₹25 lakh health cover, ₹12 lakh bill but only ₹5 lakh paid: How ‘Reasonable & Customary Charges’ can cut your claim
A health insurance policy with a high sum insured may still leave you paying a sizeable amount if the insurer applies deductions to individual hospital charges. The “reasonable and customary charges” clause is one such provision that can reduce the final claim payout when treatment costs are considered excessive.
- Aug 12, 2026,
- Updated Aug 12, 2026 7:46 PM IST
A ₹25 lakh health insurance cover does not necessarily mean an insurer will pay the entire hospital bill up to that amount. A recent claim example shows how a “reasonable and customary charges” clause can significantly reduce the amount payable, even when the total hospital bill is well within the sum insured.
In the case shared, the sum insured was ₹25 lakh and the hospital bill was ₹12 lakh, but the insurer paid only ₹5 lakh after applying deductions, including those under the reasonable and customary charges clause.
What are reasonable and customary charges?
According to health, life insurance expert Nikhil Jha, there is no universal regulatory price list that fixes how much a hospital can charge for every medical procedure. Hospitals may therefore have different prices for the same treatment.
“To limit any irrational pricing by the hospital, insurers put in reasonable and customary charges,” Jha explained.
These charges essentially refer to the range of costs an insurer considers acceptable for a particular treatment, service or procedure in a specific location.
For example, a hospital may charge ₹1 lakh for a procedure, ₹50,000 for an implant and ₹20,000 for diagnostics. The insurer may compare these charges with what similar hospitals in the same area typically charge and decide that some amounts are higher than what it considers reasonable.
The insurer may then restrict the amount payable under the policy.
MUST READ: Private hospital vs government hospital cost: Hospitalisation is nearly 8 times more expensive
Why can the deduction be significant?
The problem is that there is no single definition of what a “reasonable” charge should be across every hospital and treatment.
Costs can vary depending on the city, hospital, doctor's qualifications and experience, complexity of treatment, technology used, patient's medical condition and quality or type of implant or consumables.
In the claim document shared, deductions included ₹1,12,230 against surgeon charges, ₹76,570 against anaesthesia charges, ₹3.07 lakh on charges compared with other hospitals, and ₹29,040 for consumables marked as not covered. Another ₹9,500 deduction was also made under the reasonable and customary clause.
This illustrates the potential gap between the amount billed by the hospital and the amount an insurer considers payable.
Claim Deduction Example
| Particulars | Hospital/Claim Amount | Insurer’s Assessment | Deduction / Amount Not Paid |
|---|---|---|---|
| Surgeon charges | ₹1,12,230 | Reasonable & customary limit applied | ₹1,12,230 |
| Anaesthesia charges | ₹76,570 | 35% of surgeon charges | ₹76,570 |
| Other hospital charges | ₹3,07,100 | Benchmark based on comparable hospitals | ₹3,07,100 |
| Additional charge | ₹9,500 | Reasonable & customary limit applied | ₹9,500 |
| Consumables | ₹29,040 | Not covered | ₹29,040 |
| Hospital bill | ₹12 lakh | Insurer assessed payable amount | Final payout: ₹5 lakh |
| Sum insured | ₹25 lakh | — | ₹7 lakh gap between bill and assessed amount |
Does a ₹25 lakh cover guarantee a ₹25 lakh payout?
No. The sum insured represents the maximum coverage available under the policy, subject to its terms and conditions. The final claim settlement can also be affected by policy exclusions, sub-limits, room-rent restrictions, co-payment, deductibles and reasonable and customary charge provisions.
Jha said policyholders should not assume that every hospital charge will automatically be reimbursed simply because the total bill is below the sum insured.
ALSO READ: Accidental death benefit rider: Is your family financially protected against unexpected accidents?
What can policyholders do?
If an insurer makes a deduction, policyholders should ask for a clear explanation, including which charge was considered excessive, what amount was considered reasonable, what benchmark was used and which policy clause permits the deduction.
Jha recommends choosing an insurer with a good claims-settlement reputation and selecting hospitals with transparent and reasonable pricing.
He also advises policyholders to have a reliable agent or adviser who can assist if a claim is partially settled or disputed.
The key takeaway is that having a high sum insured is not enough. Policyholders should understand the reasonable and customary charges clause before buying a health insurance policy and check how the insurer determines acceptable treatment costs.
MUST READ: Health insurance protection gap: 84% want extra cover, but 45% still don’t have it
A ₹25 lakh health insurance cover does not necessarily mean an insurer will pay the entire hospital bill up to that amount. A recent claim example shows how a “reasonable and customary charges” clause can significantly reduce the amount payable, even when the total hospital bill is well within the sum insured.
In the case shared, the sum insured was ₹25 lakh and the hospital bill was ₹12 lakh, but the insurer paid only ₹5 lakh after applying deductions, including those under the reasonable and customary charges clause.
What are reasonable and customary charges?
According to health, life insurance expert Nikhil Jha, there is no universal regulatory price list that fixes how much a hospital can charge for every medical procedure. Hospitals may therefore have different prices for the same treatment.
“To limit any irrational pricing by the hospital, insurers put in reasonable and customary charges,” Jha explained.
These charges essentially refer to the range of costs an insurer considers acceptable for a particular treatment, service or procedure in a specific location.
For example, a hospital may charge ₹1 lakh for a procedure, ₹50,000 for an implant and ₹20,000 for diagnostics. The insurer may compare these charges with what similar hospitals in the same area typically charge and decide that some amounts are higher than what it considers reasonable.
The insurer may then restrict the amount payable under the policy.
MUST READ: Private hospital vs government hospital cost: Hospitalisation is nearly 8 times more expensive
Why can the deduction be significant?
The problem is that there is no single definition of what a “reasonable” charge should be across every hospital and treatment.
Costs can vary depending on the city, hospital, doctor's qualifications and experience, complexity of treatment, technology used, patient's medical condition and quality or type of implant or consumables.
In the claim document shared, deductions included ₹1,12,230 against surgeon charges, ₹76,570 against anaesthesia charges, ₹3.07 lakh on charges compared with other hospitals, and ₹29,040 for consumables marked as not covered. Another ₹9,500 deduction was also made under the reasonable and customary clause.
This illustrates the potential gap between the amount billed by the hospital and the amount an insurer considers payable.
Claim Deduction Example
| Particulars | Hospital/Claim Amount | Insurer’s Assessment | Deduction / Amount Not Paid |
|---|---|---|---|
| Surgeon charges | ₹1,12,230 | Reasonable & customary limit applied | ₹1,12,230 |
| Anaesthesia charges | ₹76,570 | 35% of surgeon charges | ₹76,570 |
| Other hospital charges | ₹3,07,100 | Benchmark based on comparable hospitals | ₹3,07,100 |
| Additional charge | ₹9,500 | Reasonable & customary limit applied | ₹9,500 |
| Consumables | ₹29,040 | Not covered | ₹29,040 |
| Hospital bill | ₹12 lakh | Insurer assessed payable amount | Final payout: ₹5 lakh |
| Sum insured | ₹25 lakh | — | ₹7 lakh gap between bill and assessed amount |
Does a ₹25 lakh cover guarantee a ₹25 lakh payout?
No. The sum insured represents the maximum coverage available under the policy, subject to its terms and conditions. The final claim settlement can also be affected by policy exclusions, sub-limits, room-rent restrictions, co-payment, deductibles and reasonable and customary charge provisions.
Jha said policyholders should not assume that every hospital charge will automatically be reimbursed simply because the total bill is below the sum insured.
ALSO READ: Accidental death benefit rider: Is your family financially protected against unexpected accidents?
What can policyholders do?
If an insurer makes a deduction, policyholders should ask for a clear explanation, including which charge was considered excessive, what amount was considered reasonable, what benchmark was used and which policy clause permits the deduction.
Jha recommends choosing an insurer with a good claims-settlement reputation and selecting hospitals with transparent and reasonable pricing.
He also advises policyholders to have a reliable agent or adviser who can assist if a claim is partially settled or disputed.
The key takeaway is that having a high sum insured is not enough. Policyholders should understand the reasonable and customary charges clause before buying a health insurance policy and check how the insurer determines acceptable treatment costs.
MUST READ: Health insurance protection gap: 84% want extra cover, but 45% still don’t have it