Imagine undergoing a routine surgery, only to find out later that your insurer did not settle your entire claim. They only paid about half the claim and said the treatment cost exceeded what they consider reasonable. Well, this peculiar response stems from a provision buried deep within health insurance policy documents, and it is called ’The Reasonable and Customary Clause.’
The Reasonable and Customary Clause is an important yet often overlooked part of health insurance policy documents. This clause is designed so that insurers pay what they consider a fair and reasonable cost for medical treatments. This prevents inflated claims that could otherwise increase premium rates for everyone. However, while this clause helps insurers manage expenses, it can sometimes leave you with unexpected rejections.
Understanding how this provision works is essential for anyone looking to avoid unpleasant surprises during the claims process. So, in this article, let’s take a look at exactly that.
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What is the Reasonable and Customary Clause in a Health Insurance Policy?
The reasonable and customary clause limits your insurer’s reimbursement to what they consider fair and appropriate. They use this provision to control costs by determining what is considered ‘reasonable’ based on standard industry rates. The goal is to prevent inflated hospital bills, especially in private or high-end hospitals that may charge above-market prices for the same procedure.
Say you undergo a knee replacement surgery in a metro city where the average cost for the procedure is ₹2.5 lakh. If your hospital charges ₹4 lakhs for the same treatment, your insurer might settle only ₹2.5 lakhs, as it is the reasonable limit. This means you would have to pay the remaining ₹1.5 lakh out of pocket. However, if any complications arise during the surgery and the doctors have proper reasons for additional treatment, the insurer cannot apply this clause.
The reasonable and customary clause primarily applies to reimbursement claims because the insurer will have already set pre-determined rates when you opt for cashless treatments with a network hospital.
How Does the Reasonable and Customary Clause Work?
To determine what’s considered reasonable and customary, insurers evaluate some of these metrics:
- Hospitals usually have a standard rate card associated with well-known procedures. If these rates deviate significantly from the rate cards of other similar hospitals in that geographical area, then insurers can claim that the costs are not reasonable.
- Alongside the rate card, there are well-established rules on what kind of treatments are recommended once a diagnosis is made. If the treatment protocol is significantly different from the established procedure, then the insurance companies can claim that these charges are not customary.
- If hospitals include needless items and employ multiple doctors for a routine procedure, insurance companies can once again claim that the costs were excessive.
Once insurers determine these benchmarks, they compare your claim amount to the reasonable and customary rates when processing claims. Your entire claim will be processed if your hospital’s charges fall within the insurer’s predefined limits. However, if the bill exceeds the limit, the insurer will only reimburse the approved amount, leaving you to pay the difference.
Note: Since insurers use internal data to determine these limits, we cannot exactly say what else goes into or what is excluded in the mix. These limits also differ from insurer to insurer.
Why Do Insurers Use the Reasonable and Customary Clause?
The primary reason insurers implement the reasonable and customary clause is to prevent excessive claim payouts caused by inflated hospital charges. Without this safeguard, insurers risk being overcharged by hospitals, which inflates costs when treating patients with a health insurance policy. By setting limits based on average costs, insurers create a pricing standard that prevents manipulation by one single hospital.
Beyond cost control, the clause also ensures fair and uniform coverage. By defining reasonable costs, insurers maintain consistency in claim settlements, reducing discrepancies between hospitals and regions. While this helps insurers manage expenses and stabilize premiums, it does place some responsibility on policyholders to understand their insurer’s pricing benchmarks.
How to Avoid Out-of-Pocket Expenses Due to The Reasonable and Customary Clause
One of the most effective strategies is to choose a hospital on your insurer’s network. These facilities have pre-negotiated rates that the insurer considers reasonable, reducing the likelihood of your claim being rejected. Opting for cashless treatment at these hospitals ensures your bill will be processed without any surprises. However, what do you do if there’s a dispute even after this?
How to Handle Disputes Related to the Reasonable and Customary Clause
Disagreements often arise when hospitals argue that higher costs are justified based on enhanced care, specialized equipment, or better facilities.
If your claim is reduced due to the Reasonable and Customary Clause, there are steps you can take to dispute the decision. Start by collecting detailed documentation, including itemized hospital bills and supporting medical records.
You can also collect estimates from alternative hospitals to strengthen your case before presenting the evidence to your insurer’s grievance cell for a reassessment. However, if the insurer continues to reject your claim, you can escalate the matter to the IRDAI.
All of this probably makes you wonder whether this clause is even legal. Well, according to IRDAI regulations, insurance companies can refuse to pay any costs that are deemed unreasonable if they can prove that the hospital has overbilled a customer.
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Conclusion
The Reasonable and Customary Clause is an important part of health insurance that controls inflated claims while ensuring fair pricing. Although it is designed to protect insurers from excessive payouts, this clause can sometimes leave policyholders facing unexpected expenses. This clause exists in most policies that we have come across at Ditto Insurance, so it is not possible to avoid it. Fortunately, by understanding how insurers define reasonable costs, you can minimize the risk of claim rejections.
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