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 (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.

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.

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.

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.