Health insurance — it’s supposed to be your safety net. You pay premiums faithfully, when illness or injury hits, you expect your policy to step in. So it’s jarring when a claim gets denied. What if I told you there’s a hidden clause buried in many health insurance policies around the world that insurers use to deny up to 70% of claims? It sounds dramatic, but the risk is real.
In this article, we’ll walk through:
- what this hidden clause really is,
- how it works behind the scenes,
- why insurers rely on it,
- how you as a policy-holder can spot it and respond.
What is the “hidden clause in health insurance policies”
When we talk about a “hidden clause”, we’re not necessarily referring to text that’s literally hidden (though in some cases it is buried in fine print). Rather, we’re talking about a clause or set of policy wordings that most policyholders don’t notice, understand, or appreciate fully—but which insurers do rely upon to deny or limit claims.
One of the most common examples is the so‐called “reasonable and customary” (R & C) clause. According to a consumer-finance article in Moneylife:
“Health Insurance companies often use a particular term for denying full claim payment … It’s called ‘Reasonable and customary’ (R&C).” (mas360.moneylife.in)
This is how it works:
- The policy may state that the insurer will cover charges incurred up to an amount that is “reasonable and customary” for a given treatment/provider/location.
- But the insurer gets to define what “reasonable and customary” means (often via internal tables, network agreements, or third-party administrators).
- If the actual bill exceeds what the insurer defines as “reasonable and customary”, the insurer either pays only the capped amount or denies the claim for the excess.
So a claimant could have done everything right: disclosed pre-existing conditions, went to a “covered” hospital, followed the rules … but still find their claim partially or fully denied because the hospital charges were deemed “not reasonable or customary” by the insurer.
In short: the hidden clause gives the insurer a lot of discretion, and gives the consumer less clarity.
Why this clause leads to such high denial/partial-payment rates
Why does this clause exist and why is it so effective for insurers?
1. A broad discretion for insurers
Because “reasonable and customary” is vague, insurers can set internal benchmarks that may pay less than actual billed charges. The Moneylife article states:
“Many times it is even an arbitrary payment decided by third party administrator (TPA).” (mas360.moneylife.in)
This flexibility allows insurers to reduce payouts while still claiming they are operating “within policy”.
2. Lack of transparency for policyholders
Most policy‐holders don’t read or understand the full wording of their policy. They may assume “full coverage” means the full hospital bill, only to find they are capped or deducted. This information asymmetry works in favour of the insurer.
3. Administrative burden & appeals discourage challenges
When claims are denied or heavily adjusted, many people simply accept it rather than appeal. Research shows the effort and cost of appeals can deter consumers.
4. The clause works in many countries
Though much of the detailed research comes from India or the U.S., similar mechanisms exist globally. For example, one Indian mediclaim case referenced a clause restricting surgical cover to 25% of sum insured and used the “reasonable & customary” cap to limit payment.
Because of all this, it’s plausible that a large proportion of claims (including partial payments) are affected by such hidden clauses.
How this hidden clause plays out in real life
Let’s walk through a simplified real-world scenario so you can see the mechanism in action:
- Mrs. A purchases a health insurance policy with a sum insured of ₹7.5 lakh. (mas360.moneylife.in)
- She is hospitalised for a hysterectomy; the hospital bill comes to ₹1.69 lakh.
- The policy states: surgical procedures covered, but subject to “reasonable & customary charges”.
- The insurer’s internal R&C table says the “normal” charge for such procedure in that region/hospital tier is only ₹1 lakh.
- Insurer pays ₹1 lakh; the remaining ₹69,000 falls on Mrs. A.
- Upset, but many policy-holders won’t challenge because they assume “that’s how insurance works”.
A simpler variant: a claim gets fully denied because the insurer judges the hospital charges or provider outside their “reasonable & customary” benchmark, or because the service is treated as a “non‐covered service” under policy wording. (ChartRequest)
Key Insight Table: Hidden Clause Effects vs What You Think
| What you think your policy covers | What the hidden clause may allow the insurer to do | Why this matters |
|---|---|---|
| “Hospital bill fully reimbursed” | Cap reimbursement to “reasonable & customary” amount or deny excess. | You pay more out-of-pocket than expected. |
| “Any hospitalised treatment covered” | Define provider/hospital tier, exclude non-network or higher cost hospitals. | You may choose hospital expecting full cover but get less. |
| “Declared pre-existing conditions covered after waiting period” | Claim may still be reduced if charges exceed benchmarks, or if provider falls outside criteria. | Even declared cover doesn’t guarantee full pay-out. |
| “Premiums mean full protection” | Policy wording, exclusions, waiting periods, and R&C-type clauses still apply. | You might feel protected but still vulnerable. |
How policy-holders (you) can guard against this hidden clause
No need to feel powerless. Here are practical steps you can take (and as a pharmacist you’ll have some insight already) to protect yourself.
1. Read the policy word-by-word
- Look specifically for terms like “reasonable and customary”, “maximium reasonable charges”, “in-network/private hospital”, etc.
- Note waiting periods, sub-limits (for surgery, maternity, etc).
- If anything is unclear, ask the insurer/agent to explain in writing.
2. Before hospitalisation ask about network and charges
- If the hospital is outside the insurer’s “in-network” or designated tier, you may face higher out-of-pocket.
- Ask your insurer: “Will the charges be reimbursed in full or subject to R&C and what benchmark applies?”
3. Keep detailed documentation
- Bills, itemised break-up, pre-authorisation approvals (if required), hospital grade, etc.
- If you suspect you’ll exceed the “reasonable & customary” benchmark, collect evidence (quotes from other hospitals, etc).
4. Submit claim early and accurately
Mistakes in submission (wrong codes, missing info) are a common denial driver. (Counterforce Health)
- Ensure all forms and bills are complete.
- Track status, and be ready to appeal if required.
5. If claim is reduced/denied: appeal it
- Use your documentation, ask for insurer’s “benchmark” reasoning.
- Don’t accept an explanation like “this is standard” without justification.
- Consider engaging a consumer protection body if required.
6. Negotiate hospital choice and cost
- If you know you may be billed a premium rate (top-tier hospital, specialist surgeon), check your policy’s coverage.
- In some cases choosing a lower cost hospital may ensure full reimbursement rather than a bigger bill that gets trimmed.
Why insurers favour this hidden clause — and the implications
Understanding the insurer’s perspective can help you frame your approach better.
- From an insurer’s business model: controlling costs is essential. Using “reasonable and customary” allows them to benchmark payments and avoid paying inflated bills.
- From a risk-pool perspective: high claims drive up premiums for everyone; limiting payouts helps maintain sustainability (though arguably at the expense of individual fairness).
- From a policy wording/tracking perspective: the clause shifts risk share to the policy-holder. Essentially, the policy says “we cover costs up to what we deem reasonable” rather than “we cover all incurred costs”.
But the implications for policy-holders:
- Less protection than assumed.
- The “unexpected” portion of hospital bills becomes all yours.
- If you go to a high-cost provider or specialist treatment, you may face bigger out-of-pocket than anticipated.
- For people in lower income or vulnerable groups, this disproportionally raises financial risk. Research shows that claim denials and cost-sharing disproportionately affect lower-income or less-educated patients. (PMC)
Signs your claim may be subject to this clause
Here are warning signs that your claim may get impacted by hidden “reasonable & customary” type clauses:
- Your hospital bill is well above what you expected (e.g., high-end hospital).
- The insurer’s payout is much less than the quoted sum insured.
- The insurer states that “charges exceed our reasonable and customary benchmark”.
- You were admitted to a hospital outside the insurer’s network or designated list.
- The policy wording includes sub-limits (e.g., “surgery only up to X% of sum insured”, “day-care treatments limited”).
- You are asked to pay extra out-of-pocket despite having a “full cover” policy.
If you see any of these, it’s time to dig into your policy wording and ask hard questions.
What regulators & consumer advocates say
Regulators and consumer advocacy groups are increasingly highlighting how vague clauses like “reasonable & customary” contribute to claim denials or large out-of-pocket burdens. For example:
- The research showing administrative burdens of appeals disproportionately affect disadvantaged groups. (ResearchGate)
- Resources on health‐insurance denial reasons emphasise documentation, coding, non-covered services as major causes of denials. (Counterforce Health)
- Reports that even “approved” preventive care claims were denied due to wrong coding or provider issues. (PMC)
Therefore, increasing transparency in policy wording, better patient education, and consumer safeguards are on the agenda.
What you can ask your insurer today
To make this actionable, here are key questions you should ask (and demand clear answers) from your insurer:
- “Please provide in writing how you define ‘reasonable & customary charges’, and in what reference table or benchmark you apply that for my region/provider.”
- “Is my hospital part of your in-network/approved hospital list for cashless claims? If not, what extra costs might I incur?”
- “Does the policy contain sub-limits or caps (e.g., for surgery, maternity, day-care, specialist fees) that may reduce our claim payout?”
- “What waiting periods apply for my existing conditions or for specific treatments?”
- “If my bill exceeds your benchmark, can I appeal or submit additional justification? What is the process and timeline for appeal?”
- “Will you provide an itemised reasons code or explanation if my claim is reduced/denied (so I can understand and respond)?”
Ask for these before a claim arises — so you’re not blindsided when it happens.
Empowering yourself against the hidden clause
To wrap things up:
The hidden clause – often in the form of a “reasonable and customary” benchmark or similar wording – is a real and under-appreciated risk in many health insurance policies. It doesn’t mean all claims are denied, but it means that even when you believe you are fully covered, you may still face significant unexpected cost-sharing or denial if your provider’s charges exceed what the insurer deems “reasonable”.
But you are not powerless. By:
- reading your policy carefully,
- asking informed questions,
- choosing hospitals/providers wisely,
- keeping detailed documentation,
- and being ready to appeal if necessary…
…you can greatly reduce the risk that the hidden clause will catch you unawares.
Stay informed, ask the right questions, and make sure your coverage truly supports you when you need it most.
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