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Volume 4(7)

Fiscal Implications of Publicity Funded Health Insurance Schemes

Associate Professor 
Department of Economics and Centre for Research
St.Teresa’s College (Autonomous),Ernakulam.

Universal Health Coverage (UHC) ensures equitable, affordable, and high-quality healthcare for all individuals. In India, the right to health is constitutionally protected, strengthening the commitment to inclusive healthcare. However, governance challenges between the central and state governments often create inefficiencies, hindering the effective implementation of health initiatives. Despite two decades of health reforms, India has the lowest G-20 government health expenditure (0.98% of GDP, 2011–2021) and lags in UHC indicators, highlighting the need for greater focus on achieving Sustainable Development Goal 3 (SDG).

Whether India be able to track the SDG-3 sub-goal of Universal Health Coverage by 2030?

Over the past two decades, India has implemented numerous health sector reforms. India spends nearly 3.8% of its GDP on healthcare overall, but government spending accounts for only about 1% of GDP -still short of the 2.5% target set by the National Health Policy (NHP) 2017. At roughly $75-80 per capita, India's health spending remains among the lowest in its income cohort. This gap forces households to shoulder nearly 40% of health costs out-of-pocket, a burden that continues to push a significant number of people into poverty each year.

The Sustainable Development Goal (SDG) target 3.8, which calls for universal health coverage, is in line with the World Health Organization's (WHO) initiatives. Financial risk protection, access to necessary high-quality healthcare services and universal access to safe, reasonably priced medications and vaccines are all included in this. But progress has been slow and the COVID-19 pandemic's disruptions have further slowed the progress with only four years left  to 2030(WHO & World Bank, 2023). Progress is only a small portion of what is needed to achieve these goals at the current rate (WHO, 2022). According to the RBI, the states should increase the percentage allotted for health spending from the current 4.7% to 8% or higher by 2020. Conversely, it was discovered that none of the states in the nation had set aside 8% of their budget for the health sector in the 2020–2021 fiscal year.

The World Health Organization (WHO) uses two indicators to evaluate the progress made toward SDG 3 goal: the Service Coverage Index and the prevalence of catastrophic health expenditures. Based on these metrics, India has one of the highest rates of catastrophic healthcare spending among G-20 nations and ranks 63rd in the Service Coverage Index. Among the G-20 and BRICS nations, India has had the highest out-of-pocket medical expenses since 2008. (WHO and IBRD 2017).

Kerala's Paradox: Best Health Outcomes, Worst Out-of-Pocket Burden

Among all Indian states, Kerala had the highest OOPE expenditure. Based on data published in the National Health Accounts 2016-17, household out-of-pocket expenditure in Kerala constituted approximately 58.7%. This finding is supported by another survey conducted by the NSSO in 2004. This burden - households draining savings or borrowing just to cover hospital bills - is exactly the gap health insurance schemes were designed to close. Recognising this risk, the Union government introduced a series of Centrally Sponsored Schemes (CSS) aimed at cushioning poorer households from catastrophic medical costs, with the Centre and states sharing both funding and implementation. Chief among these is Ayushman Bharat - Pradhan Mantri Jan Arogya Yojana (PMJAY), launched in 2018, offering Rs.5 lakh of annual family-floater coverage to the poorest 40% of India's population - the country's largest attempt yet at bringing down OOPE through Centre-state cost sharing.

Insights from Kerala's RSBY- AB PMJAY-KASP Transition

In Kerala, this scheme takes the form of Karunya Arogya Suraksha Padhathi (KASP)- the state's own vehicle for delivering AB-PMJAY, layered on top of older state programmes it absorbed.Kerala’s per capita health expenditure ranks among the highest in the country and the health sector consistently receives top priority in the state budget. But the revised funding pattern for Centrally Sponsored Schemes (CSS) in 2016, has led the AB-PMJAY health insurance scheme to an additional financial liability of Kerala’s health budget.

Following the restructuring of Centrally Sponsored Schemes into Core-of-the-Core, Core and Optional schemes, allocations to Core of core schemes (100% funded by Centre) have shown a declining trend over time. However, Core schemes, which operate on a 60:40 cost-sharing basis, have increased in Kerala.  Kerala's spending on the RSBY-KASP scheme, as a proportion of the state's overall health expenditure, rose noticeably between the two phases of the program. Under RSBY (2011-2019), this share averaged 5.92%, but it climbed to 9.11% once KASP took over (2019-2023). This upward shift comes against the backdrop of the 2016 revision to Centrally Sponsored Scheme funding norms, which shifted more of the cost burden onto states.  As a result, KASP now consumes roughly 5-6% of Kerala's entire Health and Family Welfare budget, adding meaningfully to the state's fiscal load. This indicates a noticeable rise in the financial responsibility of the state following the revision in the cost-sharing pattern of centrally sponsored health schemes. Kerala faces a fresh fiscal commitment following a 2025 policy revision that extended AB-PMJAY coverage to every individual aged 70 and above, regardless of income or other eligibility criteria. The change implies that the state is now required to allocate a significantly higher proportion of its own funds to sustain these schemes, potentially affecting the fiscal space for other health priorities. This additional financial responsibility has not been compensated by transfers from the Finance Commission or by increased Central assistance via CSS. Consequently, Kerala covers this extra financial liability through its state plans, potentially reducing funds for other essential areas, especially in the background of decreasing unconditional transfers from the Centre.

The budgetary allocations for the Ayushman Bharat Pradhan Mantri Jan Arogya Yojana (AB-PMJAY) in recent years have been only a small fraction of the estimated requirements. Without addressing these unresolved issues, AB-PMJAY seems unlikely to effectively lead India towards Universal Health Coverage. The Budget Estimates for Kerala 2026–27 indicate a significant increase in the total allocation for the Karunya Arogya Suraksha Padhathi (KASP) under the State Plan, rising from Rs.568 crore in the Revised Estimates (2025–26) to Rs.768 crore, an increase of Rs.200 crore (approximately 35%) by the previous government. This reflects the Government's intention to expand or strengthen the implementation of the scheme. At the same time, the new Government in Kerala,announced the Oommen Chandy Health Insurance Scheme, proposing health insurance coverage of up to Rs.25 lakh per family with an initial allocation of Rs.10 crore. Together, these announcements indicated an expansion of publicly funded health insurance. However, they also implied a higher long-term fiscal commitment, as wider insurance coverage and increased utilization could substantially raise future public expenditure on health unless accompanied by sustainable financing mechanisms.

Going forward, ensuring the long-term viability of Kerala's publicly funded health insurance architecture will require closer attention to cost-containment strategies, a more equitable Centre-State financing arrangement and periodic actuarial review of scheme design so that expanded coverage does not come at the expense of fiscal sustainability.

References: 

Abiad, A. D., Akın, Ç., Carrasco, B., Conrad, J., Jha, S., Karan, N., Khetrapal, S., Gupta, A. S., Singh, R., & Song, L. L. (2020). Strengthening India’s intergovernmental fiscal transfers: Learnings from the Asian experience. 15th Finance Commission Report.

Berman, P., & Ahuja, R. (2008). Government health spending in India: Getting the priorities right. National Commission on Macroeconomics and Health, Ministry of Health and Family Welfare, Government of India. Retrieved from World Bank Document.

Choudhury, M., & Datta, P. (2019). Uncertainty of fiscal space for health: An exploratory analysis of State budgets of Andhra Pradesh, Tamil Nadu, Maharashtra and Madhya Pradesh. Observer Research Foundation (ORF) Occasional Paper No. 182. New Delhi: ORF.

Comptroller and Auditor General of India. (n.d.). CAG report. Government of India.

NITI Aayog. (2019-2020). Healthy states progressive India: Report on the ranks of states and union territories (Health Index: Round IV). Government of India.

Rao, M. G. (2020). Central transfers to states in India: Rewarding performance while ensuring equity (Final report submitted to NITI Aayog). National Institute of Public Finance and Policy, New Delhi.

Sustainable Development Goals (SDG) Reports. (2024).

State budget documents,Kerala(Various)

World Health Organization. (n.d.). Global health expenditure database. Retrieved from https://apps.who.int/nha/database/ViewData/Indicators/en

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