Hospitals versus health insurers: Why patients are paying the price

Why patients are caught in the crossfire

The immediate casualty is the cashless facility—a key feature that allows policyholders to get treated without paying upfront. When hospitals suspend cashless services, patients must pay out-of-pocket and later seek reimbursement, a process riddled with delays and deductions. For families facing medical emergencies, this defeats the very purpose of insurance.

The Council of Insurance Ombudsman setup by the ministry of finance reported that in FY24, it has received 31,490 complaints related to health insurance, a 21.7 percent increase from the previous year, marking a surge in such grievances against insurers. While specific data for FY25 is not yet available, the trend indicates a significant rise in health insurance complaints.

Star Health alone logged 13,300 complaints in FY24, over 10,000 of which were claim-related. With medical inflation running at 7–14 percent annually, hospitals argue that stagnant tariffs make quality care unsustainable, while insurers insist on cost control to keep premiums affordable. The delays, service issues, and partial or complete claim rejections are driving policyholders to approach the Ombudsman. Hospitals, which are increasingly acquired by private equity investors at premium valuations, are under pressure to show profits and assure returns to investors, further escalating costs to patients.

What is IRDAI doing?

The Insurance Regulatory and Development Authority of India (IRDAI) has stepped in, reiterating that network hospitals cannot refuse cashless services under existing agreements. A network hospital is a hospital that enters into an agreement with a health insurance company to offer cashless medical treatment to the insured. When an insured gets admitted to a network hospital, the insurance company will directly settle the treatment bill.

It has directed insurers to act against non-compliant hospitals and is monitoring disputes closely.

The regulator’s Health Insurance Master Circular (2024) mandates 100% cashless settlement and one-hour turnaround for pre-authorization, but compliance remains patchy.

IRDAI has also flagged lapses by eight major insurers—including Star Health, Niva Bupa, and Care Health—over delays, wrongful rejections, and unwarranted deductions, signalling possible penalties and refunds.

Is there a way out?

Hospitals and insurers must be transparent in disclosing cost structures; insurers should publish claim settlement data and reasons for deductions. It’s also time to roll out the Clinical Establishments Act – a regulatory mechanism for hospitals and clinics across India. Experts are suggesting a neutral dispute resolution mechanism under IRDAI or a third-party body to prevent unilateral actions like cashless suspensions or other unfair actions like claim rejections and not meeting contractual obligations.

Using technology for faster, automated pre-authorization and settlement also reduces friction. Insurers must ensure their sales agents don't mis-sell insurance. Insurers must ensure policyholders understand their coverage, leading to better decision-making and fewer claim rejections. The policy terms and conditions must be in simple, jargon-free language, disclosing all pre-existing conditions honestly, and making policy documents easily accessible. They should be available in regional languages. On policyholders' side, they have to be upfront in disclosing their medical history and habits.