Abstract for: Health Insurance at a Crossroads: Market Failures, Financial Protection, and Private Sector Dynamics

Health insurance in India operates in a fragmented landscape, with low government spending forcing reliance on private insurance, which often worsens inequities. Insurers prioritize healthier customers, driving adverse selection and price volatility. This study uses system dynamics to model pricing, risk selection, and managed care to assess their impact on insurer profitability and coverage expansion. By mapping key feedback loops, we identify levers for stabilizing markets while enhancing financial protection and access. This study employs a system dynamics model to assess voluntary health insurance in India, capturing insured population shifts, chronic disease incidence, pricing mechanisms, and insurer decision rules. The model explores elasticity-driven participation, risk selection impacts, and cost-plus vs. profit-motivated pricing. Policy levers—managed care, risk selection, and group vs. retail pricing—are tested to evaluate their effects on insurer profitability and coverage expansion, offering a roadmap for market stability and improved financial protection. The model reveals profitability divergence across policy regimes. Risk selection raises administrative costs and inflates premiums as chronic applicants bypass rejection in the absence of robust health status tests. Pricing elasticity follows a gradient—higher insured numbers increase sensitivity. Shifting from cost-plus to profit-motivated pricing stabilizes insurers while reducing healthy dropouts. Managed care boosts long-term profits and coverage by lowering chronic incidence, even when surplus isn’t passed to consumers. This analysis highlights key insurance system feedback loops—moral hazard, adverse selection, and profit stability. Risk selection raises administrative costs but fails to shift risk composition. Group insurance weakens financial viability, limiting market participation. Managed care expands coverage but requires sustained investment before systemic gains materialize. Balancing affordability, insurer sustainability, and public health offers a systems perspective to inform regulatory policy and private-sector strategy.