Doctors adjust treatment based on diagnostic results. These patterns continue for years. NSS data shows that outpatient care and medicines make up a significant share of household health spending. For NCDs, medication alone can form a consistent monthly burden. Even small expenses accumulate when they are repeated across months and years. Insurance products do not target these costs. They have evolved around covering hospitalisations, which are less frequent but more expensive per visit.
Insurers also operate with incentives that make chronic outpatient coverage difficult. If outpatient care were covered, insurers would face a higher and more predictable flow of claims, which would increase premiums. This makes it difficult for households to afford this coverage. Chronic care is also sensitive to issues like adverse selection. Households that already have chronic conditions are more likely to buy coverage, which raises the risk of losses for insurers. Insurance companies would try to prevent this by limiting outpatient benefits or excluding them from the core package.
This has produced a system that does not match the health landscape. Chronic diseases form the bulk of India’s health burden, but still, insurance concentrates on hospital care. The risk of ongoing treatment remains with households. The state uses insurance to signal protection, but the way it is designed protects against a type of cost that is not dominant. This is the result of historical design choices that have not adapted to the shift towards chronic illness.
How Risk Moves to Households
When insurance does not cover outpatient treatment, households must manage the risk on their own. This takes on several forms. Families rely on savings to cover costs, but many households do not have enough savings to afford years of treatment. Borrowing is common. NSS data shows that a significant share of medical spending is financed through loans and household assets. Chronic illness also requires attention and time. Families take on unpaid labour to manage appointments, medication, and daily monitoring. This work mostly falls upon women, who have to adjust their routines to support relatives with long-term conditions.
Households sometimes ration care. People delay doctor visits, or they try to stretch and adjust their medication to save money. This worsens health outcomes and can eventually lead to hospitalisation. This would then trigger the costs that the insurance is designed to cover. The long-term risk remains at the household level even when the state expands insurance programs.
The consequence is a piling medical debt. Out-of-pocket spending remains high in India, even with Insurance coverage. The National Health Accounts have recorded a decline over time, but the level is still substantial. The biggest expenses come from medicines and diagnostics, and not hospitalisation. Insurance removes some risk, but chronic care fills the gap and transfers the remaining risk to households.
Policy Implications
India’s health system aims to protect people from financial hardship. Insurance has played a role in reducing hospitalisation expenses for covered households, but the policy design needs to evolve with the epidemiological shift. Chronic diseases cannot be managed through inpatient care alone.
Some countries, such as Thailand, have attempted to integrate outpatient and chronic care into public benefit packages through strong primary health systems. Their experience suggests that chronic care coverage works when supported by local clinics and medicine distribution networks. The comparison matters because it highlights the kind of infrastructure India would need if it extends outpatient coverage.
Indian policy could move in this direction by integrating chronic disease management into insurance in a phased way. Limited outpatient benefits targeted at high-burden conditions could be slowly introduced and tried out in selected districts. This would allow insurers and state governments to test pricing models without destabilising the system. Another option could be to explore regular medicine benefits for specific chronic conditions. This could be done through partnerships with public facilities.
Drug price regulation is another tool. The National Pharmaceuticals Pricing Authority has capped prices of several essential drugs in the past. Expanding these lists for chronic disease medications could reduce the monthly burden on families.
Strengthening primary health centres is also important. Chronic disease management depends on regular follow-ups that can be done at local facilities. Better resources for primary care can reduce unnecessary hospitalisation and align the system more closely with the needs of chronic patients.
India’s digital health mission may support continuity of care, but it’s the financial design of insurance that will determine how much chronic risk remains with households. If there are no structural changes, insurance will continue to focus on hospital care while families continue to absorb the continuous costs of chronic disease.
Conclusion
Indian health policy has relied heavily on insurance to offer financial protection. This approach works for emergency care, but chronic illness requires a different model. Insurance has been built to handle hospitalisation rather than long-term outpatient care. The gap between benefit packages and real treatment patterns has created a system where chronic health risk is shifted to households. The policy challenge is to redesign financial protection so that it reflects the disease patterns of today. A system that aims to manage chronic illness needs steady outpatient support, affordable medicines, and strong primary care. Until these elements are integrated into insurance or public programs, the burden of long-term health risk will remain with households.
Author’s Bio
Yashaswini Sirwar is a 2ndyear BALLB student in Jindal Global Law School and a columnist at CNES.
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