OPINION | Why young urban Indians are walking away from health insurance

Health insurance in India suffers from a structural mismatch with how healthcare is actually consumed in 2026.

India’s young urban middle class is often described as underinsured because it is supposedly “invincible,” “short-sighted,” or careless. That diagnosis is convenient—and wrong.

A generation that spends more on health

This generation is not spending less on health; it is spending more than any generation before it. The problem is not attitude. It is product–market fit. Health insurance in India suffers from a structural mismatch with how healthcare is actually consumed in 2026.

A ‘Wellness Tax’

For many urban professionals, insurance no longer feels like protection. It feels like a Wellness Tax—a double levy in which people pay premiums for a product they rarely use, while simultaneously paying out of pocket for the healthcare they actively maintain.

The data reflects this reality. Despite rising premium collections, insurance penetration has declined, falling from about 4.2% of GDP during the Covid years to roughly 3.7% in 2023–24. Insurance is not keeping pace with economic growth or healthcare inflation.

Mismatch between product design and health expenditure 

For decades, healthcare spending was episodic. You fell sick, you were hospitalised, and insurance—if you had it—softened the financial blow. That model worked in a world dominated by infections, accidents, and major surgeries.

That world no longer defines urban India.

Health expenditure today is continuous. It resembles a monthly subscription rather than a break-glass-in-case-of-emergency event. Over 65% of healthcare interactions in urban India are outpatient-led, while 55–60% of total health spending still comes directly out of pocket. The bulk of what households pay for never touches insurance.

A model in need of evolution

Health insurance in India is still built as a fund-management business. To remain relevant, it must evolve into a health-management model—one that is accountable for health outcomes, not just claims settlement.

Urban Indians now spend steadily on diagnostics, physiotherapy, mental-health support, dermatology, sleep optimisation, and preventive screenings. These are not vanity expenses. In a competitive economy, functioning well—physically and mentally—is the baseline for productivity, employability, and confidence.

Insurance, however, remains a post-mortem financial tool in a pre-emptive health economy. It rewards illness and ignores maintenance. While outpatient care dominates real healthcare usage, more than 80% of insurance claims by value are still triggered only by hospitalisation.

Critics frame reluctance to buy insurance as reckless gambling. In reality, it is arithmetic. A typical 30-year-old pays ₹25,000–₹35,000 annually in premiums for a product that excludes most everyday health spending. Outpatient care is capped or absent. Mental-health coverage is buried in fine print. Preventive care is treated as a marketing add-on rather than a core function.

A 29-year-old urban professional can easily spend ₹60,000 a year on therapy, diagnostics, and preventive care—while paying another ₹30,000 in premiums that reimburse none of it.

Retail buyer is stuck in a policy desert

Where insurance is growing tells the real story. Employer-sponsored group health insurance continues to expand at close to 20% annually, while individual retail uptake remains weak. Even today, only about 10% of Indians buy personal health insurance. Most growth comes from corporate group cover and government schemes such as Ayushman Bharat—not from young individuals voluntarily choosing insurance.

This reveals a policy blind spot. India has solved for the bottom of the pyramid through Ayushman Bharat and for salaried workers through employer coverage. The retail individual—the aspirational, discretionary buyer—is stuck in a policy desert. Infrastructure efforts like “cashless everywhere” improve plumbing, but they do not address the core mismatch: insurance still does not pay for how people actually experience healthcare.

The industry is chasing volume through government schemes, while alienating the young, voluntary buyers needed to keep the risk pool healthy.

Future of healthcare spending is about prevention

Even headline growth is slowing. Health insurance premium growth fell to about 8.98% in FY25, down from roughly 20.25% the year before. That is not market maturity; it is softening demand among new individual buyers.

Doctors increasingly see the behavioural shift. A growing share of patients now ask about the out-of-pocket cost upfront, rather than whether the expense will be covered by insurance. Insurance is no longer assumed to work. The future of healthcare spending in India is not about bracing for impact. It is about sustaining everyday health.

Capital will follow behaviour.

Insurance that ignores this shift will be left underwriting a shrinking pool.

(Ankur Nijhawan is an Insurance and Reinsurance expert and former CEO of AXA France Vie India.)

Views are personal, and do not represent the stance of this publication.