Reasonable and Customary Clause in Health Insurance: How to Stay One Step Ahead of Billing Disputes

If you ever had a hospital bill partly reimbursed despite being insured, it is likely you have bumped into a clause buried in your health policy called ‘reasonable and customary charges’. This is not a term most people pay attention to when they buy insurance, but it can play a big role in how much your insurer actually pays when you need to make a claim.

So, What Does This Clause Mean?

In simple terms, insurers agree to pay for medical expenses considered ‘reasonable’ and ‘customary’, such as costs typical for that treatment in a similar hospital. The idea is to prevent overbilling or unnecessary procedures just because a patient is covered.

Suppose surgery costs Rs 3 lakh in most comparable hospitals, but the hospital you go to charges Rs 4 lakh. Your insurer may limit reimbursement to Rs 2 lakh. The rest? You either pay it, or negotiate with the hospital.

This clause is basically meant to protect the insurance system from inflated billing, but in practice, it can leave policyholders feeling stuck, especially when they assume their policy would cover the full amount.

When Do These Issues Typically Arise?

The trouble usually begins during one of two situations: planned hospitalisations or emergencies.

For planned procedures, insurers review the estimate during pre-authorisation. If the hospital’s rates seem higher than what is typical, they inform you, often in writing, saying they will only cover up to a certain amount. You then have the option to negotiate with the hospital or look for another provider.

In emergencies, you don’t get enough time for back-and-forth. The insurer might still try to bargain with the hospital. If that fails, they will pay what they consider fair, and the rest becomes your responsibility. You will get a formal claim settlement letter explaining the decision. This letter is important, since it is your proof if you want to dispute the insurer’s assessment later.

Can You Avoid These Situations?

As a patient and an insurance policyholder, you can’t control hospital pricing. According to Pankaj Nawani, chief executive officer of CarePal Secure, you can take the following steps that would minimise your chances of being caught off guard:

1) Stick to network hospitals

If you can, go to a hospital that is part of your insurer’s network. These hospitals have pre-agreed rates, which makes the billing process smoother and more predictable. It also means fewer surprises for you.

2) Get a cost estimate ahead of time

For any planned treatment, always ask the hospital for a detailed estimate. Share this with your insurer early and if they have a problem with it, you will know in advance. This way, you can either work it out or look at other options.

3) Know what your policy actually covers

Many billing disputes happen because the patient assumes ‘everything is covered’. But policies often have caps on room rent, exclusions for certain charges, or limits on how much can be claimed for specific procedures.

Before a procedure, make sure to ask the hospital to confirm that their charges match your policy’s terms. For this, you can also try getting help from someone who knows the system. If you have an experienced insurance advisor or agent, involve them. They can help interpret the policy, talk to the insurer, or assist in negotiations if things get complicated.

4) Don’t let your cover fall behind medical inflation

Treatment costs have changed dramatically over the past decade. If you haven’t reviewed or upgraded your policy in a while, you may be underinsured without even realising it. Check whether your sum insured and sub-limits are keeping up with current medical expenses.

What If You Still End Up With a Dispute?

If your insurer pays less than expected under the “reasonable and customary” clause, you can ask for a written explanation. That claim settlement letter is your first tool for escalation. If needed, you can approach the insurance ombudsman or take the matter to consumer court.

Billing practices vary widely across hospitals. What is “reasonable” in one city or facility might not be in another. Unfortunately, there’s no uniform benchmark, and that’s where the friction begins.

Understanding this clause does not eliminate the problem altogether, but it does help you stay better prepared. When it comes to health insurance, it’s not always just about whether you’re covered; it is about how much of your bill your insurer agrees is reasonable to cover.