Medical innovation is transforming healthcare by making increasingly complex diseases treatable. Yet it is also changing the economics of healthcare. As advanced therapies become part of routine clinical practice, treatment costs are rising faster than many households’ ability to finance them, making affordability an increasingly important determinant of access to healthcare.
India has responded by significantly expanding financial protection through publicly funded health insurance schemes such as Ayushman Bharat Pradhan Mantri Jan Arogya Yojana (PM-JAY), state-sponsored health insurance programmes, the Rashtriya Arogya Nidhi and other financial assistance initiatives. These measures have substantially strengthened protection for economically vulnerable households, while higher-income families are generally better positioned to absorb the cost of expensive treatment. Between these two groups, however, lies a sizeable “missing middle” that exceeds eligibility thresholds for public assistance but remains financially exposed when faced with catastrophic healthcare expenditure.
This gap reflects a structural feature of India’s health financing architecture. Financial protection is determined primarily by eligibility criteria, whereas financial vulnerability depends on whether a household can absorb the cost of modern treatment.
Eligibility Rules Leave a Financing Gap
The challenge becomes clearer when treatment costs are considered alongside the financial protection currently available. Claims data from private insurers suggest that treating certain serious illnesses can cost between ₹20 lakh and ₹30 lakh annually, depending on the diagnosis and treatment regimen.
For many middle-income households, a serious illness therefore becomes both a health shock and a financial shock, forcing families to deplete savings, liquidate assets or incur debt despite remaining outside the eligibility criteria for publicly funded assistance.
The policy implication is significant. Catastrophic healthcare expenditure is determined less by household income alone than by the gap between treatment costs and a household’s financial capacity. Financing systems built primarily around eligibility thresholds therefore risk overlooking families that are technically ineligible for assistance but economically unable to finance modern treatment.
The National Health Accounts Estimates for India 2022–23 illustrate the continuing importance of this challenge. Out-of-pocket expenditure accounted for 43.4 percent of total health expenditure, with households financing nearly half of these costs directly. Despite important progress in expanding health coverage, the financial consequences of serious illness continue to fall substantially on households themselves.
Financing Must Evolve with Medical Innovation
As medical technology advances, health financing must evolve alongside it. The next stage of reform is not simply about expanding insurance coverage but about redefining how financial vulnerability is identified. Schemes built primarily around income thresholds are less effective when treatment costs themselves have become the principal driver of financial distress. Financing frameworks therefore need to account for both household income and the burden that treatment places on household resources.
Public and private health insurance have an equally important role in adapting to these changing realities. Coverage limits, reimbursement schedules and benefit packages require regular revision so that clinically validated therapies are incorporated as they become part of routine medical practice.
Other health systems have increasingly recognised this challenge. Countries such as Singapore, South Korea and Japan complement routine health insurance with dedicated mechanisms for catastrophic illnesses and exceptionally high treatment costs, acknowledging that conventional insurance alone cannot fully absorb the financial risks associated with advanced therapies. India can draw on these experiences to strengthen financial protection for households that fall above existing eligibility thresholds but remain vulnerable to catastrophic healthcare expenditure.
Addressing the financing gap faced by the missing middle is ultimately about correcting a structural blind spot in India’s health financing framework. Financial protection must evolve alongside medical innovation by responding to financial vulnerability as well as eligibility if advances in treatment are to translate into equitable access for all households.