Co-payment: The illusion of cost control
The General Insurance Council has proposed a mandatory 10% co-payment for retail health insurance policies. The insured would bear 10% of the admissible healthcare expenses, and the insurer the remaining 90%. The proposal’s details are not yet in the public domain.
The apparent rationale is to give the insured ‘skin in the game’. Sharing expenses may discourage unnecessary tests, procedures, prolonged hospitalization and expensive rooms, reducing insurers’ outgoings and potentially premiums.
Health insurance accounted for 43% of the general insurance market in April-September 2026. Excluding government-sponsored schemes, the data distinguish group insurance, individual family floater, and other individual policies. Between 2018-19 and 2024-25, the average premium per person under group insurance fell 25%, from ₹2,975 to ₹2,233, while the coverage quadrupled, from 73 million to 275 million. For individual policies other than family floaters, the average premium surged 140%, from ₹4,662 to ₹11,188, while coverage fell from 15.5 million to 10.5 million.
These trends do not establish causation, but are consistent with the proposition that, ceteris paribus, higher prices deter demand. Against this backdrop, the proposal raises concerns about three sources of market failure: information asymmetry, market power, and externalities.
Information asymmetry
Individuals generally know more about their health risks than insurers do. Those anticipating higher medical expenses may be more inclined to seek insurance. If healthier people leave the risk pool, average claims may rise, prompting insurers to increase premiums. Higher premiums may then drive more healthy people out of the market, further worsening the risk pool. This can trigger a vicious cycle of rising prices, adverse selection, and declining coverage.
In 2024-25, the average premium for individual policies, other than family floaters, was about five times that for group insurance. Adding a mandatory 10% co-payment to these relatively high premiums may prompt relatively healthier individuals to exit. The resulting deterioration in the risk pool could reinforce adverse selection and further deepen exclusion.
Market power
Health insurance products compete on premiums, coverage, exclusions, co-payments, deductibles, hospital networks, and policy limits. A higher-premium policy with no co-payment can be as legitimate as a lower-premium policy with one. Consumers choose the balance between price and the financial protection they need.
A uniform mandate would eliminate co-payment as a dimension of product differentiation, constrain consumer choice and potentially weaken competition. There is a material distinction between insurers independently offering co-payment as a product feature and an industry-wide proposal to impose the same requirement. The latter raises questions about collective industry influence and the preservation of competition.
Externalities
The proposal assumes that cost-sharing will discourage unnecessary healthcare consumption. But excessive expenditure does not always originate with patients. They often lack the medical knowledge or bargaining power to challenge hospitals’ decisions or bills. Overcharging, billing for services not rendered, duplicate claims, and unnecessary procedures are well-recognized problems in the healthcare system.
When hospitals drive up costs that patients cannot effectively monitor or contest, co-payments can shift part of the burden to patients without correcting the underlying incentives. Patients may thus bear costs arising from failures they cannot control. Better hospital oversight, transparent pricing, rigorous claims scrutiny, and action against fraudulent billing would address these problems more directly.
Further scrutiny needed
The incurred claims ratios (claims incurred divided by net earned premium) for 2024-25 were 92% for group insurance, 79% for family floaters, and 75% for other individual policies. These figures do not establish overutilization or show whether co-payment would work. They do, however, reinforce the need for evidence: if excessive utilization is the concern, it may not be the driver of only retail claims.
Other cost drivers deserve scrutiny. Between 2023 and 2025, health premiums grew by 53%, while broker commissions grew by 118%, with retail health average commission rates increasing from 10% to 30%. This calls for examining distribution costs and incentives, alongside hospital bills. A co-payment neither reduces commissions nor prevents inflated billing. It shifts part of the cost to retail policyholders, who have weak bargaining power.
Health insurance does not cover every healthcare expense. Outpatient treatment may be excluded, pre-existing diseases may be subject to waiting periods, and expenses beyond sub-limits or the sum insured are borne by policyholders. They may also have to bear the cost of non-admissible items. A mandatory 10% co-payment would add to this burden. It risks making healthcare and health insurance less affordable, particularly for individuals who already pay substantially higher premiums than group policyholders.
Co-payment can be a legitimate feature of an insurance product, but consumer choice must be preserved, with appropriate safeguards for emergency treatment and affordable policies up to a specified sum insured. It should complement, not substitute for, action on hospital pricing and billing, claims scrutiny, and distribution costs. Cost-sharing must reduce costs, not merely shift the bill to policyholders.
M. S. Sahoo is a former chairperson of the Insolvency and Bankruptcy Board of India.