Health Insurance In 2025: Why Rs 25 Lakh Insurance May Not Fully Protect You Even After GST Cut?

The year 2025 created a hopeful environment for the healthcare financing sector in India. As the government announced the scrapping of GST on individual health and life insurance premiums effective on 22 September 2025, the market response was instantaneous. This led to a change in consumer behaviour that shifted noticeably.

As per a Policybazaar report, health insurance uptake for higher coverage levels surged by 38% following the exemption. Well, the data point indicates not just the rise in the number of insurance buyers but also the increase in their sum-insured (SI) choices. The average health cover rose from Rs 13 lakh to Rs 18 lakh. Nearly 45% of new policyholders are now opting for coverage between Rs 15-25 lakh, which makes the fact evident that many households are rethinking insurance as a core financial buffer rather than seeing it as a compliance tool.

Approximately 24% are now choosing plans in the Rs 10-15 lakh range, while only 18% continue with covers below Rs 10 lakh. This includes not just millennials in metros but is also seen among older age groups and people in smaller cities. Among Tier-2 city customers, the share preferring low coverage dropped from 24.1% to 16.8%, while those choosing the Rs 15-25 lakh band rose from 44.1% to 48.6%.

Senior citizens, too, have lent their support to this trend. Among buyers aged 61-75 and above, high sum-insured plans went up 11.5%. Add-ons like Day-1 Pre-Existing Disease waivers and critical-illness riders are selling faster than earlier.

Reduction in Out-of-Pocket Expenses & Role of Government Schemes

One important aspect behind the growing interest in insurance is the fact that there has been a gradual fall in out-of-pocket spending on healthcare, even though these costs remain heavy for many families.

Data from the National Health Accounts 2021-22 indicates that out-of-pocket expenditure as a share of total health spending declined from 64.2% in 2013-14 to 39.4% in 2021-22. Over the same period, government health spending rose from 29% to 48% of total health expenditure.

"Social security expenditure, which comprises government-funded health insurance and medical reimbursements, climbed from 5.7% to 8.7% of total health spending between 2014-15 and 2021-22. Public health programs backed this shift," said Dr. Sabine Kapasi, CEO at Enira Consulting Pvt Ltd, Founder of ROPAN Healthcare, and UN advisor.

Ayushman Bharat - Pradhan Mantri Jan Arogya Yojana (AB PM-JAY) is one of the most notable efforts in this area. As of March 2025, 36.9 crore plus "Ayushman cards" have been issued under the scheme. Under PM-JAY, eligible households get up to Rs 5 lakh per family per year to cover secondary and tertiary care (hospitalisation, major procedures), a public-sector bulwark against catastrophic health costs for economically vulnerable groups.

These public schemes have contributed significantly to reducing the financial burden on households. According to official estimates, they have delivered over Rs 1.25 lakh crore in savings since inception by reducing OOPE.

Gaps Remain; Insurance Alone Will Not Do

The higher coverage levels and public schemes do not remove all financial risk. Several structural gaps exist, limiting how much insurance, public or private, can reduce out-of-pocket spending at the point of care.

Sub-limits, caps and restricted room-rent slabs. Private policies often cap room rent, ICU charges, or specific procedures. For instance, an Rs 18 lakh policy sounds strong until hospital bills actually go beyond what is actually covered. Families thus end up paying the difference.

Co-payments and non-medical charges. Diagnostics, consumables, attendants, administration fees, and linen are excluded or partly covered. The unexpected costs pile up fast.

Waiting periods and pre-existing disease exclusions. Most plans make you wait 2-4 years before covering pre-existing conditions. That keeps seniors and people with chronic illnesses out, though Day-1 PED waivers show people want in.

Inadequate protection for outpatient diagnostics, drugs, and follow-up care. Private insurance focuses on hospitalisation. Outpatient visits, ongoing medications, follow-up diagnostics, things that actually drain household budgets are mostly not covered.

Lack of transparency in billing and pricing by hospitals. Without standard packages or clear bills, patients and insurers argue over what's owed. Hidden charges and inconsistent pricing mean insured people still pay more than expected.

Why 2025 Is an Inflection Point, But Not the Destination?

"The positive consequence of the GST cut was that it made insurance cheaper. This led the demand to shoot up, giving the insurers an opportunity to tap in the customer base with expanded offerings. Interestingly, people across tier-2 cities and those in the older age bracket also responded," commented Dr. Sabine Kapasi.

Thus, we can see how public spending grew, social-security schemes widened, and out-of-pocket shares came down.

But this is not enough. To turn insurance into genuine financial security, it needs more effort:

Standardisation of policy language and disclosure. Give every policy a one-page summary. Sub-limits, co-pays, exclusions, waiting periods, room rent caps, non-medical charges need to be stated upfront. Let people compare apples to apples.

Expansion of coverage beyond hospitalization. Outpatient care, diagnostics, long-term therapy, medications, follow-ups on chronic illness and repeat visits cost more over time than single hospital stays. Public or private insurance has to cover this.

Promotion of senior- and chronic-disease-friendly products. Older buyers want higher coverage. Insurers need to meet them with reasonable premiums, guaranteed renewability, short or no PED waiting periods, and real comprehensiveness.

Regulation of hospital pricing and billing transparency. Standard packages for common procedures. Itemised bills. Strict caps on discretionary charges. Patients shouldn't be guessing what they'll owe.

Better integration of public schemes and private insurance. Let PM-JAY provide the base, and private policies or top-ups add layers. Less overlap, more efficiency, better coverage overall.

Greater public investment in preventive and primary care. Insurance is important undoubtedly, but preventing the onset of the disease costs less. The government should therefore keep expanding primary healthcare, free diagnostics, and public drug supplies.

"2025 looks like the year health insurance in India accelerated its speed. Families now do not look at it merely as a tax tool. They have begun to use it for actual protection. The GST removal has made policies affordable, and people responded by buying higher sums insured, comprehensive plans, and add-ons for pre-existing conditions," said Dr. Sabine Kapasi.

Public spending and social-security schemes have facilitated reduced out-of-pocket burdens. Vulnerable households avoided ruin after medical emergencies.

But lags remain. Policies need a clearer picture, hospital bills need transparency, and insurance has to cover outpatient care, chronic treatments, diagnostics, and medicines. Until then, families will keep paying large chunks out of pocket.

If regulators, insurers, and policymakers come on the same podium, 2025 could start a healthcare financing system that actually shields Indian families from catastrophic medical costs. For now, high coverage is necessary but a lot more needs to be done.

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