If your health insurance policy has a hospital room rent limit, it most likely includes a Proportionate Deduction clause.
Let’s understand what this clause means and how it impacts your insurance claims.
What is the Proportionate Deduction Clause?
In most hospitals, especially large corporate ones, charges such as nursing fees, doctor consultation charges, procedure or surgery fees, and package-based procedure costs are linked to the hospital room category.
Simply put, the higher the room category, the higher these charges tend to be.
In insurance terminology these costs are called “Associated Medical Expenses.”
If you choose a Hospital Room category higher than the one eligible under your policy, the insurer may reduce the reimbursement for associated medical expenses in proportion to your room rent eligibility limit.
IRDAI Clarification (2020 Circular)
In 2020, the Insurance Regulatory and Development Authority of India (IRDAI) issued a circular to address unfair deductions being made by insurers under this clause.
The circular clarified that the following expenses cannot be treated as Associated Medical Expenses and hence should not be subject to proportionate deduction:
- Cost of pharmacy and consumables
- Cost of implants and medical devices
- Cost of diagnostics
Reason being these charges are fixed irrespective of room category you opt in a hospital .
Example
Suppose you have a ₹5 lakh health insurance policy with a room rent limit of 1% of the sum insured, meaning you are eligible for a room costing up to ₹5,000 per day.
If you choose a room costing ₹10,000 per day, the insurer may apply proportionate deduction on associated charges.
Hospital bill may appear like this:
| Particulars | Total Charges (₹) | Proportionate Deduction (₹) | Payable Amount (₹) |
| Doctor Consultation | 6,000 | 3,000 | 3,000 |
| Surgeon Charges | 50,000 | 25,000 | 25,000 |
| Anesthetist Charges | 5,000 | 2,500 | 2,500 |
| Medicine Charges | 10,000 | 0 | 10,000 |
| Implant Charges | 20,000 | 0 | 20,000 |
| Diagnostic Charges | 20,000 | 0 | 20,000 |
| Total | 1,11,000 | 30,500 | 80,500 |
In this example, ₹30,500 is deducted simply because you opted for a higher room category than your policy allows.
Important IRDAI Guidelines
The 2020 IRDAI circular also stated that proportionate deduction should not be applied in hospitals where billing is not linked to room category for example, smaller nursing homes or any other hospital that follow standard billing irrespective of room type.
Hence, before admission, it’s wise to ask the hospital whether their billing varies by room category.
If it doesn’t, and your insurer still applies proportionate deductions, you should raise a dispute with your insurance company or TPA, as such deductions are not permissible.
ICU Charges Exception
IRDAI has also clearly mentioned that insurers are not allowed to apply proportionate deductions on ICU charges, as there are no different categories of ICU rooms.
If you notice such deductions in your claim for ICU expenses, you should immediately take up the issue with your insurer or TPA.
Conclusion
By understanding how the Proportionate Deduction clause works and being aware of IRDAI’s guidelines, you can prevent unnecessary deductions and ensure that you receive the maximum possible claim amount under your health insurance policy.
