Health insurance reform should cut costs, not shift them on to patients

For middle-class and even better-off Indian households that buy health insurance, for employees who depend on employer-provided cover, and for poor families relying on public schemes, health coverage carries a common expectation: that illness will not leave them facing expenses they cannot afford. 

A reported proposal for a 10 percent co-payment, questions over guidelines on whether hospital admissions are necessary, and IRDAI’s planned consultation on healthcare billing and insurance claims have brought a more fundamental question to the fore: when the necessity and cost of treatment are disputed, who should bear the financial risk?

The General Insurance Council’s reported proposal to introduce a 10 percent co-payment for health insurance policyholders raises a range of questions. According to a report published in The Times of India early this month, policyholders could be required to bear 10 percent of admissible inpatient hospitalisation costs, with their contribution capped at Rs 5 lakh per claim. The proposal was being considered for implementation from January 1, 2027, so it should not be mistaken for an approved rule already in force. The reported proposal was also linked to common hospital empanelment and a formal mechanism for resolving disputes between insurers and hospitals.

The immediate question is whether policyholders should have to share treatment costs even when they have purchased comprehensive insurance. A broader concern lies beneath this debate. How are healthcare costs determined, and does the proposed solution place responsibility on those who can control these costs or on people who have little power to influence them?

To begin with, a co-payment is not inherently unreasonable in an insurance product. Policies can validly offer different combinations of premiums, deductibles, co-payments and coverage. That, however, isn't always the case. Problems arise when someone who has paid for comprehensive cover, expecting substantial financial protection, faces an additional financial burden that may have little to do with their ability to pay or their capacity to influence treatment decisions.

If one looks at the other side, insurers have their own set of concerns. If hospitals order unnecessary tests, recommend procedures of questionable value, extend hospital stays without sufficient clinical justification or charge widely varying prices for comparable treatment, insurers end up absorbing those costs. Persistently rising claims can affect premiums and make health insurance less affordable. The question is how to address these practices without simply passing the burden on to patients.

At the same time, patients are often the least equipped to identify unnecessary treatment or negotiate prices. Someone admitted after an accident, for instance, or diagnosed with a serious illness is unlikely to be in a position to challenge a specialist’s recommendations, compare hospital tariffs or determine whether a particular investigation is essential. By contrast, insurers process claims across thousands of patients and hospitals. They have the institutional capacity to analyse costs, negotiate rates and identify unusual billing patterns.

This imbalance becomes particularly important when insurers question whether a hospital admission was necessary. Such concerns raise questions about the role of an insurance industry body in issuing guidance that could influence decisions about hospital admission. Insurers have a financial interest in limiting claims, while doctors must exercise clinical judgement in the interests of individual patients. However, subsequent clarification suggests that the Council’s guidance was non-binding and was not intended to override doctors’ clinical judgement.

In all fairness, it is stating the obvious to say that insurers must be able to investigate fraud, challenge inflated bills and question expenditure that falls outside policy coverage. But scrutinising treatment costs is different from deciding whether a patient needs treatment in the first place. When the medical necessity of an admission is disputed, the process must be clinically credible, transparent and open to independent review. Without such safeguards, a patient could find themselves caught between a doctor recommending admission and an insurer questioning its necessity, with potentially serious consequences if care is delayed.

The distinction between cashless treatment and treatment that costs the patient nothing reveals another source of uncertainty. A recent piece in The Hindu, for instance, argued that cashless settlement does not necessarily mean the insurer will pay the entire hospital bill. A long list of conditions, such as policy limits, exclusions, deductibles, co-payments, room rent restrictions and non-payable items, can leave patients responsible for part of the expense. Differences between the amount billed by a hospital and the amount authorised by an insurer may become apparent only when patients are preparing to leave the hospital.

These distinctions have real consequences for families trying to manage their finances. If a deduction is permitted under the policy, the insurer should explain it clearly. If a hospital has charged a tariff or fee that differs from the amount agreed with the insurer, the patient deserves an intelligible account of the discrepancy. People should not have to discover the limits of their cover through an unexpected bill at the end of a hospital stay.

There is little to suggest that failures in ensuring transparency are merely theoretical concerns. They can have real implications for both the insured and insurers. The latter can be subjected to strict scrutiny and penalties for transparency lapses, particularly when the regulatory body decides to keep close watch. 

On December 18, 2025, The Economic Times reported that the Insurance Regulatory and Development Authority of India (IRDAI) had imposed a Rs 1 crore penalty on Care Health Insurance over claims settlement and transparency lapses, among other findings. According to the report, certain hospital discounts and tariff differences had not been reflected in final bills, which left policyholders unaware of the actual amounts billed by hospitals. The report also described shortcomings in communicating deductions and settlement details to policyholders.

At the same time, this case does not establish that all insurers operate in the same way. It does, however, show why clear billing, documented deductions and direct communication with policyholders must be central to the system. Patients should not have to reconstruct the financial settlement of a hospitalisation from conversations between an insurer and a hospital. Nor should they have to navigate an opaque grievance process simply to understand why a claim has been reduced.

There is also the real-world question of competition. Insurers have several tools at their disposal when they believe hospitals are charging excessive prices. They can draw on claims data, negotiate rates, establish hospital networks and examine recurring patterns in billing. They can negotiate procedure-wise tariffs, insist on itemised bills and investigate unexplained differences in charges. Hospitals, for their part, should be prepared to explain their prices, distinguish clinically justified variations from arbitrary billing and challenge deductions they consider unjustified.

It must also be clear that neither of the two, hospitals and insurers, can claim a default benefit of the doubt. It has to be a case-by-case analysis, and neither can be assumed right at the expense of the other. A difference between a hospital bill and an insurer’s approved amount does not automatically indicate misconduct. Treatment complexity, a patient’s condition, complications and the resources required can all affect costs. A fair system must make such differences explainable and give each party a credible way to challenge them, without leaving the patient to bear the cost of an unresolved dispute.

Meanwhile, IRDAI’s planned consultation on healthcare billing practices and health insurance claims offers an opportunity to address these problems together. Last week, IRDAI chairperson Ajay Seth announced plans for a consultation paper covering treatment costs, fraud and provider behaviour, insurance economics, product suitability, claims, reinsurance, market conduct and digital public infrastructure. But the process has a long way to go: The Financial Express reported that the consultation paper was still a planned exercise at the time of the report, and the announcement did not mean that new billing rules have already been adopted.

In light of the issues that different stakeholders in health insurance grapple with, the consultation should examine how insurers can reduce claims expenditure, but it should also ask who benefits from those savings and who ultimately pays for them. Better hospital tariffs and effective scrutiny could reduce unnecessary costs, with the gains reflected in more affordable and reliable insurance. If a new co-payment simply transfers expenditure from insurers to households without addressing the reasons behind high bills, the financial burden will have shifted while the underlying problem remains.

A more practical approach, grounded in real-world situations, would make a case for hospitals providing clear, itemised bills that identify the charges actually incurred. Insurers should give policyholders written explanations for deductions, exclusions and rejected claims, rather than leaving them to make sense of unexplained differences between the hospital's bill and the amount settled. 

Procedure-wise reference tariffs could improve transparency, provided they account for legitimate differences in clinical complexity and patients’ needs. Disputes over medical necessity should be subject to timely, independent clinical review. Disagreements over tariffs and billing also need a credible mechanism for resolution.

To add to that, it is important that regulatory oversight pay attention to the experience of policyholders. Data on claim reductions, repudiations, complaints, appeals and decisions reversed after review could help reveal recurring problems. Any proposed co-payment arrangement should be assessed not only for its effect on claims expenditure but also for its impact on patients’ out-of-pocket costs and their ability to seek necessary treatment. If such a measure is considered, its governing logic, expected savings and likely effects on different groups of policyholders should be made public.

In essence, health insurance is a promise of financial protection at a time when people face urgent circumstances that they cannot fully anticipate or control. Insurers must be allowed to scrutinise claims, and hospitals must be held accountable for their prices. Policyholders, however, need a fair and intelligible process for determining which treatment is necessary, what it should cost and what the insurer is obliged to pay.

The test for reform should be whether it makes healthcare costs more transparent, reduces unjustified expenditure and gives policyholders greater certainty about their financial exposure. If patients are asked to pay more because institutions with greater information and bargaining power have failed to resolve their disputes, that would mean the process has been misdirected and ends up shifting the burden onto the wrong people, those least equipped to bear it. 

To live up to its original appeal, health insurance should offer dependable financial security, not let people down and leave families to discover the limits of that security when they need it most.

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