Indians Dropping Health Insurance Amid Rising Costs and Inadequate Coverage: A Growing Concern

In recent years, a concerning trend has emerged in India's health insurance landscape. Increasing numbers of Indians are opting out of health insurance, leaving them vulnerable to potentially devastating medical expenses. This shift is not taken lightly, as it underscores deeper systemic issues within the healthcare sector, including rising premiums, frequent claim rejections, and inadequate regulatory frameworks.

Factors Behind the Decline in Health Insurance Adoption

Rising Health Insurance Premiums

Health insurance premiums in India have seen significant hikes, making policies increasingly unaffordable for many. For example, a family floater policy with a cover of Rs 5 lakh, which once cost around Rs 22,000 annually, now costs nearly Rs 78,000 in 2025[1][2]. This sharp increase is primarily driven by medical inflation and the demand for higher sum assured policies. Insurers often recommend higher covers, such as Rs 5 lakh, as the standard, further increasing costs[2].

Frequent Claim Rejections

Frequent claim rejections have eroded trust in health insurance. Policyholders are often left with a sense of betrayal when their claims are denied at critical moments. This has led many to question the value of their insurance policies. For instance, a legal executive from South Delhi opted out of her health insurance after her friend’s claim was rejected, highlighting the loss of faith in these policies[1].

Systemic Inefficiencies and Regulatory Challenges

The healthcare system in India faces significant challenges, including high medical costs and inadequate regulation of private hospitals. The lack of standardized rates for medical procedures means patients face unpredictable expenses. Consumers argue that insurers and hospitals should negotiate fixed rates for procedures to provide transparency and prevent excessive billing[1].

Impact of GST on Health Insurance

The introduction of an 18% Goods and Services Tax (GST) on health insurance premiums has added to the financial burden. Although tax benefits under Section 80D of the Income Tax Act offer some relief, it is insufficient to offset the rising costs. Industry experts point out that while these deductions help, they do not fully mitigate the impact of GST and increasing premiums[1].

Alternative Strategies for Managing Healthcare Costs

In response to rising premiums and the perceived inadequacy of health insurance, many Indians are exploring alternative financial strategies. Some are shifting their savings into Systematic Investment Plans (SIPs), reducing reliance on expensive insurance top-ups. Others are opting to switch policies or adjust their coverage structures to balance costs and benefits[1].

However, such adjustments come with risks. Switching policies often means dealing with waiting periods and restrictions. Insurers may not offer family floater policies for dependents over 65, forcing policyholders into more expensive individual policies[1].

Growing Need for Regulatory Reforms

The dissatisfaction with health insurance has led many to call for reforms. There is a strong demand for the government to regulate private hospital rates and encourage insurers to negotiate better prices with hospitals. Standardized rates for medical procedures would provide transparency and efficacy in healthcare pricing, benefiting both consumers and providers[1].

Current State of Healthcare Costs in India

Healthcare costs in India are projected to rise by 13% in 2025, surpassing the global average of 10%[3]. This increase is driven by rising hospitalization rates, the adoption of advanced medical treatments, and a demand-supply mismatch in healthcare infrastructure. Factors such as cardiovascular diseases and cancer treatment costs are also contributing to higher medical expenses[3].

Future Outlook for the Indian Health Insurance Sector

Despite current challenges, the health insurance industry in India is slated to grow at a compound annual growth rate (CAGR) of 12.8% by 2028[4]. This growth is driven by regulatory changes, increased awareness of healthcare needs, and technological advancements like AI and digitalization. However, to sustain this growth and improve penetration, addressing affordability concerns and enhancing trust in insurance products is crucial[4].

Government Initiatives and Recommendations

Government initiatives like the Ayushman Bharat scheme aim to improve health insurance access. However, these schemes face challenges such as declining premiums and limited participation[2]. There is a push for regulatory reforms to enhance transparency and build trust among consumers. The healthcare industry is advocating for increased government support, including tax cuts on insurance premiums and expanded public health initiatives to strengthen the sector[5].

Key Industry Demands for Budget 2025

• Increased Healthcare Spending: The industry seeks an increase in healthcare expenditure to align with global averages, focusing on strengthening primary and secondary healthcare systems[5].

• Reduced Taxation: Stakeholders are requesting reduced taxation on health insurance to make premiums more affordable, especially for women who often face higher rates due to specific healthcare needs[5].

• Preventive Healthcare: There is a call for greater investment in preventive healthcare to reduce long-term medical expenses and improve health outcomes[5].

Conclusion

The decision by many Indians to drop their health insurance stems from a complex interplay of financial, systemic, and regulatory factors. As healthcare costs continue to rise and affordability becomes a major concern, there is a pressing need for reforms and innovative solutions to restore trust and accessibility in the health insurance sector. By addressing these challenges, India can work towards a more inclusive and sustainable healthcare system that protects its citizens from financial shocks associated with medical expenses.