High claims, low payouts: Why India's health insurance cover isn't enough

Even as the Insurance Regulatory and Development Authority of India (Irdai) prepares to launch the Bima Sugam digital marketplace in December, the regulator has drawn attention to ongoing issues in health-insurance claim settlements. Irdai Chairperson Ajay Seth recently observed that although the number of claims settled was high, the proportion of the amount settled to the amount claimed remains below expectations, especially in health insurance. In 2024-25, the general and health insurers settled ₹94,247 crore across 32.6 million health-insurance claims. Problems pertaining to transparency, claim adequacy, and clarity in insurance communication continue to be reported. 

These concerns reflect a deeper structural challenge. India’s insurance penetration remains low at 3.7 per cent of gross domestic product, roughly half the global average. This low penetration also reflects limited awareness and low trust in insurance products, especially among first-time buyers, who often find policies complex and difficult to compare. For many households, health expenses continue to be a heavy financial burden. In 2021-22, out-of-pocket expenditure accounted for 39.4 per cent of health expenditure. Though it’s a significant improvement from the past, high personal spending indicates that even when people buy insurance, they often end up paying significant amounts from their own pocket because claims are partially approved, delayed, or rejected for various reasons. 

Removing goods and services tax on individual life and health policies will make premiums relatively affordable. But affordability may not reduce inefficiencies, such as in claim processing. Policyholders frequently encounter confusion over coverage conditions, inconsistent hospital billing, and lengthy documentation requirements. These gaps erode confidence and discourage wider participation, especially among low-income families. Digital intervention offers a pathway to further improvement. The National Health Claims Exchange (NHCX) digitises hospital-insurer claim exchanges and has demonstrated that common data standards can reduce the processing time and minimise disputes. Importantly, the NHCX platform will now allow policyholders to track the status of their claims in real time. Complementing this, the ABHA ID (Ayushman Bharat Health Account) consolidates medical records into a digital format, enabling smoother access to health care and reducing information gaps during claims. Also, the “Cashless Everywhere” initiative, launched in 2024 by Irdai and the General Insurance Council, allows policyholders to avail themselves of cashless treatment even in non-network hospitals, ensuring faster processing and easing the burden on families during emergencies. 

However, NHCX adoption remains uneven across states and hospital networks, limiting its overall impact. The Bima Sugam platform should help bridge these gaps by enabling real-time data sharing, standardised billing, and improved traceability. Strengthening consumer protections will remain crucial. Measures such as public claim dashboards, third-party audits, multilingual grievance mechanisms, and targeted awareness initiatives can enhance trust and participation, particularly among rural households, informal workers, and women. With a rapid rise in medical costs, it is essential that insurance genuinely cushions financial risks. A transparent and reliable claims infrastructure is not just a regulatory aspiration — it is central to the credibility of India’s health insurance system.