Ayushman Bharat – Pradhan Mantri Jan Arogya Yojana (AB-PMJAY)

Ayushman Bharat – Pradhan Mantri Jan Arogya Yojana (AB-PMJAY) is one of the largest publicly funded health insurance schemes in the world and represents a major structural reform in India’s social sector policy. Launched in 2018, the scheme aims to provide financial protection against catastrophic health expenditure to economically vulnerable households. Beyond its social welfare objectives, AB-PMJAY has deep implications for banking, public finance, insurance markets, and the broader Indian economy.
The scheme reflects a shift in India’s development strategy, where health is viewed not only as a social good but also as an economic investment that enhances productivity, financial inclusion, and long-term growth.

Background and Objectives of AB-PMJAY

India has historically faced high out-of-pocket healthcare expenditure, which pushed millions of households into poverty every year. Prior to AB-PMJAY, health insurance coverage was fragmented, limited in scale, and largely inaccessible to informal sector workers.
AB-PMJAY was introduced with the following objectives:

• To provide health insurance cover of up to ₹5 lakh per family per year
• To cover secondary and tertiary hospitalisation expenses
• To target the poorest and most vulnerable households identified through socio-economic criteria
• To reduce the financial burden of healthcare on households and the state

The scheme is demand-driven and cashless, ensuring beneficiaries can access healthcare without upfront payment at empanelled hospitals.

Key Features of AB-PMJAY

AB-PMJAY is characterised by several distinctive features that differentiate it from earlier health schemes.
Major features include:

• Coverage of approximately 10.74 crore beneficiary families
• No restriction on family size, age, or gender
• Nationwide portability through a single digital health identity
• Cashless and paperless treatment at public and private hospitals
• Pre-defined package rates to control costs and ensure transparency

These features enhance accessibility while simultaneously strengthening financial discipline within the healthcare system.

Financing Structure and Fiscal Implications

AB-PMJAY is primarily funded through public expenditure, with costs shared between the Central Government and State Governments. The funding pattern varies, generally following a 60:40 ratio between Centre and States, with special provisions for northeastern and hilly states.
From a public finance perspective, the scheme represents:

• A significant increase in health-related budgetary allocation
• A shift from input-based spending to outcome-based healthcare financing
• A long-term fiscal commitment linked to demographic and epidemiological trends

While the scheme increases government expenditure in the short run, it is expected to reduce future fiscal pressures by improving population health and lowering preventable disease burdens.

Role of Banking System in AB-PMJAY

The banking system plays a supportive yet critical role in the implementation and functioning of AB-PMJAY.
Key banking-related aspects include:

• Direct Benefit Transfer (DBT) mechanisms for administrative and operational payments
• Integration with Jan Dhan accounts for financial inclusion of beneficiaries
• Payment settlement systems for hospitals and insurance companies
• Digital transaction infrastructure supporting cashless healthcare delivery

Public sector banks, in particular, facilitate fund flows between government agencies, insurers, and healthcare providers, ensuring liquidity and operational efficiency.

AB-PMJAY and the Insurance Sector

AB-PMJAY has transformed India’s health insurance landscape. The scheme is implemented through a mix of:

• Public sector insurance companies
• Trust-based models operated by states
• Hybrid arrangements involving private insurers

This has led to:

• Expansion of the health insurance market
• Increased actuarial data availability
• Greater standardisation of treatment costs
• Improved risk pooling at a national level

For insurers, the scheme offers scale and stability, though margins are regulated and operational efficiency is critical for sustainability.

Impact on Household Finance and Financial Inclusion

One of the most significant economic effects of AB-PMJAY is its impact on household finances.
The scheme:

• Reduces catastrophic health expenditure
• Limits distress borrowing from informal lenders
• Prevents forced asset sales during medical emergencies
• Improves household savings and consumption stability

By lowering financial vulnerability, AB-PMJAY indirectly strengthens household balance sheets and supports broader financial inclusion goals.

Linkages with the Indian Healthcare Economy

AB-PMJAY has stimulated growth in the healthcare sector, particularly in underserved regions.
Economic effects include:

• Increased demand for hospital services
• Expansion of private healthcare infrastructure in smaller towns
• Job creation in healthcare, administration, and allied services
• Incentivisation of investment in medical technology and diagnostics

The scheme has also encouraged formalisation within the healthcare sector through standardised billing, digital records, and regulatory compliance.

Digital Infrastructure and Financial Technology Integration

A defining feature of AB-PMJAY is its reliance on digital platforms.
Key digital components include:

• Aadhaar-based beneficiary identification
• IT-enabled hospital empanelment and claims processing
• Real-time monitoring of transactions and service delivery
• Integration with national digital health initiatives

This digital backbone reduces leakages, enhances transparency, and improves fiscal efficiency, aligning with India’s broader digital economy strategy.

Macroeconomic Significance in the Indian Economy

From a macroeconomic perspective, AB-PMJAY contributes to human capital formation, which is essential for sustained economic growth.
The scheme:

• Improves labour productivity through better health outcomes
• Reduces income shocks that destabilise consumption patterns
• Strengthens social security in an economy dominated by informal employment
• Supports inclusive growth by targeting the poorest segments

Healthier populations reduce long-term healthcare costs and increase workforce participation, positively influencing GDP growth.

Challenges and Criticism

Despite its achievements, AB-PMJAY faces several challenges.
Key concerns include:

• Fiscal sustainability over the long term
• Regional disparities in hospital availability
• Delays in claim settlements affecting providers
• Risk of over-utilisation and cost inflation