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.