Limited Protection: Health Insurance’s Uneven Role in Mitigating Catastrophic Health Expenditure Across India’s Economic, Regional, and Disease Groups

With nearly 40% of healthcare costs financed out-of-pocket (OOP) -posing significant financial risks, particularly for low-income households-we investigate whether India's expanding insurance ecosystem (including public schemes and state-sponsored health insurance schemes) has contributed towards reduction in catastrophic health expenditures (CHE), using nationally representative data from the National Sample Survey: Social Consumption [Health] (2004-2018). Employing a two-part econometric framework, we first analyse correlates of health expenditures using OLS regression on log-transformed spending, then estimate the probability of CHE (defined as OOP exceeding 10% of household consumption) via Probit models. To address endogeneity in health insurance, we employ instrumental variable approach. The IV estimates reveal that insurance increases positive health spending by 15.2%, however resulting a 4.9 percentage points of decline in CHE. Based on these findings, we suggest to rise coverage amount under current health insurance by paying better premiums to better protect economically deprived, elderly and rural population so as to mitigate CHE risk.