Health insurance: How ‘unreasonable’ hospital charges and undisclosed existing diseases can lead to claim rejection

Non-disclosure of pre-existing diseases, reasonable charges clause often contribute to claim rejection

Health insurance-related disputes have been significantly higher than complaints linked to life and general insurance for the last many years.

In fact, health insurance complaints rose 22 percent, from 25,873 in 2022-23 to 31,490 in 2023-24. In contrast, life insurance grievances declined nearly 18 percent while general insurance disputes dipped 12 percent during the same period.

Claim rejections top the list of grievances

According to an Insurance Ombudsman annual report, 95 percent of health insurance complaints pertain to partial or complete rejection of claims. And claim denial or partial settlement on the grounds of breach of reasonability clause and non-disclosure of pre-existing illnesses figure among the most common causes of disputes between health insurers and policyholders.

“Claims are often denied using reasonability and customary charges clause. Customers should be educated on the terms and conditions of the policy. It is of utmost importance to declare true and correct facts in health declarations. Disclosing pre-existing diseases or conditions, past ailments and treatment will prevent rejection of claims,” the report notes.

Also read: Why policyholders are unhappy with health insurance companies

The grey area around the reasonability clause

Typically, the clause in your policy will state that ‘reasonable and customary charges’ mean that the charges for treatment are the standard charges for the specific provider and are in line with the prevalent charges in the geographical area for similar quality and services.

Insurers base their decisions on the data they may have collected over time. However, policyholders have no way of ascertaining whether the hospitals’ charge structures are fair. There is no regulator-mandated clear definition of what constitutes ‘reasonability’ and this ambiguity often leads to heartburn for policyholders.

After all, what is reasonable for surgeries or any other treatment could vary as per the patient’s overall health condition, hospital location and the category of hospital – for instance, corporate hospitals are bound to be more expensive. However, insurers can deem some charges unreasonable, despite hospitals and doctors certifying the charges.

Industry watchers say insurers need to make their assumptions on the fairness of charges clear beforehand – for instance, they should indicate the range of ‘reasonable’ treatment costs for an angioplasty or heart surgery.

Also read: A mistake in filling up the hospital forms can cost you your insurance claims

The pre-existing diseases hurdle

According to a study conducted by online insurance aggregator Policybazaar.com, around 25 percent of claims are rejected on the grounds of non-disclosure of lifestyle conditions such as diabetes and hypertension.

Put simply, these pre-existing illnesses are ailments or conditions that the policyholder had contracted before buying the policy. Insurance policies do not pay for the treatment of such diseases until a stipulated ‘waiting’ period – a maximum of three years as per the Insurance Regulatory and Development Authority of India’s (IRDAI) new health insurance regulations – has passed. This is because insurance, by principle, is meant to cover unforeseen risks – covers cannot be extended to known illnesses immediately.

Until March 31, 2024, as per IRDAI’s definition, pre-existing diseases were conditions or ailments for which the policyholder had received treatment or diagnosis from a physician up to 48 months prior to the policy purchase. Since April 1, this period has come down to 36 months.

Not disclosing your health condition at the time of buying health policies can come back to haunt you later. Not only can health insurers reject claims in such cases but also cancel the policy citing breach of contract. If you are covered under a family floater and are found to have concealed an illness prior to buying the plan, your family, too, will be deprived of a cover in such cases.

Therefore, ensure that you answer all the questions in the proposal form with care. Do not let your agent handle the exercise and do not make the mistake of assuming that you need not disclose ‘minor’ ailments. Make sure that you adopt this approach even while porting your policy to another insurer – do not assume that the new insurer will have access to your past claim track record with the older insurer. Be upfront about your health conditions – even if it means shelling out higher premiums – to avoid disputes later.