Reasonable and Customary charges

Rohit has an insurance policy with a 10 lakh cover limit from ABC Insurance Company. The agent assured him that there are no disease specific limits in the policy. However, when Rohit underwent cataract surgery, which cost Rs. 90,000, the insurance only paid Rs. 50,000. They told Rohit that the reasonable and customary charges for cataract surgery in Delhi are Rs. 50,000 only, and he would have to pay the extra Rs. 40,000 himself. You might have faced the similar experience for a different disease from a different insurance company.

What is Reasonable and Customary charges?

Insurance companies clearly mention the definition of ‘Reasonable and Customary charges’ in their health insurance products. This definition is standard and is recommended by the insurance regulator IRDAI(Insurance Regulatory and Development Authority of India.).

“Reasonable and Customary charges means the charges for services or supplies, which are the standard charges for the specific provider and consistent with the prevailing charges in the geographical area for identical or similar services, taking into account the nature of the illness / injury involved”

Master Circular on Standardization of Health Insurance Products (22nd July, 2020), IRDAI

This standard definition which you can find in every health insurance policy, implies that the insurance company will not cover the total cost of treatment if it exceeds the average cost for similar treatments in that region and the type of hospital. Instead, the insurance will pay up to the average cost of treatment for that particular disease in that city and type of hospital.

Services in the above definition refer to medical services provided by healthcare professionals, such as consultation, diagnosis, and treatment. Supplies include medical items like medications, bandages, surgical instruments, diagnostic tests, and any others used during medical treatment

Average charges or Prevailing for services and supplies are determined by three main factors:

• Hospital: The standard charges that a hospital has for its services or supplies
• Geography: The common charges for the same or similar services or supplies in the geographical area where the treatment is taken.
• Nature of Medical Issue: The charges take into account the complexity and type of the illness or injury being treated, as some conditions may require more intensive and expensive care than others.

How these factors affect the cost of treatment can be understood better with an example: Treatment for cataracts will cost more in metropolitan cities like Delhi than in smaller towns across India. Even within Delhi, it will be more expensive in large corporate hospitals than in smaller eye clinics.

Insurance companies take these factors into account and determine the city-wise or geography-wise average treatment costs for commonly occurring diseases and treatment procedures, often referred to as UCR rates (Usual, Customary, and Reasonable charges). If a hospital has inflated treatment costs in its bill, then insurance companies apply the Reasonable and Customary charges and deduct the amount that exceeds the determined average cost for the treatment of that particular disease.

Why do insurance companies have Reasonable and Customary charges?

Purpose of insurance companies is to provide that much treatment cost to you which you would have paid to hospital otherwise without insurance.

Hospitals tend to overcharge for the same treatment when you have an insurance policy, and you may not notice this overcharging due to a lack of knowledge or awareness. But if you don’t have health insurance, you will likely find a hospital that charges reasonably for the treatment or will question any excessive bills. Insurance policies include this clause to prevent both the insured and the hospitals from taking advantage of insurance.

Are ‘Reasonable and Customary charges’ applied to all claims?

Short answer is NO.

Generally, the ‘Reasonable and Customary charges’ clause is applied on reimbursement claims. In a reimbursement claim process, you pay for your treatment upfront and then submit the necessary documents to your insurance company, which reimburses you for the expenses.

When you receive treatment through cashless mode, the insurance company directly settles the bill with the hospital based on pre-negotiated rates. This way, you avoid the hassle of dealing with payments and reimbursements. Insurance companies have agreements with hospitals on these treatment rates, which consider the Usual, Customary, and Reasonable (UCR) charges. This means you are billed according to these agreed rates, sparing you from concerns about Reasonable and Customary charges.

Are there policies without “usual customary and reasonable charges” clause?

It is impossible to find a health insurance policy which do not have this clause. As I have explained earlier, this clause is basically to prevent ‘insurance’ abuse therefore, all health insurance policies have this clause.

Instead, you should be aware of this clause when making a claim under your health insurance policy and take the necessary steps to ensure it doesn’t apply.

• Chose a well known reputed hospital for your treatment, or consult insurance company
• Always try to take treatment through cashless mode.

How to challenge ‘unreasonable deductions’ by insurance company under this clause?

The claim settlement process of insurance companies is not without flaws. There are instances where an insurance company might deduct an excessive amount from a claim under the pretext of this clause. You can question such deductions through the insurance company’s grievance cell. You can also write to IRDAI on the Bima Bharosa portal and raise your concern. Finally, if you are not satisfied with the insurance company’s redressal, you can approach the consumer forum.

I hope this post has cleared all your confusions regarding this clause. If you still have any questions about this clause, please write them in the comments. Thanks!