Key Insights | Covering the Uncovered With Health Insurance in India

India has employed four primary strategies to provide healthcare: strengthening government health services, expanding mandated health insurance for formal sector employees, publicly funded health insurance for the bottom 40% of the population, and voluntary health insurance for the affluent. However, a significant proportion of the population in the third and fourth quintiles remains uninsured. It has been argued that this uninsured population has the ability to pay (ATP) for healthcare, but it is unclear how much they can afford. A related question is whether they are willing to pay, even if they can afford it.

The core question surrounding the debate on the Ability to Pay (ATP) has been whether the cost of healthcare for a household should be the sole criterion for ATP or if it should consider other factors that influence households’ decisions regarding healthcare expenditure.

The analysis reveals that less than 10% of the total households in the third and fourth quintiles are able to meet the minimum level of expenditure for both healthcare and non-healthcare goods. Most households have to choose one merit good over others. It is found that about half of the total households cut back on healthcare expenditure to achieve more than the minimum level of expenditure for other merit goods, such as food, housing, and education.

Since the household’s ATP varies, it becomes crucial to calculate the amount that households can allocate for their healthcare needs. The affordability calculation, applying threshold criteria (a minimum of 6% of total household expenditure for healthcare and 52% of total household expenditure for non-healthcare goods), suggests that 30% of households in the third and fourth quintiles spend less than 6% of their total household expenditure on healthcare. This means they can allocate a maximum of INR 5,693 [5] per year, including both inpatient and outpatient services. 8% of households with sufficient resources can expend a maximum of INR 24,466 [6] per year. For the remaining 62% of households, who can just afford to pay 6% of their household expenditure, they can pay about INR 13,344 to 15,132 per year.