Be Aware of the ‘Reasonable and Customary’ Clause in your Health Insurance Policy

Think of this situation. Your doctor tells you that you need a minor surgery. Since it is a planned procedure, you get an estimate from the billing section, just to get an idea. You’re surprised looking at how costly healthcare expenses have become. Also, your doctor friend remarks that while your treating doctor is reputable, this hospital is overcharging you. He gives you a rough estimate from another hospital nearby, and you see that the costs you’re going to incur are 30-40 per cent more. 

Despite all the red flags - you’re not very worried as you invested in a good health insurance plan with great coverage. So, you go ahead, get admitted and get the procedure done. All goes well, and after a few days of recovery, you head over to the billing desk on your way out, to settle minor payments that might not be covered, only to get the shock of your life! 

The hospital hands you a mighty bill amount to be settled, as it turns out that a majority of your charges were not paid by the insurer! You call the insurer to give them a piece of your mind and demand that they rectify the mistake. They have three little words for you: “Reasonable & Customary Clause” and there’s nothing that you can do other than fume and pay it out of your own pocket. 

But, what are these Reasonable and Customary Charges?

In India, there is no regulation that places a cap on how much a hospital can charge for a particular service. Therefore, a hospital can, in theory, charge as much as they please for a particular treatment. In fact, they can even charge different people differently for the same treatment - and likely give you a different, more expensive rate-card if you tell them that you’ve got insurance. 

So, how can the insurer protect itself from having to pay unreasonable and excessive hospital bills? 

Enter the reasonable and customary clause. 

Here’s how it works. Insurance companies protect themselves from being overcharged by hospitals. They have enough data and information about the rates chargeable for a standard treatment in a particular graded hospital in a certain geography. If your hospital charges significantly more than other hospitals in that same geographical area for a particular treatment, the insurer can refuse to pay the overcharged amount and pay only the standard rates charged by similar graded hospitals in the same area, under the ‘reasonable and customary’ condition in every health insurance policy. 

Let’s understand this better with the help of an example. 

Dinesh, 45 years old, must undergo heart surgery next month. He visits a hospital where he finds out that his surgery will cost him INR 5 lakhs. The insurance company determines that there is overbilling, the reasonable charges for the surgery shouldn’t be more than INR 3 lakhs, based on their research of the same procedure across multiple similar quality hospitals in the area. In this case, the insurer will pay only the reasonable charge of Rs. 3 Lakhs, and Dinesh will have to foot the remainder of the amount of INR 2 lakhs. 

How can you protect yourself from deductions on account of the Reasonable & Customary clause?

In cases of planned treatment, it's best to check the charges of the hospital before you get admitted. The hospital will give you an estimate of what charges they would apply depending on the type of room you select. When you have this breakup available, you could make some quick calls to check what similar grade hospitals in the surrounding area will charge. 

If there is a difference of only 10-20% then it's absolutely fine. But if the difference is much higher - say around 40-60%, then these are the options you would have: 

1. Negotiate with the first hospital. Tell them about the standard charges for similar hospitals nearby. Try to talk to the first hospital and ask for a revision in the estimate. If this works, it’ll be better for you as your treating doctor is most likely here - and that might give you some additional comfort. 
2. Look for an alternate hospital of a similar grade - that you might also be comfortable in, and get treated for a reasonable cost there. 
3. In case you don’t get the discount, but you want to be treated in this particular hospital, then you have to be prepared to pay the balance amount, out of your pocket. 

For example, if you are planning to undergo treatment in Saifee Hospital in Mumbai, you can compare the charges for your treatment with a hospital that has an equivalent grade, say Jaslok Hospital - again in Mumbai. If you find out that Saifee Hospital is charging way more than Jaslok Hospital, you could either  ask Saifee Hospital to revise its estimates or get admitted to Jaslok Hospital for the treatment. Alternatively,  one can decide to pay the excess amount from your pocket if the hospital is a strict preference

What’s the Beshak recommendation?

Choose your hospital wisely! 

You don’t have to choose the fanciest hospital available to you, just because you have insurance - and think someone else is paying for it. You must definitely look for a good hospital that meets your criteria but be prudent about it. Do your homework well and compare charges, especially if it’s a planned hospitalisation. 

In fact, it is recommended that you deal with hospitals the same way you would deal with them if you didn’t have insurance. Question every cost, check with doctor friends, take estimates from multiple hospitals, and be willing to shift to a more reasonable place, if things don’t work out. 

However, if you feel uncomfortable moving to a different hospital - be prepared for the eventuality that you might end up footing the bill if the insurance does cover the cost for any reason - especially for the reason of ‘reasonable and customary charges’. 

Want more?

We recently did an Ask-Me-Anything (AMA) session on our Telegram Channel (👉 t.me/BeshakIn), with several health insurance buyers and financial advisors. During this conversation our Founder, Mahavir Chopra answered questions with regards to health insurance deductions, reasonable and customary charges, getting health insurance for new-born babies, senior citizen health insurance, and more. 

You can find a recording of the session below.