It’s 2018 in India. Your average per capita income is Rs 91,921 a year and 16 percent of this, Rs 20,135, could go towards a single hospitalisation. You’re unlikely to have insurance either – at this point in time, just 19.1 percent of urban Indians and 14.1 percent of rural Indians have medical insurance.

And yet you’re one of the lucky ones. For India’s poorer families, medical expenditure is far more devastating, considering they are unlikely to earn even a fraction of this income in the first place. And more than 80 per cent of India have no way to pay for their hospitalisation except through out-of-pocket expenditure.

This is the context in which the Narendra Modi government launched the Pradhan Mantri Jan Arogya Yojana, or PMJAY, in 2018.

PMJAY is the world’s largest publicly funded health insurance scheme, providing secondary and tertiary care hospitalisation services to about 15.5 crore poor and vulnerable families in India. These 60 crore beneficiaries form the bottom of the population (in terms of income and assets) and are the most likely to not get medical help because they can’t afford it.

The help and hope offered by PMJAY to these families can’t be overstated – but there are drawbacks.

One, it does not cover costs incurred on out-patient care, which is 40-80 percent of all out-of-pocket medical expenses incurred in India.

Two, PMJAY is a fully government-funded programme where the central government pays 60 percent of total costs for most states, while state governments pay the rest. However, the actual split is roughly around 28 percent by the centre and 72 percent by the states, as we’ll explain later in the story.

Three, despite PMJAY and its ambitions, about 40 crore people – 30 percent of the population – still have no medical coverage at all.

So, what’s gone wrong and right with the Modi government’s flagship insurance programme? How does it stack up to similar initiatives by the former UPA government? Which states lag in terms of coverage? Are as many women as men getting access?

Let’s find out.

A little context

First, some background on how PMJAY works.

PMJAY provides beneficiaries with a cover of Rs 5 lakh per family per year for secondary and tertiary care hospitalisation at public and private-empanelled healthcare providers.

Benefits under PMJAY are portable across the country. A beneficiary can visit any empanelled private or public hospital in India to avail of cashless treatment even if they’re signed up for the scheme in a different state.

One of the stated goals of the scheme is to “mitigate catastrophic expenditure on medical treatment”. Scheme beneficiaries can avail of nationwide cashless access to treatments for approximately 1,929 procedures, covering up to three days of pre-hospitalisation and 15 days of post-hospitalisation expenses.

Other costs related to treatment – like drugs, supplies, diagnostic services, physician’s fees, room charges, surgeon charges, and OT and ICU charges – are also covered. All pre-existing conditions are covered from day one with no cap on family size and age. But, as mentioned before, PMJAY does not cover out-patient care.

The primary criteria for PMJAY eligibility were derived from the Socio-Economic Caste Census of 2011, which identified poor and vulnerable families in rural and urban India based on a list of depravity criteria. Based on this data, the scheme targeted 10.74 crore families and around 50 crore individuals.

By 2022, the beneficiary base was broadened to cover 12 crore families by including households enrolled under the National Food Security Act for foodgrain distribution. Additionally, it included families covered in the Rashtriya Swasthya Bima Yojana (launched by the UPA government in 2008) but who were not present in the census database.

Based on additional criteria added by certain states and union territories, the list of eligible beneficiaries as of 2023 has been expanded further to about 15.5 crore families. States have to pick up the full tab for any beneficiaries added beyond the criteria established by the central government (SECC 2011, NFSA, and RSBY). At least 23 states have opted for this approach. Through this, they either reach a much larger number of people or provide coverage of more than Rs. 5 lakh or both.

States can implement PMJAY either under a trust mode (the state directly implements the scheme without the involvement of an insurance company), an insurance mode (an insurance company is selected to manage the scheme), or a hybrid mode that combines aspects of both.

As of 2024, 23 states and UTs have opted for the trust mode, seven for the insurance mode, and three for the hybrid mode. West Bengal, Odisha and Delhi have opted out of PMJAY entirely, citing their own state-level schemes.

The finances of PMJAY

In most states and union territories with a legislature, the central government bears 60 percent of the cost and the states 40 percent. In Himachal Pradesh, Uttarakhand, Jammu & Kashmir, and the seven Northeastern states, the sharing ratio is 90:10. For states and UTs without a legislature, the central government may contribute up to 100 percent on a case-by-case basis.

However, there is an important caveat to this cost structure.

The central government defines a ceiling rate for insurance premiums paid per family which sets a maximum limit to the central share of contribution. The centre’s contribution is roughly 60 percent of this rate in line with its cost-sharing formula described above. As of 2023, this cap is Rs 1,500. If insurance companies or state agencies charge higher premiums than the cap in their respective territories, the extra amount is borne by the states and UTs.

From 2019 to the end of 2023-24, the centre spent Rs 23,575.89 crore on PMJAY. For the sake of simplicity, we’ll assume all states and UTs paid 40 percent, which means states and UTs paid a total share of Rs 15,717.26 crore. This gives us a total government expenditure of about Rs 39,293 crore on PMJAY.

We’ll assume further that all this money was spent on insurance and state agency premiums alone, with administrative costs being negligible.

Now we come to the crux of the matter. As of March 2, 2024, the PMJAY dashboard says Rs 80,000 crore was spent on authorised hospital admissions. This gives us a claims ratio of over 200 percent – meaning more than twice the amount paid as premiums (by centre and state) was spent on hospitalisations. How could this have happened?

So, if the centre spent only Rs 23,575 crore and the total expense was Rs 80,000 crore, the only logical implication is that the remaining amount was borne by states, UTs and payouts by insurance companies. No insurance company will take consistent losses if the premiums paid to them don’t cover the payouts being made. And we already know the centre capped its contribution to insurance premiums.

Using this maths, it is reasonable to conclude that the actual funding split for PMJAY is around 72 percent by states and 28 percent by the centre – a significant departure from the indicative 60:40 split.

In principle, this is perfectly acceptable as health is a state subject. However, in practicality, this does not point to a long-term financially viable scheme. The fiscal burden of this scheme is bound to waiver the state governments’ resolve at some point. The additional burden on state finances also assumes greater significance given the ongoing fiscal tussle between the centre and states.

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