Government Moves Toward Stricter Health Insurance Norms

Government Moves Toward Stricter Health Insurance Norms

Why in News?

Recently, the government has initiated consultations with the insurance regulator, industry experts and hospital networks to tighten health insurance norms. The move comes amid rapidly rising medical costs and inconsistent claim settlement patterns, which have pushed premiums upward.

India’s New Health Insurance Reform Framework

• Limiting Agent Commissions: The government suggested that agent commission on new health insurance policies should not exceed 20 percent. It also proposed that renewal commission should stay below 10 percent. These limits would stop excessive payouts that increase policy prices. 
• Controlling Hospital Package Rates: The government also targeted hospital package pricing because hospitals often set treatment rates without uniform benchmarks. Many insurance companies and hospitals negotiated package rates privately. These agreements sometimes created inflated price structures. The government proposed a system where package rates would be monitored and rationalized. 
• Capping Annual Premium: The government proposed that insurers should follow a capped structure for yearly increases. This structure would prevent companies from raising premiums without solid justification. The cap would encourage insurers to review their internal expenses and improve efficiency. 
• Ensuring Full Transparency: The proposal said that every claim and every hospital bill must have full clarity. Discharge summaries, treatment notes and cost details must be complete and uniform. Hospitals should not inflate charges during the claim process. Insurers should not deny claims without clear reasons. 
• National Health Claims Exchange: The government planned to introduce the National Health Claims Exchange, a digital platform that would host the entire claim settlement system. The platform would allow hospitals, insurers and third-party administrators to upload and access documents electronically. This would reduce delays and remove manual errors. Digital tracking would reduce fraud cases.

Medical Cost Surge and Rising Insurance Premiums

• Current Trend: Medical costs in India have risen faster than general prices in recent years. Hospitals increased charges for procedures and tests. Drug prices climbed in certain therapeutic areas. Health inflation stood at 4.25% in April 2025. These changes pushed the cost of a single hospital stay upward. Medical inflation in India has reached 11.5%, highest in the world.
• Retail Health Premium: Insurers adjusted premiums to match rising claim outflow. Several large private insurers reported double digit growth in health premium collections in 2024–25. Premium hikes reduced the immediate purchasing power of typical households. Health insurance premium has increased up to 25% in just one year. 
• Public Spending: Government spending on health rose between 2014–15 and 2021–22. Per capita government health spending increased markedly. The share of out-of-pocket expenditure in total health spending fell from over 60 percent in 2014–15 to about 39–47 percent by 2021–22 depending on estimates.
• Local Shocks: City level events can force targeted premium increases. For example New Delhi saw insurers propose higher rates after a sharp rise in pollution linked hospitalisations in 2024. Such local shocks change risk pools quickly. Insurers then seek actuarial adjustments for zones or cohorts.

Claim Settlement Challenges & Transparency Issues 

• High Claim Rejection: Health insurers in India disallowed health insurance claims worth roughly ₹ 15,100 crore in FY 2023–24, according to IRDAI data. This accounts for about 12.9 percent of all filed claims in that year. Insurers rejected 11 percent of submitted claims, while another 6 percent were still pending as of March 31, 2024. These high rejection rates create a significant trust deficit among policyholders.

• Modest Claim Settlement Ratio: In FY 2023–24, general and health insurers settled approximately 2.69 crore claims out of a total of 3.26 crore filed claims, putting the settlement rate at around 82–83 percent. The average payout per settled claim was reported to be ₹ 31,086. While a majority of claims are settled, a sizable portion still does not reach completion.

• Disparities among Insurer Types: There is a wide variation in settlement efficiency across different types of insurers. According to IRDAI, public-sector insurers had a claim settlement ratio exceeding 100 percent in 2023–24. On the other hand, private insurers averaged a ratio of around 88.71 percent, and stand-alone health insurers reported a notably lower ratio of 64.71 percent. These gaps point to serious inequalities in how different players address claims.

• Opaque Processing: Some insurers take a very long time to process claims. In the case of Star Health, only 82.31 percent of claims were settled within three months in 2023–24. A small fraction of claims took between three and six months, and even some took up to one or two years. Such long delays create financial stress for patients and raise questions about operational efficiency.

• Third-Party Administrators (TPAs): In FY 2023–24, 72 percent of claims were processed through TPAs and only 28 percent were handled directly by insurers. The heavy reliance on TPAs can sometimes contribute to a lack of clarity about who is responsible for delays or denials.

• Documentation & Disclosure: Policyholders sometimes fail to provide all required medical reports, discharge summaries, or diagnostic records. Experts and observer reports also suggest that non-disclosure of pre-existing conditions or mis‑reporting during policy purchase contributes to repudiations. This lack of clarity at the time of policy purchase often comes back to haunt patients at claim time.

• Regulatory Gaps: The regulatory watchdog has started looking more closely at settlement practices. For instance, IRDAI has flagged lapses in Star Health’s claim‑processing behavior, including high rejection volumes and long‑pending cases. The absence of a fully digital, uniform claims platform until now has made it difficult for the regulator to monitor real‑time settlement fairness.

International Models for Affordable and Fair Health Insurance

• Germany’s Social Health Insurance (Bismarck Model): Germany uses a statutory health insurance (SHI) system. About 89 percent of its population is covered by SHI through around 96 sickness funds, according to 2023 data. Funding comes from income-based contributions split between employers and employees. The base rate of contribution is around 14.6 percent of gross income. People who earn above a certain limit can opt out and choose private insurance, which sets premiums based on age and risk.

• Canada’s Single‑Payer System: In Canada, most health services are publicly funded under a single-payer Medicare system. The government pays for physician visits, hospital services, and essential care directly. The system ensures universal access to basic health services. According to international comparisons, Canada’s per capita health spending (adjusted for age) was about US $5,987 (PPP) in 2020. 

• United Kingdom’s National Health Service (NHS): The United Kingdom operates a tax-funded national health service. The NHS delivers free-at-point-of-care services, meaning people generally pay nothing when they visit a hospital or doctor. OECD data shows that most core services in the UK are covered for nearly 100 percent of the population. The system emphasises primary care, prevention, and integrated care to manage costs and maintain quality.

• Taiwan’s National Health Insurance (NHI): Taiwan has a single-payer, mandatory insurance system run by the government. As of 2023, its health spending was about 7.8 percent of GDP, with 63 percent coming from public funding. The system uses a smart card for billing, which reduces paperwork and fraud.