Health Insurance claims: 6 common reasons insurers deduct money from your settlement

Health insurance claim settlement letters often contain deductions that can leave policyholders confused. Understanding the terminology used by insurers and questioning unclear deductions can help consumers understand how their claim was evaluated and whether the amount deducted is justified.

Reasonable and customary charges

Reasonable and customary (R&C) charges mean an insurer will pay only what it considers a standard or reasonable amount for a particular treatment in a specific location. Any amount charged above this benchmark may be excluded from the claim. Such deductions are more frequently seen in reimbursement claims and at non-network hospitals, where treatment costs have not been pre-negotiated with the insurer. However, R&C deductions can also occur in cashless claims, especially for high-value treatments.

A higher sum insured does not necessarily mean that every hospital expense will be covered. Insurance consultants say insurers can use R&C clauses to restrict claim payouts.

Although the disagreement may primarily be between the hospital and insurer, the policyholder could ultimately be asked to pay the difference. Experts recommend obtaining a detailed, itemised hospital bill and, where possible, a written explanation for individual charges. For specialised procedures, patients can also ask the treating doctor or hospital whether the charges are in line with prevailing rates.

Policyholders should also ask the insurer to disclose the benchmark or information used to decide that a particular charge was unreasonable. Such documentation can be useful if the matter is later taken to the Insurance Ombudsman or a consumer court.

MoU discount

An MoU discount refers to a reduction in hospital charges agreed upon by the hospital and insurer under a memorandum of understanding. It is essentially a contractual discount negotiated between the two parties.

If the claim settlement letter clearly states that the discount cannot be recovered from the policyholder, the hospital should not transfer that amount to the patient.

No active line of treatment

Insurers may also make deductions if they believe that hospitalisation was not medically necessary for the entire period because active treatment was not being provided.

Health insurance is designed primarily to cover the treatment of an illness. If medical records indicate that a patient was admitted mainly for diagnostic investigations or observation, without active treatment, the insurer may question the claim, insurance experts said.

However, undergoing diagnostic tests or remaining under observation does not by itself make a claim inadmissible. The circumstances and medical necessity of the hospitalisation also need to be considered.

Experimental or investigational treatment

An insurer can reject or restrict a claim if the treatment is classified as experimental or investigational under the terms of the policy. This may include a medicine, procedure or technology whose safety or effectiveness has not been adequately established or which is not recognised as standard treatment for the particular illness.

For example, a medicine approved for one disease could be prescribed for another condition for which its effectiveness has not been established. Depending on the policy wording and the medical circumstances, the insurer may classify such use as investigational.

If a claim is rejected for this reason, policyholders should ask the insurer to identify the specific exclusion clause and explain the medical basis for classifying the treatment as experimental or investigational.

Consumables

Consumables are disposable medical products that are used during treatment and then discarded. These can include gloves, syringes, gauze, surgical tape, IV sets and other single-use medical supplies.

Whether these expenses are payable depends on the policy. They may be excluded unless the policy specifically provides coverage or the policyholder has purchased an add-on covering consumables.

The standardised list issued by the Insurance Regulatory and Development Authority of India (IRDAI) includes several non-medical and consumable expenses. However, policyholders should examine their individual policy wording instead of assuming that every consumable appearing on a hospital bill is automatically excluded.

Liability could not be ascertained

When an insurer says that “liability could not be ascertained”, it generally means that it does not have sufficient information to determine whether it is responsible for paying the claim or how much it should pay.

For example, a patient may be admitted with chest pain, but the medical records may only document cardiac investigations without clearly establishing the final diagnosis or treatment. In such a situation, the insurer may state that liability cannot be determined because the available medical documentation is inadequate.

The policyholder can ask the insurer to clearly list the documents or information required to establish liability. Once those documents are submitted, the policyholder can request that the claim be reviewed again.

Room category and proportionate deductions

Health insurance policies generally specify the room category a policyholder is eligible for, such as a twin-sharing room or a single private room. Choosing a room that is more expensive than the eligible category can result in proportionate deductions, depending on the policy’s terms and conditions.

Policyholders should therefore check their room-rent eligibility before hospital admission, particularly when a costly or prolonged hospitalisation is expected. Knowing the permitted room category in advance can help avoid unexpected deductions from the final claim settlement.