Who Falls Under India’s Missing Middle in Health Insurance?

In a previous article, I explored the broader challenges of health insurance in India and hinted at a deeper dive into the "Missing Middle." Today, I am delivering on that promise by shedding light on this crucial segment of our population, which remains vulnerable despite its potential to access contributory health insurance.

Who Are the Missing Middle?

The Missing Middle refers to a vast and varied group of individuals who are neither poor enough to qualify for government-subsidized health insurance nor affluent enough to afford private voluntary health insurance (PVHI). This group constitutes approximately 40 crore Indians—30% of the population—and is spread across both rural and urban settings.

Methodologies to Understanding the Missing Middle:- Analyzing data from the NSSO’s 75th Round (2017-18), two approaches help identify this group, first is Occupation-Based Analysis, Focuses on principal occupations, such as self-employment in agriculture or urban service roles, to estimate coverage gaps and second one is Expenditure-Based Analysis, Examines expenditure quintiles to pinpoint those who remain uninsured despite financial capacity.         

Detailed Breakdown of the Missing Middle’s Characteristics

Understanding the Missing Middle requires delving into their demographics, occupations, and economic vulnerabilities. This group is not homogenous but spans a wide spectrum of people across rural and urban India. Here’s a closer look:

Rural Composition

The Missing Middle in rural areas predominantly comprises individuals engaged in informal and self-employment activities.

• Agricultural Self-Employment (40-60%): A significant portion of this group consists of small-scale farmers and agricultural workers who own limited land or rely on seasonal income. These individuals often face unpredictable earnings, driven by factors like crop yields, market prices, and climate conditions.
• Non-Agricultural Self-Employment (20%): This segment includes small business owners, artisans, and traders who operate outside formal employment structures. Despite their entrepreneurial efforts, they lack consistent income and access to formal financial systems.
• Casual Labor: A smaller segment works as casual laborers in agriculture and non-agriculture sectors. These individuals depend on daily wages, which are highly irregular and offer no employment benefits or health coverage.
• Lack of Union Representation: Most of these workers operate independently or in small groups, without the bargaining power provided by unions or collectives. This leaves them without access to collective health schemes or employer-provided insurance.

Urban Diversity

Urban areas present a more varied picture of the Missing Middle, reflecting the complexity of modern employment.

• Service Workers and Shopkeepers (45-70%): This group includes individuals working in retail, hospitality, and other service industries. Many of them are small shop owners or self-employed service providers who cannot afford high insurance premiums.
• Technical and Professional Occupations (10-15%): Some individuals in this segment are engaged in semi-formal jobs as technicians, mechanics, or mid-level professionals. They often have relatively stable incomes but lack employer-sponsored health benefits.
• Skilled Trades and Manufacturing Workers (10-20%): This includes skilled laborers such as carpenters, electricians, and factory workers. Despite contributing significantly to the economy, they remain uninsured due to the lack of affordable and accessible health insurance products.
• Managers and Senior Officials (5-10%): A smaller subset includes managers and senior officials in small enterprises or informal setups. These individuals might have higher incomes but are often unaware of or unwilling to invest in health insurance due to its perceived complexity.

Economic Vulnerability

While the Missing Middle may not fall below the poverty line, they remain highly vulnerable to financial shocks, particularly those arising from health emergencies.

• High Out-of-Pocket Expenditures (OOPE): This group spends a significant portion of their income on healthcare. For example, outpatient care accounts for over 70% of their medical expenses, which can severely strain household budgets.
• Catastrophic Health Expenditures: Studies show that a large percentage of Missing Middle households incur catastrophic health expenditures, defined as spending over 10% of their income on healthcare. Such expenses often lead to debt or reduced spending on essential needs like education and nutrition.
• Limited Savings and Financial Planning: Irregular incomes and the lack of financial literacy result in limited savings. This makes it difficult for them to manage unexpected medical costs, further exacerbating their vulnerability.

Why Does This Gap Exist?

Despite their ability to pay for insurance, several barriers prevent the Missing Middle from obtaining coverage:

• Affordability: Premiums for private insurance plans are often beyond their reach, with average costs ranging from ₹12,000-26,000 annually for a family of four.
• Complexity: Insurance products are laden with exclusions, waiting periods, and jargon that make them difficult to understand.
• Awareness: Many in this group are unaware of the benefits of health insurance or the existence of standardized products like Aarogya Sanjeevani.
• Accessibility: Insurers find it challenging to reach this dispersed and diverse population due to the lack of centralized databases or identifiable groupings.

The Missing Middle’s Health Risks

The absence of health insurance exposes this group to catastrophic health expenditures. Studies show that out-of-pocket expenses for outpatient care disproportionately impact the Missing Middle. Healthcare costs in India have seen a worrying rise, with 24% of households incurring catastrophic health expenditure (CHE) at the 10% income threshold in 2014, up from 21% in 2004. Similarly, 13% of households spent over 25% of their income on healthcare in 2014, compared to 11% a decade earlier. These figures highlight the growing financial strain on families, particularly those without insurance, and emphasize the urgent need for accessible health coverage to mitigate such economic shocks.

Moving Toward Inclusion

To bridge the gap, we must design health insurance products tailored for the Missing Middle:

• Affordability: Premiums between ₹4,000-6,000 per family annually are viable for most.
• Comprehensive Coverage: Products should cover both inpatient and outpatient care to address broader health needs.
• Simplified Offerings: Reduce exclusions and waiting periods while introducing user-friendly features like cashless claims.
• Government Support: Leverage existing infrastructure like the PMJAY platform to reduce costs and enhance reach.

Lessons from International Models

Countries like Thailand, China, and those in Latin America offer valuable insights:

• Thailand: Fully subsidized the informal sector to achieve universal coverage.
• China: Introduced contributory schemes with partial subsidies for rural and urban residents.
• Latin America: Integrated risk pools to ensure equitable access for both contributory and non-contributory groups.

A Call to Action

Addressing the needs of the Missing Middle is not just about expanding insurance coverage—it’s about securing the health and economic well-being of millions. By building on insights from global models and tailoring solutions to India’s unique challenges, we can ensure that this crucial segment is no longer left behind.