Page 10 of 16
CM16.4-5 | CM16.4-5 | Health Policy, Planning and Economics in India — SDL Guide (Part 3)
Applying Policy and Economics: Ayushman Bharat and Universal Health Coverage
Ayushman Bharat — launched in 2018 as India's flagship UHC programme — represents the most ambitious application of health policy and health economics principles in India's post-Independence history. Analysing it through both lenses illustrates how policy intent, financing design, and health economics evidence combine in a real programme.
Ayushman Bharat has two distinct but complementary components, addressing different gaps in the health system:
Component 1 — Health and Wellness Centres (HWCs): The government committed to transforming 1.5 lakh sub-health centres and PHCs into HWCs by 2022, expanding their service package from maternal-child health to 12 categories of comprehensive primary care — including NCD screening, mental health, oral health, and palliative care — delivered by a newly designated cadre, the Community Health Officer (CHO). The HWC component addresses the primary care gap: NHP 2017 recognised that India's primary care system had been frozen in the maternal-child health era while the burden was shifting to NCDs and multimorbidity. HWCs operationalise the 'primary care first' principle of cost-effective health systems — most health problems can be addressed at primary level at a fraction of the cost of tertiary care. The CHO (a BSc Nursing or AYUSH graduate with bridge training) represents another application of task shifting at the primary care level.
Component 2 — Pradhan Mantri Jan Arogya Yojana (PM-JAY): PM-JAY provides Rs. 5 lakh per family per year of cashless hospitalisation coverage for secondary and tertiary care across empanelled government and private hospitals, targeting the poorest 40% of Indian households — approximately 50 crore beneficiaries identified through the SECC (Socio-Economic Caste Census) database. PM-JAY is the world's largest government-funded health protection scheme by the number of intended beneficiaries. Its financing model is insurance-based: the government pays premiums to insurance companies (or state health agencies acting as insurers) who in turn reimburse hospitals at fixed package rates. The economics of PM-JAY rest on risk-pooling across a large beneficiary population and administrative cost containment through fixed package rates rather than fee-for-service payment.
The health economics rationale for Ayushman Bharat's two-component design reflects a coherent financing logic: HWCs address the high-volume, low-cost primary care need (cost-effective at scale); PM-JAY addresses the low-frequency, high-cost secondary/tertiary hospitalisation need that drives catastrophic health expenditure. Together, they are designed to provide protection across the full spectrum of care — though implementation gaps (facility readiness, package rate adequacy, private hospital behaviour under fixed rates, and identification of eligible beneficiaries) remain significant challenges to realising the UHC vision.
The most important pending challenge is the missing middle: India's informal sector workers (farmers, self-employed, contract workers) who are not poor enough to qualify for PM-JAY (which targets the bottom 40%) but not employed in formal jobs that provide ESIC or CGHS coverage. This population segment — estimated at 30-40% of the population — remains largely unprotected and continues to finance health through OOP spending, sustaining the very catastrophic expenditure pattern that Ayushman Bharat was designed to eliminate.
SELF-CHECK
PM-JAY provides Rs. 5 lakh per family per year of hospitalisation coverage to the poorest 40% of Indian households. A government analyst argues that PM-JAY alone cannot achieve the NHP 2017 target of reducing out-of-pocket expenditure to 25% of total health expenditure. Which of the following BEST explains why PM-JAY alone is insufficient to meet this target?
A. PM-JAY's Rs. 5 lakh annual benefit is too low to cover most hospitalisation costs in India
B. PM-JAY covers hospitalisation for only the bottom 40% and does not address the OOP burden of primary care costs and outpatient medicines, which constitute a large share of OOP nationally
C. PM-JAY is administered by private insurance companies, so the government cannot control OOP at the point of care
D. PM-JAY targets families identified through SECC, which overestimates the truly poor population
Reveal Answer
Answer: B. PM-JAY covers hospitalisation for only the bottom 40% and does not address the OOP burden of primary care costs and outpatient medicines, which constitute a large share of OOP nationally
PM-JAY's coverage is limited in two critical dimensions: (1) it covers only the bottom 40% (by SECC criteria), leaving the 'missing middle' (informal sector workers above the PM-JAY threshold but without formal insurance) with no protection; (2) more importantly for OOP reduction, PM-JAY covers only hospitalisation (inpatient care) — it does not cover outpatient consultations, primary care medicines, diagnostics, or the transportation costs associated with seeking care. National Health Accounts data consistently shows that outpatient medicines and primary care fees constitute a large fraction of OOP spending — often larger than hospitalisation costs for the general population. Reducing total OOP to 25% requires both: (a) hospitalisation protection (PM-JAY's role) AND (b) primary care OOP reduction through HWCs' free drug and diagnostic schemes, expanded JSSK, and outpatient coverage that PM-JAY alone does not provide.
CLINICAL PEARL
The 'missing middle' is the key coverage gap to understand for UHC policy analysis. India's formal health financing architecture leaves approximately 30-40% of the population — too rich for PM-JAY, too informal for ESIC/CGHS — without any systematic hospitalisation protection. Several states (Rajasthan's Chiranjeevi Yojana, Andhra Pradesh's YSR Aarogyasri, Tamil Nadu's CM Health Insurance) have expanded coverage upward from PM-JAY's floor through state schemes. The political economy of extending coverage to the missing middle — requiring either raising tax revenues or expanding social insurance to the informal sector — is the central unresolved challenge of India's UHC project.