What is Reasonable and Customary Clause in Health Insurance?

Reasonable and Customary charges refer to the usual costs associated with any medical procedure or item in a given location and insurance policies have a clause stating that insurance companies are only liable to pay for costs only if they are deemed “reasonable and customary”.

In other words, if the cost of a medical procedure is not in line with what similar providers in that area charge for that specific illness or injury, then they can simply pay what is deemed reasonable and refuse to pay the rest.

Is the Reasonable And Customary Clause legal?

Yes. According to IRDA regulations, insurance companies can refuse to pay any costs that are deemed unreasonable if they can prove that the hospital has overbilled a customer.

How Insurers Decide What is “Reasonable And Customary”

1. 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.
2. Alongside the rate card, there are also well-established rules on what kind of treatments are recommended, once a diagnosis is made. If the treatment protocol deviates significantly from the established procedure, then the insurance companies can claim that these charges are not customary
3. If hospitals include needless items and employ multiple doctors for a routine procedure, then insurance companies can once again claim that the costs were excessive.

Here’s a simple example:

Let’s suppose an insured customer in Bangalore visits a hospital to have their cataracts treated.

The cost of cataract surgery in Bangalore can vary from ₹30,000– ₹65,000 per eye. The average cost is around ₹60,000 per eye.

Now, if the hospital charges ₹1.1 lakh for the procedure and the customer tries to claim this sum from the insurance company, then the insurance company can refuse to pay the full amount of ₹1.1 lakh and pay only ₹60,000 considering the average costs in the area add up to ₹60,000. They can do this by citing the “customary and reasonable charges” clause.

Why Do Insurers Keep a “Reasonable and Customary Charge” Clause?

The “reasonable and customary” clause exists to prevent hospitals from overcharging patients who are insured. When individuals are paying out of pocket, they're more likely to scrutinize the charges.

However, if they believe their insurance will cover it, they may not verify the costs, giving hospitals the opportunity to inflate bills.

So to prevent this from happening, insurance companies inform policyholders that they will only cover costs that are deemed “reasonable and customary.”

Can Insurance Companies Use the “Reasonable and Customary” Clause To Withhold Legitimate Claims?

Yes. Insurance companies often deny legitimate claims citing the “reasonable and customary clause” since they may have reason to believe the bill may be inflated. However, this doesn’t always have to be true.

Example: At Ditto Insurance, we help our customers buy the policy, fill out the application and submit a claim.

So when a client submitted a claim for a cataract operation amounting to ₹90,000, we immediately reached out to the insurance company asking them to approve the request as soon as possible.

The insurance company, however, evaluated the claim and approved only ₹60,000, arguing that this was the "reasonable and customary" cost for such a procedure. This is true considering the fact that the average cost of cataract procedures in Bangalore is in fact around ₹60,000.

However, due to the patient's complex medical history, a more intricate operation was required, and it cost a lot more. So after obtaining a letter from the treating doctor confirming this, we were able to secure the full ₹90,000 from the insurance company.

What Should You Do If An Insurance Company Denies Paying A Claim Citing The “Reasonable And Customary Clause”

If you haven’t yet bought a policy or made a claim, here’s a list of proactive steps you can consider to prevent this from happening-

• Pick a good insurance company
  Some insurance companies are notorious for paying out partial claims. So make sure you pick an insurance company with a good reputation.
  You can use “claim settlement ratio," complaint numbers, and “amount settlement ratio” to decide which insurer is better. Alternatively, you can also go through our list of “best health insurance companies” to make a decision.
• Pick the right advisor or agent
  If your claim is denied or partially reimbursed, you want to make sure you have an agent or an advisor fighting on your behalf.
  When customers buy through Ditto, we make sure we fight for the claims in the event that they’ve been rejected on unreasonable grounds. you can secure your health policy through us by clickin here.
• Choose the right hospital
  Some hospitals have built a reputation for overcharging customers. So it is generally a good practice to avoid these hospitals and pick a provider that has a fair pricing system.
  However, in the case that your claim has already been rejected (or paid our partially) and you want to escalate the matter, here’s what you need to do.
  • If you bought a policy through Ditto Insurance, reach out to our claims support team and we will handle the rest.
  • If you bought the policy elsewhere, then reach out to your agent or the insurance company’s grievance cell and highlight the issue.
  • If they refuse to provide relief, you can raise the issue with the insurance ombudsman. You can find the procedure to lodge a complaint here.

Can The Insurance Ombudsman Provide Relief If The Insurance Company Refuses To Pay Out The Claim Citing The “Reasonable And Customary” Clause?

Yes. There are several instances when the insurance ombudsman has provided relief to policyholders.

Case Study: In the matter of Sh. Mahendra J. Dave v/s The National Insurance Company

The complainant had a Mediclaim Policy with The National Insurance Company and underwent cataract surgeries for both eyes at Malavia Eye Hospital. The total claim was for ₹48,000. The insurance company settled ₹36,000 and deducted ₹12,000, citing the "reasonable and customary” clause.

Unhappy with this, the complainant approached the Insurance Ombudsman for a resolution. The Ombudsman found that some deductions were valid but others weren't. For instance, the insurance company also did not provide rate charts from other hospitals for comparison. So the ombudsman directed the insurance company to pay an additional ₹7,700 to the complainant, on top of what was already paid.

Put simply, the “reasonable and customary” clause is a common term insurance companies throw around when denying a claim. However, if you fully understand what the clause means and you take proactive steps while picking an insurance company and making a claim you will never have to deal with this when you have a medical emergency.

Why Talk to Ditto for Your Health Insurance?

At Ditto, we’ve assisted over 8,00,000 customers with choosing the right insurance policy. Why customers like Abhinav below love us:

• No-Spam & No Salesmen
• Rated 4.9/5 on Google Reviews by 15,000+ happy customers
• Backed by Zerodha
• 100% Free Consultation

You can book a FREE consultation here. Slots are running out, so make sure you book a call or chat over WhatsApp with a Ditto advisor today!

Conclusion

The reasonable and customary clause exists to prevent hospitals from overcharging insured patients, but it can sometimes lead to partial claim payouts even during genuine medical emergencies. That’s why it’s important to choose a comprehensive health insurance policy with strong claim support and a fair claims reputation, not just good-looking features on paper.

Before treatment, try to understand typical procedure costs in your city and keep all medical documents ready in case the insurer questions the bill amount. Most importantly, don’t panic if a claim is partially settled. If the treatment was medically necessary, you can escalate the matter with the insurer, your advisor, or even the insurance ombudsman. Understanding this clause beforehand can help you avoid unpleasant surprises during claims.