It’s time to fix health insurance for India’s ‘missing middle’. Here’s how to do it.
Roughly 8 to 10 crore Indian households fall into this “missing middle”. They are too affluent for subsidised schemes but unable to afford adequate private insurance. As healthcare costs rise steadily, this group is increasingly vulnerable to financial distress during medical emergencies.
The current retail health insurance model is structurally flawed. The typical ₹5-10 lakh cover that most families buy appears sufficient but loses value over time as healthcare inflation averages 10-12% annually. In a decade, the real value of this cover falls drastically. Premiums also rise sharply with age. For those above 55 or 60, premiums can exceed 20% of the sum insured—an unsustainable cost when health risks are highest. Health insurance, ironically, becomes least viable when it is needed most.
Pre-existing conditions such as diabetes and hypertension—common among Indians over 45—further raise the barrier to new coverage. High distribution costs inflate premiums without adding value. Insurers also lack leverage with hospitals, leading to inflated treatment costs, higher claims, and rising premiums.
How to fix this
Yet, India has the building blocks to create a better model. The government has already laid the foundation for a voluntary, contributory, government-facilitated insurance scheme for middle India.
First, Ayushman Bharat has negotiated cost-effective treatment rates with a wide hospital network. Second, India has developed robust health data infrastructure to detect fraud, monitor overcharging, and guide investment into under-served regions. Third, the evolving health exchange platform, which integrates insurers, providers, and the government, can serve as the backbone for such a scheme.
The proposed scheme would be designed by the government but run by licensed private insurers regulated by IRDAI. It would be voluntary and offered via a government-managed digital platform for enrolment, premium payment, claims processing, renewals, and servicing. Coverage options could range from ₹5 lakh to ₹1 crore. Crucially, the sum insured would increase every three years by 15-25% to counter inflation. All pre-existing conditions would be covered from day one.
To avoid adverse selection—where mainly sick individuals enrol—a 25% co-payment would apply in the first year for non-accident claims. This co-pay would reduce by 6.25% each claim-free year, disappearing after four years. Those with frequent claims would still share some costs, ensuring fairness and sustainability.
Premiums would be based only on age, gender, or family size—not health status. While insurers could limit sum insured for high-risk individuals or apply premium loadings, uniform rating by health condition would not be allowed. Hospital costs would be benchmarked to Ayushman Bharat rates, with a transparent mark-up for higher coverage, inflation, and reasonable hospital margins. Rates would be reviewed biennially.
The government’s digital platform would act as a single window for comparing plans, initiating claims, enabling cashless care, and renewing policies. A nominal platform fee of 3-5% would cover its operations and provide analytics to help insurers improve pricing, detect fraud, and reduce misuse.
The scheme could serve as a standalone policy or a top-up to employer-provided health cover, allowing flexibility. To encourage insurer participation, early losses could be carried forward for 10-12 years. Additionally, the solvency margin requirement could be reduced from 150% to 100% for the first five years to support portfolio development.
Comprehensive coverage at a lower cost
This model offers several advantages. It provides comprehensive, inflation-adjusted coverage with no exclusions. Treatment costs would be lower due to pre-agreed hospital rates and minimal distribution costs. Consequently, premiums would be far more affordable than current retail products. The design rewards those who don’t claim, while still covering those who do—striking a fair balance.
Critically, the model does not require recurring government spending. A one-time partial premium contribution could be considered initially to accelerate enrolment. Regulatory oversight would remain with IRDAI—no new regulator is needed. Existing solvency and governance frameworks would apply.
This proposal is not a replacement for existing schemes. Rather, it fills a critical gap in the healthcare financing ecosystem—protecting India’s middle class from mounting health risks and costs.
The government of India has an opportunity to catalyse this initiative. It builds on existing infrastructure, aligns with market principles, requires minimal fiscal support, and responds to a real need for millions of families.
India can lead the world in creating a voluntary, digital-first, inflation-protected health insurance model for the middle class. The time to act is now.
Kamesh Goyal is chairman of the Go Digit group of companies. Views expressed are his own.
