Health insurance discussions often focus on the missing middle, a section of the population particularly vulnerable to rising medical costs. The vulnerability of the uninsured to rapidly rising medical costs should be a cause for concern. However, both terms need to be understood in the right context to appreciate the risks involved. First, it is important to identify who constitutes the missing middle and why they lack health insurance protection. Second, medical inflation should be examined in the context of the quality of care rather than purely as a financial metric. This will aid even the insured in comprehending the value of proper health cover.

India does not have a universal health cover. PM-JAY or Ayushman Bharat Pradhan Mantri Jan Arogya Yojana is the closest equivalent. Launched in 2018, the scheme initially offered ₹5 lakh in annual health coverage per family to the poor and vulnerable sections, targeting around 50 crore individuals. The scheme subsequently expanded to include certain frontline workers and, in 2024, all senior citizens aged 70 and above, irrespective of their socio-economic status.

As of September 2026, Ayushman cards had been issued to over 48 crore individuals, covering approximately 33 per cent of India’s population. The scheme provides access to healthcare through more than 38,000 empanelled hospitals. According to a recent PIB release, the scheme has funded 13.25 crore hospital admissions worth over ₹2 lakh crore in eight years of operation.

The bottom 33 per cent, a significant section of the economically vulnerable population, has found something resembling universal healthcare. This translates to around 45 per cent of hospital expenses paid by the government/states and their schemes. The top layer which is self-insured, either by group insurance or by self-insurance, accounts for a mere 10 per cent hospitals payments.

This leaves the missing middle which pays close to 45 per cent of hospital costs in India from its own pocket. The proportion is consistent across national statistics from National Health Accounts or from the investor presentations of largest chain hospital, Apollo. This proportion has declined from the high 60s only a few years back owing to government schemes. But half of admissions are still funded from savings, and this must be remedied before India faces medical inflation.

In developed economies such as the US, meeting major hospital expenses without insurance can be prohibitively expensive. With medical costs in India rising by an estimated 13-14 per cent annually, a similar affordability challenge could emerge for uninsured households.

While inadequate insurance penetration and medical inflation are major concerns, the latter needs to be examined more closely.

While medical inflation is high at 13-14 per cent per year, hospitals’ actual price increases per year are at a modest 5-6 per cent. A like-for-like procedure experiences a nominal increase in cost. The rest of the increase is from several factors.

Acuity mix or therapy mix of patients, is the main lead for pricing growth of hospitals. Unfortunately, oncology is amongst the fastest rising treatment in India and is increasing in proportion for all hospitals. Oncology, cardiac care, neurology and organ transplants are among the more expensive treatment categories. As the hospital industry matures, its mix of higher order treatments increase which improves pricing. Rising incomes, lifestyle-related diseases and greater insurance coverage are also enabling more patients across socio-economic groups to access advanced treatments that were previously unaffordable.

Availability of robotic procedures, pharmaceuticals and diagnostics are not only improving outcomes but also adding to the medical costs. Robotic and minimally invasive surgeries are increasingly used in knee and hip replacements and other complex procedures, offering greater precision and potentially faster recovery. Pharmaceutical treatments now cover oncology, immunology and other conditions which were untreatable earlier with the aid of biological options. Diagnostic penetration, both radiological and pathological, is being increasingly employed by medical professional for a more accurate and targeted action.

Thus, while price increases contribute to rising medical expenditure, improved treatment options and advances in the quality of care are also pushing up costs. Consumables used in newer therapies, along with the specialised healthcare personnel required to administer treatment and manage outcomes, add to the overall expense.

Affordable, basic health insurance products such as Aarogya Sanjeevani, along with top-up and deductible-based plans, should be promoted among the missing middle segment. IRDAI’s recent consultation paper proposing a cap on distribution costs is also a positive step towards making insurance more affordable.

Published on October 17, 2026