By Indu Bhushan & Siddhartha Bhattacharya
India’s healthcare system stands at a decisive moment. The country faces a quarter of the world’s most significant disease burdens—home to the largest population living with non-communicable diseases (including over 100 million people with diabetes) and more than one billion communicable disease cases annually. Alongside this sits the world’s second-largest ageing population, creating a scale and complexity of need that expands each year. Yet, despite shouldering nearly a quarter of the global disease burden, India contributes less than 2% of global health expenditure. Even with a highly cost-efficient health system, the gap between healthcare needs and available financing is widening rapidly. Unless India strengthens its health financing architecture and builds large, efficient risk pools that promote savings, prevention, and innovation, the country will struggle to expand access, modernise infrastructure, and keep pace with changing health needs.
NCD burden rises, funding needs grow
This urgency is heightened by a rapidly shifting disease profile. By 2030, around 75% of all deaths in India are expected to arise from non-communicable diseases (NCDs), with an increasing proportion of patients managing multiple comorbidities. Health-seeking behaviour has also accelerated significantly post-pandemic, supported by policy momentum. Meeting this demand requires substantial capital.
Compounding this is the financial attractiveness of the sector. Across major industrial sectors in India, both healthcare delivery and healthcare financing register some of the lowest returns on capital employed, combined with high borrowing costs, long gestation periods, and minimal long-term financing options. These pressures come at a time when provider costs are rising by 8-10% annually, driven by workforce shortages, escalating wages, rising clinical complexity, a depreciating currency, and inflation in input costs.
Meanwhile, India’s performance in global medical value travel continues to strengthen. Among 140 countries, India ranks third on cost, sixth on clinical outcomes, and tenth overall—driven particularly by availability of care. Sustaining this advantage, however, depends on scale, investment, and a resilient health financing architecture that balances how resources are raised and where they are deployed.
India’s three major sources of health financing—public expenditure, out-of-pocket (OOP) spending, and prepayment schemes (primarily health insurance)—face structural challenges. Public spending as a percentage of GDP remains among the lowest globally. While the need for higher public expenditure is clear, fiscal realities and competing priorities limit what is feasible. OOP spending needs to be reduced as it imposes a disproportionate burden on the poor and discourages timely and appropriate care. Private health insurance remains underdeveloped, covering less than 10% of the population.
These constraints present a major dilemma: How should India expand health expenditure and invest in health without overburdening public finances? The challenge is particularly acute for a large segment of the population—roughly 8 crore families or 30 crore people—who are not poor enough to qualify for publicly-funded schemes like Ayushman Bharat, yet not wealthy enough to absorb catastrophic health expenses.
Private health insurance has not been able to address this gap. Too few healthy individuals opt for coverage, and as insurance remains voluntary, adverse selection persists, risk pools remain shallow, and costs escalate. Without corrective action, pressures will shift to providers, limiting access, slowing expansion of facilities and human resources, and ultimately affecting patient outcomes.
To protect this population segment, India needs to transition from voluntary insurance models to broad-based, efficient risk pools guided by regulatory and policy direction. These should promote health savings, offer robust protection against catastrophic expenses, and incentivise insurers to invest in prevention rather than focus solely on treatment.
Such an approach reduces distribution and marketing costs, lowers out-of-pocket expenditure, strengthens provider networks, and supports more integrated care systems. A fragile insurance sector facing adverse selection risks can trigger ripple effects: Rising OOP spending, reduced investment in healthcare delivery, and an impaired ability to manage India’s combined burden of NCDs, communicable diseases, and maternal and child health challenges.
With limited fiscal space, India must adopt innovative mechanisms to unlock new health financing. If one-third of the 30 crore Indians in the “missing middle” contributed Rs 2,00,000 each into a common risk pool, it could generate approximately $200 billion—tripling India’s current health expenditure risk pool.
Three pathways can reshape this landscape:
1. Use policy and regulatory levers to channel middle-class spending into health through mandatory minimum benefit packages and better-functioning markets.
2. Promote universal health savings accounts through the banking system—similar to provident fund structures—with insurance serving as catastrophic cover. This would significantly reduce premiums and expand the paying risk pool.
3. Adopt a hybrid model offering a universal free package for select high-cost, low-probability conditions while requiring a minimum buy-in for broader coverage. Those unable to pay can be supported by government schemes. Incentives such as lower premiums for younger entrants can deepen and stabilise risk pools.
Strengthening India’s health financing base must be accompanied by redesigning how care is delivered. India needs a system that rewards prevention, early intervention, and appropriate care through a structured pathway that begins at home and in the community and escalates only when necessary. Increased funding for health must translate into improved health outcomes for every rupee spent.
India’s inflection point presents an opportunity to build a modern, resilient, and equitable healthcare system—one capable of delivering both health and financial protection. The decisions taken now will determine whether India can meet the evolving needs of its population or remain constrained by legacy financing structures.
The authors are respectively the founding CEO, Ayushman Bharat and senior associate, Johns Hopkins University & secretary-general, NATHEALTH