How to decode your health insurance claim settlement letter – livemint.com

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Chennai-based Vijaya Kawar was hospitalized at an insurer’s network hospital for 61 days, with the total bill eventually reaching ₹2.11 crore. Kawar had health insurance cover of ₹3.25 crore, comprising a ₹1 crore base sum insured and the balance through bonus and booster benefits. Yet the insurer approved only ₹85 lakh.
Of the ₹2.11 crore bill, ₹1.26 crore was deducted under various heads, including ₹10.43 lakh as a memorandum of understanding (MoU) discount, ₹28.39 lakh towards reasonable and customary (R&C) charges and ₹87.50 lakh on the grounds that there was no active line of treatment.
“The patient’s initial discharge got delayed by four days due to repeated queries and follow-ups, even though all replies had been submitted. During the delayed period, the patient’s condition unfortunately deteriorated again. Fresh infections and complications developed and hospitalization had to continue. The first final bill was worth ₹1.63 crore. With the delay, it reached ₹2.11 crore, but the approved amount remained ₹85 lakh both times. They only increased deductions under the same heads,” said Punit Kochar, an insurance consultant who sold the policy to Kawar.
As the disputed amount exceeded ₹50 lakh, Kawar could not approach the Insurance Ombudsman, whose jurisdiction is limited to complaints involving compensation of up to ₹50 lakh. Kawar is in the process of approaching the consumer court.
Claim settlement letters can contain deductions that leave policyholders bewildered. Understanding what these terms mean, and challenging deductions that are unclear, can help consumers better understand how their claim has been assessed.
R&C charges refer to the insurer paying only what it considers a standard charge for a particular treatment in a given locality. Any amount above that benchmark may be disallowed. Such deductions are more common in non-network hospitals and reimbursement claims, where charges have not been negotiated between the hospital and insurer. But they can also arise in cashless claims, particularly high-value ones, as in Kawar’s case.
“Having a large sum insured does not necessarily guarantee full claim coverage. Insurers often rely on the R&C clause to limit claim payouts,” said insurance consultant Akshay Bansal.
While the dispute is primarily between the hospital and insurer, the policyholder may ultimately have to bear the balance. Industry experts advise asking the hospital for a detailed, itemized bill.
“Wherever possible, get a written explanation of the charges. For specialized treatment, you can also ask the treating doctor or hospital whether the charges are standard or not,” said Neeraj Khushalani, founder of InsureSmart.
Policyholders should also ask the insurer to explain the benchmark or data used to determine that a particular charge was unreasonable. “It will help them present their case better if the dispute reaches the Ombudsman or consumer court,” he added.
An MoU discount is a reduction in hospital charges agreed between the hospital and insurer under a memorandum of understanding. It is essentially a contractual discount negotiated between the two parties. Where the settlement letter specifies that the discount is not recoverable from the policyholder, the hospital is not supposed to pass that amount on to the patient.
Khushalani shared a case where a hospital allegedly told a patient that the MoU discount was a cost borne by the hospital and therefore had to be paid by the patient, despite the discount being reflected in the settlement.
“You have to tell them you will report it to the health department of the municipal corporation. They may give it a second thought,” he said.
This is another reason for deductions that can significantly affect a claim. An insurer may take the view that hospitalization was not medically justified for the entire period because active treatment was not being provided.
“Many people do not realize that health insurance is meant to cover treatment of illness. If the claim records show that you were admitted primarily for diagnostic tests or observation, with no active treatment being provided, your claim could be affected,” said Bansal.
However, the mere fact that diagnostic tests or observation were involved does not automatically make a claim inadmissible. “The medical necessity of hospitalization and the policy terms would need to be considered,” he added.
An insurer may reject or restrict a claim if the treatment is considered experimental or investigational under the policy. This could involve a drug, procedure or technology whose safety or effectiveness has not been sufficiently established, or which is not accepted as standard medical practice for the condition.
For example, a drug approved for one disease may be used for a completely different condition for which its efficacy has not been established. Depending on the policy wording and circumstances, the insurer may classify the treatment as investigational.
“If an insurer rejects a claim on this ground, the policyholder should look for the exact exclusion clause and the medical basis on which the insurer has classified the treatment as experimental or investigational,” said Bansal.
Consumables are single-use medical items used during treatment and subsequently discarded. They include gloves, syringes, gauze, surgical tape, IV sets and other disposable medical supplies.
Depending on the policy, such expenses may be treated as non-payable unless the policy specifically covers them or the policyholder has opted for a consumables-related add-on. The standardized list issued by the Insurance Regulatory and Development Authority of India (Irdai) covers a wide range of non-medical expenses and consumable items. However, policyholders should check the exact policy wording rather than assume that every item on a hospital bill is automatically non-payable.
Insurance consultant Mitesh Dave shared a case in which the insurer issued multiple settlement letters in a single day, changing the amount of deductions each time. “You have to go through the list thoroughly to identify items that should not have been classified as consumables,” said Dave.
Khushalani suggests that policyholders ask for the itemized hospital bill and relevant indoor case papers to understand how each deduction was arrived at. “If the hospital is reluctant to provide these documents, the policyholder should make it clear that they relate to their own treatment and that they are entitled to access them,” he said.
This phrase means the insurer says it does not have enough information to determine whether, or to what extent, it is liable to pay the claim.
For instance, if a patient is hospitalized for chest pain but the medical records only mention cardiac evaluation without clearly establishing the final diagnosis or treatment, the insurer may say that liability cannot be ascertained because the available documentation is insufficient.
The policyholder can ask the insurer to specify what documents are needed to ascertain liability and seek reconsideration once these are submitted.
Room category entitlement and proportionate deductions
Health policies often specify the category of room to which a policyholder is entitled, such as a twin-sharing room or a single private room. If a policyholder chooses a room above the eligible category, the insurer may apply proportionate deductions, depending on the policy terms.
This can affect not just the difference in room rent but also associated expenses such as nursing, doctor and procedure charges. Policyholders should therefore check their room-rent eligibility before admission, particularly for high-value hospitalizations.
Khushalani also cited instances where hospitals charged patients for items such as an IV dispensing stand kept near the bed and vital-monitoring equipment. During the second wave of Covid-19, he encountered a case where an autorickshaw fare for bringing food to patients was included in the hospital bill.
Such charges should be scrutinized carefully. “Policyholders should ask the hospital for an explanation of any unfamiliar charge and check whether it is medically necessary, contractually agreed, or actually payable under the policy.”
Claim settlement letters can contain technical terms that are difficult for policyholders to interpret. Consumers should understand the basis of each deduction, obtain the itemized hospital bill and challenge deductions that cannot be adequately explained or linked to the policy terms.
A financial journalist and certified financial planner, Aprajita Sharma brings clarity and depth to the complex world of money. With over 12 years of experience across digital, print, and broadcast media, she has built a reputation for explaining personal finance in a way that is both practical and relatable.<br><br>She is working with Mint as an Assistant Editor and has previously worked with leading publications such as The Economic Times, Business Today, Fortune India, Outlook Money and Business Standard. She is also the co-author of “The Big Bull of Dalal Street”, a Penguin bestseller that chronicles the life of renowned investor late Rakesh Jhunjhunwala. She was also selected among a small group of journalists for the Asia Journalism Fellowship, underscoring her credibility in the field.<br><br>Aprajita is known for advocating unbiased, fee-only financial advice and for her sharp understanding of investor behaviour. Through her writing and storytelling, she continues to empower individuals to make more informed, confident financial choices. She is also a Kathak enthusiast.
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