The programme called the Vajpayee Arogyashree Scheme (VAS) - funded by the World Bank Group and implemented by the Karnataka government - was evaluated led by Neeraj Sood, professor and director of research at the University of South Carolina's Schaeffer Center for Health Policy and Economics.
The evaluation, including more than 82,000 households, found that the risk of dying from conditions covered by the insurance dropped by 64 percent for residents with the insurance.
Out-of-pocket health expenditures for hospitalisation dropped by 60 percent due to the covered conditions.
"This World Bank study clearly shows how this programme benefits the health of the poor in Karnataka," said U.T. Khader, minister of state for health and family welfare in Karnataka.
The study compared the health outcomes of roughly 45,000 households from villages that were covered by the insurance to roughly 37,000 households from villages that were not covered by the programme.
Since the programme was phased, it covered poor households in the northern part of Karnataka in the first phase before expanding to the rest of the state, the study pointed out.
The free insurance covered specific high-impact medical conditions such as heart disease and cancer, which poor residents often die from because they are unable to pay for the necessary expensive treatments.
Some of the unique features of the VAS programme includes free tertiary care at both private and public hospitals empanelled by VAS for BPL families with little or no access to tertiary care; automatic enrolment of all BPL families with no annual premiums, user fees or co-payments; and health camps in rural areas by empanelled hospitals.
"The results of this study are important to India as it makes choices on how to make progress towards universal health coverage," said Onno Ruhl, country director of World Bank Group for India.
According to Sood, the study shows that public policy can play a strong role in reducing disparities in health due to socio-economic status.
"In villages without insurance, the poor had much higher mortality than the rich, but such disparities were completely eliminated in villages with insurance coverage," he concluded.
The evaluation was published in the leading global health journal The BMJ.