Argument for universal or semi-mandated insurance coverage

Introduction: Expanding risk pooling to strengthen financial protection

As India’s healthcare demand continues to rise, strengthening risk pooling across the population is critical to improving financial protection and reducing reliance on out-of-pocket (OOP) spending. While healthcare financing has expanded in recent years, coverage remains fragmented across government programs, employer-sponsored schemes, and retail insurance products.

Globally, systems that have achieved lower OOP spending have done so by building large, integrated financing pools with broad-based participation. For India, expanding and consolidating risk pools represents a key opportunity to improve access, affordability, and system sustainability.

Current scenario: Fragmented coverage and the missing middle gap 

India’s financing landscape remains divided across multiple schemes with varying levels of coverage and participation. Government programs such as PM-JAY have expanded access for lower-income populations, while employer-sponsored insurance provides coverage for a segment of the formal workforce. However, large parts of the population remain outside structured risk pools. 

Internationally, voluntary insurance plays a limited role in achieving universal coverage, typically accounting for only ~10–15% of total healthcare financing, with most coverage driven by government-funded or mandatory insurance systems. 

Exhibit 1: Healthcare spending mix across countries by financing source (out-of-pocket, government, mandatory and voluntary insurance) 

Countries that have successfully reduced OOP spending have done so by expanding large, pooled financing systems with near-universal participation, combining public funding with mandatory or semi-mandatory mechanisms.

In India, despite progress, a substantial share of the population remains outside formal insurance systems. This gap is most visible in the “missing middle”, comprising roughly ~30% of the population, who earn too much to qualify for subsidized public schemes but lack stable employer-sponsored coverage or adequate access to retail insurance. 

Exhibit 2: Distribution of health insurance coverage across income groups and scheme types in India

As a result, this segment continues to rely heavily on out-of-pocket payments, often purchasing insurance intermittently or holding policies with limited benefits. This creates a structurally vulnerable group that is neither protected by government schemes nor fully integrated into private insurance pools.

The road ahead: Expanding and integrating risk pools

Reducing out-of-pocket expenditure will require a shift toward larger, more integrated risk pools that expand coverage beyond current segments. Building on the foundation of existing government programs, there is a clear opportunity to broaden participation across the wider population.

Expanding mandatory or semi-mandatory participation frameworks, particularly for the informal and self-employed workforce, can help bring more individuals into pooled financing systems. At the same time, improving the affordability and design of insurance products can enable more consistent participation among underserved segments.

Greater alignment and integration across government schemes, employer-sponsored insurance, and private insurers can further strengthen risk pooling, reduce fragmentation, and improve efficiency. Over time, this can enable a transition toward more stable, predictable financing flows, benefiting both households and healthcare providers.

Addressing the needs of the missing middle is therefore central to reducing out-of-pocket spending and strengthening financial protection. Expanding risk pooling at scale will not only improve access to care but also support the long-term sustainability of India’s healthcare system.

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