From Enrolment to Financial Protection: Does Health Insurance Provide Financial Protection against Road Traffic Injuries in India?

Health insurance is widely promoted as a key instrument for household financial risk protection. However, its association in mitigating the financial consequences of large, stochastic shocks such as road traffic accidents and injuries (RTAIs) remains insufficiently understood. This paper examines how health insurance coverage is associated with healthcare utilization and financial risk in India. Using pooled National Sample Survey data from 2004-2018 and applying an instrumental variable strategy, we explore these relationships and demonstrate that conventional models offer only limited perspective. A standard Probit model suggests that insurance coverage is associated with an 11.1 percentage point lower probability of incurring catastrophic health expenditure (CHE). However, our analysis based on an instrumental variable framework do not show a statistically significant association between insurance and financial protection. In contrast, having an insurance is associated with a 151% higher level of out-of-pocket (OOP) health spending, indicating improved access to healthcare. This pattern appears particularly regressive: the poorest households allocate more than 100% of their consumption to medical care, and insurance coverage is not associated with any reduction in this burden. These results underscore a significant contradiction: while existing schemes are linked to increased healthcare utilization, they do not fulfil the essential role of providing financial protection. We propose that policy should shift from merely focusing on enrolment to creating contracts that enhance coverage depth, manage costs effectively, and ensure equitable protection-transforming insurance from simply a means of access into a tool for consumption smoothing.