The National Health Insurance Scheme (Rashtriya Swasthya Bima Yojana, RSBY) aims to improve poor people’s access to quality health care in India. This paper looks at the implementation of the scheme in Karnataka, drawing on a large survey of eligible households and interviews with empanelled hospitals in the state. Six months after initiation, an impressive 85% of eligible households in the sample were aware of the scheme, and 68% had been enrolled. However, the scheme was hardly operational and utilisation was virtually zero. A large proportion of beneficiaries were yet to receive their cards, and many did not know how and where to obtain treatment under the scheme. Moreover, hospitals were not ready to treat RSBY patients. Surveyed hospitals complained of a lack of training and delays in the reimbursement of their expenses. Many were refusing to treat patients under the scheme until the issues were resolved, and others were asking cardholders to pay cash. As is typical for the implementation of a government scheme, many of the problems discussed can be related to a misalignment of incentives.