Digital payments and health insurance uptake

Digital payments are transforming household financial behaviour in India. Who adopts digital payments, and do these adopters have a greater propensity to engage with health insurance? Analysing nationally representative data from 2019, this article shows that e-wallet users are significantly more likely to purchase voluntary health insurance. Yet, inequalities in adoption persist and bridging digital divides can contribute towards reducing disparities in healthcare access..

In recent times, India has made tremendous progress in expanding access to digital finance, aided by innovations such as UPI (Unified Payments Interface), Aadhaar-enabled systems, and rapid fintech penetration. India's digital payments revolution has reshaped the economic behaviour of millions of households over the past decade. With UPI transactions now crossing the billion mark each month and mobile wallets increasingly embedded in daily transactions, digital finance has become an integral part of our daily lives.

These developments are widely documented in the global financial inclusion literature (Demirgüç-Kunt et al. 2018). However, this expansion coexists with significantly low voluntary health insurance coverage in India. More than four-fifths of Indian households still rely entirely on out-of-pocket spending to meet medical expenses, making them highly vulnerable to financial shocks arising from illness (Hooda 2020). Except for government-sponsored schemes like PM-JAY (Pradhan Mantri Jan Arogya Yojana), the purchase of private or voluntary public health insurance remains rare. This raises two related questions: who adopts digital payments, and do these digital adopters also display a greater propensity to engage with health insurance markets?

In recent research, we analyse this link using nationally representative data from the 77th round of the National Sample Survey (NSS) (Sengupta and Rooj 2025). This study offers some of the first causal evidence on whether the use of e-wallets, a key digital payment channel, affects households' likelihood of purchasing voluntary health insurance.

Data and methodology
The data for this study comes from more than 116,000 households across all Indian states and union territories. A central empirical challenge is that voluntary health insurance enrolment is extremely low. Only about 1.2% of households report paying a medical insurance premium. Such a low incidence can affect standard econometric estimates. Moreover, households that adopt e-wallets may differ systematically from those that do not – in terms of several observable characteristics, such as education, age, or consumption expenditure, as well as unobservable traits like financial literacy, risk preferences, and trust in formal institutions.

To address these challenges, we use a joint modelling approach that analyses e-wallet adoption and insurance enrolment together rather than in isolation. Both outcomes are yes–no decisions, and unobserved factors such as digital awareness, trust in formal systems, or financial capability may influence both choices simultaneously. Ignoring this linkage can lead to misleading conclusions. Our framework explicitly accounts for this shared influence and exploits variation in digital payment infrastructure across states to isolate the effect of e-wallet use. In simple terms, living in a state with better digital payment systems makes it easier to adopt e-wallets, but does not directly affect insurance decisions. This allows us to separate the impact of e-wallet usage from underlying household characteristics and obtain more reliable estimates than conventional models.

Findings
The results show a clear causal relationship. After accounting for shared unobserved characteristics between households that adopt e-wallets and those that purchase insurance, e-wallet adoption increases the likelihood of voluntary health insurance uptake by approximately 1.8 percentage points (Figure 1). These findings align with emerging international evidence. For instance, digital payments such as M-Pesa in Kenya have helped households manage health shocks (Jack and Suri 2014). Moreover, in China, digital financial inclusion is associated with increased participation in commercial medical insurance and improved household financial resilience (Du et al. 2024, Liao and Du 2024, Hu et al. 2022). India, with its extensive digital ecosystem and relatively thin private insurance market, offers a unique setting to examine these dynamics.

The study also shed light on important inequalities in digital payment adoption. The findings suggest that the likelihood of e-wallet adoption is significantly lower among Scheduled Tribe (ST) and Scheduled Caste (SC) households, female-headed households, rural households, larger households, and households in the lower consumption category.

These patterns reflect broader digital divides in access to infrastructure, smartphones, connectivity, and digital literacy. Because digital adoption is an important predictor of health insurance uptake, these inequalities reinforce existing disparities in financial protection against health shocks. Notably, once ST households adopt digital payments, they are more likely to purchase health insurance than other social groups.

Mechanism
A significant contribution of the study is its examination of the mechanisms linking digital payments to insurance uptake. The first mechanism relates to financial knowledge and engagement. Although the survey does not directly measure financial literacy, we use enrolment in the Pradhan Mantri Suraksha Bima Yojana (PMSBY) as a proxy. It is a low-premium accidental insurance product that acts as a proxy for financial literacy. We find that e-wallet adopters are more likely to enrol in PMSBY, indicating that digital platforms expose households to insurance products through intuitive interfaces, repeated nudges, and simplified onboarding. This aligns with behavioural economics research showing that access, convenience, and behavioural cues can significantly influence financial decisions (Thaler and Sunstein 2008).

The second mechanism the study identifies concerns households' resilience to health shocks. We find that the likelihood of borrowing for medical treatment is lower for those who adopt e-wallets. This finding suggests that digital payments enable better health expense management, encourage modest savings, or facilitate quicker access to formal borrowing when needed. This finding mirrors results from previous work showing that digital financial tools can reduce reliance on high-cost informal credit and enhance coping capacity during crises (Aker et al. 2016, Suri and Jack 2016).

A third mechanism operates through the social interaction channel. E-wallets are commonly used for small, frequent peer-to-peer transactions, such as sending money to relatives, splitting bills with friends, or contributing to social events. These transactions indicate stronger interpersonal financial linkages. Since insurance purchasing decisions are often influenced by social learning and peer effects, greater digital interaction may facilitate information sharing about insurance benefits, premiums, claim procedures, and real-life experiences. Studies in other contexts have highlighted the importance of social networks in insurance adoption (Georgarakos and Pasini 2011, Lin et al. 2017). The Indian evidence here is consistent with these observations.

The study also highlights demographic and economic patterns best captured by ‘non-linear estimation’. E-wallet adoption is most common among younger households, stable through middle age, and declines among older households. Health insurance uptake, on the other hand, increases with age. Education positively affects both e-wallet adoption and insurance participation; however, the effect plateaus at higher levels. Consumption expenditure is also strongly correlated with both outcomes, reflecting the important role of economic well-being in shaping access to digital tools and formal health protection.

Taken together, these patterns reveal a broader story. Digital payment adoption may act as a critical catalyst to building trust in formal financial systems. As households become more comfortable with digital interfaces, transaction histories, and financial platforms, they may also become more open to adopting formal insurance products. India's rapid expansion of digital public infrastructure, therefore, offers an opportunity to simultaneously strengthen financial inclusion and health security.

Policy implications
The policy implications are clear. First, digital financial inclusion should be considered an integral part of India's health protection strategy.

As households adopt digital payments such as wallets, they are not only gaining access to an efficient payment tool but also engaging in behaviours that make them more receptive to insurance markets. Second, embedding insurance nudges within digital payment platforms through reminders, simplified enrolment processes, renewal prompts, and micro-insurance offerings could significantly expand health insurance uptake. Given the scale of UPI and wallet usage, even small improvements in conversion could have large aggregate benefits. Third, bridging digital divides is essential to reducing health inequalities. For example, targeted digital literacy initiatives for rural areas, SC/ST communities, and women-headed households could reduce the double disadvantage faced by these groups. Fourth, partnerships between fintech firms and insurers can help design flexible, low-premium products aligned with the needs of informal-sector households. Finally, leveraging community networks, such as self-help groups, can help disseminate both digital and insurance literacy among underserved populations.

Authors: Prof. Reshmi Sengupta, Faculty of Economics, FLAME University and Prof. Debasis Rooj, Faculty of Economics, FLAME University.