A reasonable and customary clause in health insurance is a policy condition that helps insurers decide how much they will pay for a particular medical procedure or treatment.
When you make a health insurance claim, the insurance provider will assess the bill provided by your hospital against the usual cost of the same treatment in your area. In case your hospital charges more, the insurer may pay only part of the bill, and you may have to pay the rest.
When Can the Reasonable and Customary Clause Reduce Your Health Insurance Claim?
The clause can reduce your health insurance claim if your hospital bill is significantly higher than the normal charge for that treatment. It is worth noting that the clause will only apply to the excess amount charged, not automatically to the entire claim.
The table below explains when this clause may reduce your health insurance claim.
| Bill situation | How the clause may apply | What you may pay |
|---|---|---|
| A procedure charge is much higher than those of comparable hospitals in the same city | The insurer may allow only the comparable market rate. | The difference between the hospital charge and the allowed amount. |
| A doctor, surgeon, or anaesthetist's fee is above the usual local range | The insurer may cap that professional fee at a reasonable amount. | The excess professional fee. |
| A medical item or consumable is charged above the prevailing rate | The insurer may approve the prevailing rate, subject to policy terms. | The excess item cost, plus any separately excluded non-medical item. |
| A hospital package is higher than the insurer's assessed customary charge | The insurer may approve only the customary package amount for the procedure. | The package difference, if the hospital does not waive it. |
How Do Health Insurers Decide the Reasonable and Customary Amount?
Insurers don't use a single fixed amount for every treatment. They look at a few factors before deciding what they consider to be a reasonable and customary charge.
| Factor checked | What it means | Example of why it matters |
|---|---|---|
| Geographical area | The comparison is made with charges in the same or similar locality. | A hospital charge in Mumbai may not be compared with a small-town charge without context. |
| Type of treatment | The comparison should match the actual procedure, service, or medical item. | A day-care cataract package should not be treated the same as a more complex eye surgery. |
| Type of provider | The insurer may consider whether the hospital is comparable in facilities and category. | A tertiary-care hospital may have a different charge level from a small nursing home. |
| Usual charge of the provider | The insurer may check whether the provider's own charge is standard or unusually high. | If one charge is much higher than usual, the insurer may question it even if the rest of the bill is accepted. |
| Policy terms | The clause works along with exclusions, sub-limits, co-pay, deductibles, and room rent limits. | The same hospital charge may be affected by more than one policy condition. |
How is the Reasonable and Customary Claim Amount Calculated?
Let's look at a simple example to see how this clause works.
| Claim item | Hospital bill | Amount approved by the insurer | Difference you may have to pay |
|---|---|---|---|
| Surgery package | Rs 55,000 | Rs 42,000 | Rs 13,000 |
| Medicines and diagnostic tests | Rs 18,000 | Rs 18,000 | Rs 0 |
| Total | Rs 73,000 | Rs 60,000 | Rs 13,000 |
In this case, the insurance company considers Rs 42,000 an appropriate cost for surgery, rather than the Rs 55,000 charged by the hospital. Since the treatment and tests are fully covered, the only fee negotiated is the cost of the surgery. This means that the insurance company will pay Rs 60,000 while you will have to pay Rs 13,000 from your pocket.
Reasonable and Customary Clause vs Co-pay, Sub-limits, and Deductibles
Reasonable and customary clause differs from the room rent limit, sub-limit, deductible, and co-pay in health insurance. Each of these conditions can stand alone, which means you should find out which one caused a deduction in the claim settlement letter.
| Policy condition | What it limits | How the deduction is calculated |
|---|---|---|
| Reasonable and customary clause | Charges that are higher than usual rates for comparable services. | The insurer allows the assessed reasonable amount and disallows the excess. |
| Room rent limit | The hospital room category or daily room rent payable under the policy. | The insurer applies the stated room rent limit and may also apply proportionate deductions if the policy says so. |
| Sub-limit | A specific treatment, disease, procedure, or benefit. | The insurer pays only up to the stated cap for that item. |
| Co-pay | A fixed share of the admissible claim. | You pay the stated percentage of the admissible amount, such as 10% if the policy has a 10% co-pay. |
| Deductible | An amount you must pay before insurance starts paying. | The insurance company deducts the deductible from the admissible claim according to the policy. |
Does Cashless Health Insurance Prevent Reasonable and Customary Deductions?
No. By opting for a cashless health insurance claim, you do not necessarily eliminate the possibility of making deductions under the reasonable and customary clause. If the hospital demands payment that exceeds the normal cost for such treatment in that locality, the insurance company could make deductions while settling the claims.
It would be wise to get the pre-authorisation and the cost estimates for the treatment prior to undergoing the procedure, especially if it is not an emergency situation. However, in the case of emergency admission, the deduction will have to be calculated after claim settlement.
Key Takeaways
The reasonable and customary clause allows your insurer to reimburse only the amount it considers to be the standard cost for a similar treatment in your area.
The reasonable and customary clause is not the same as the policy provisions, such as copay, deductible, sub-limit, and room rent limit. However, it should be noted that more than one condition might affect the same claim.
If you have plans to be admitted to the hospital, ask for cost estimates in advance and complete the pre-authorisation process.
Frequently asked questions
No. It does not depend on a fixed percentage; rather, it involves comparing the costs of services charged by your hospital with those of treatment in your region.
Yes. It can be used in a health insurance reimbursement claim since the insurance company evaluates the total cost from the hospital after you have paid the bill. In case there are some charges that exceed the reasonable and customary amount, only the approved amount will be reimbursed.
Yes. It can be applied to cashless insurance claims because pre-authorisation only helps identify potential deductions in advance.
One way to contest the deduction is to request the clause used in the deduction, the amount billed, the approved reasonable amount, and the basis of comparison.
About the authors
Neviya Laishram
Written by · Senior Editor – Health, Life and Group Health Insurance Content at ACKOWith a journalism background, she brings 9 years of experience in strategising and editing health, life, and group health insurance content. Having written for magazines and digital publications, she combines research and editorial expertise to create credible, useful content for readers.
Dr Nitin Kumar Gupta
Reviewed by · SVP – Health Underwriting & Claims at ACKO General InsuranceWith 20+ years of experience in digital transformation and growth, he is a leader specialising in health, life, accident, and disability insurance. Backed by an MBBS degree and insurance designations (FLMI, FALU, FLHC, ACS, ARA), he combines expertise with leadership.
