Group health insurance claims: 5 common claim deductions and disputes employees should know about

Health insurance claim disputes have risen substantially over the years. Of the 3,178 general insurance cases the Ombudsman could entertain in 2024-25, 2,855, or about 90%, involved partial or total repudiation of a claim. A vast portion of these pertain to health insurance. The kind of repudiation varies with the type of policy. Broadly, policy holders fall into two groups: those covered under group plans, usually through an employer, and those who buy retail plans on their own. Here, we will explore the former.

Group plans start from a stronger posi tion. Most plans cover pre-existing diseas es from day one, and individual employees are not medically underwritten. Barring a few exceptions, disputes are rarely about whether a claim is admissible. They are mostly about deductions. A majority of group policies are placed through brokers, who take up these deductions with the in surer as they arise. That is why cases that reach the Ombudsman are just a fraction of the issues that surface at the point of claim. Here are the ones that come up most often.

Room rent without a limit

Historically, health insurance plans carried a per day room rent capping of 1% of sum assured. Room choice has a large impact on the total claim amount. Hospitals increase the cost of treatment based on the room one chooses. So, the doctor’s fee for the same treatment would be substantially more for a suite than for a shared room.


However, in a bid to differentiate product features, insurers increasingly made the room rent more liberal. First, they offered single standard AC room, with no absolute cap on the amount. Next, they offered ‘no room rent capping’. Several group plans now carry no cap on room rent, either for all employees or only for senior executives.

A few employees, who are aware that there is ‘no room rent capping’ may opt for a suite. This choice, while a contractual entitlement, is not viewed as fair by some insurers. This is where a dispute begins. The cashless process gets stuck because the hospital has only agreed a tariff for up to a single standard AC room and not for a suite. The claims team is unwilling or unable to give an approval. More often than not, such claims move to reimbursement. If insurers dig their heels in, they pay only up to the entitlement for a single standard AC room. Such cases then end up at the Ombudsman.

Reasonable & customary clause

Some insurers apply the reasonable and customary clause, which limits payment to what is considered a normal charge.

While the intent is to guard against inflat ed billing, the difficulty is in the application. No common benchmark of those charges is available, so two insurers can reach differ ent numbers for the same procedure at the same hospital, and the employee has no way to test either. Doctors at the same hospital may charge different fees, depending on their experience and reputation. Sometimes the difference can be more than 50%.

Often, the tariff agreed between the hospi tal and insurer is for the regular doctor. The star doctor’s fee is substantially higher. An insured employee is well within their right to go to the star doctor. The insurer cites its agreed tariff with the hospital and deducts the differential. For an employee with an un used sum insured, this deduction comes as a surprise. Usually, after some back and forth with the broker, the deduction is reversed. If the amount is large, or the insurer’s overall portfolio is loss-making, such a case esca lates to the Ombudsman or consumer courts.

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Rare disease/modern treatment cap

As per guidelines of the Insurance Regulatory and Development Authority of India (Irdai), modern treatments such as ro botic surgery and oral chemotherapy cannot be excluded. Some insurers take an extreme view and limit such treatment at one-tenth of the sum assured or less. Ironically, these are among the most expensive treatments.

Because these are rare claims, the sub limits get tested infrequently. In some cases, an insurer gets creative. For example, one insurer declined to cover oral chemotherapy that was not accompanied by hospitalisa tion. That defeats the purpose of medical advancement, since oral therapy exists pre cisely to avoid hospital stays.

Add-ons not recognised by system

Many items billed during hospitalisation are not paid separately. Irdai’s standard list of non-medical items treats face masks, caps, gowns, gauze and cotton, among others, as part of room or procedure charges, and insurers deduct them when the hospital bills them separately. Some insurers, again in a bid to differentiate their offering, have started covering such items through an add on for non-medical consumables.

The trouble is operational. The insurer’s claims system is often not set up to adjudicate the add-on, so the claim is first settled with the standard deductions in place. Only when the broker represents the case does the insurer reopen it and pay the balance. The money arrives, but late, and only if someone spots the deduction and knows to ask.

Family member not added to policy

One of the biggest causes of outright rejection is a missed addition. A group plan covers the employee and the dependants declared at enrolment. When an employee marries or has a child during the year, the new family member must be added within a window set in the policy, often 30-45 days from the event.

Employees often forget to inform HR about these changes. The insurer then has no record of the spouse or the newborn. Only when a hospitalisation is imminent does the employee reach out to add the dependant to the policy. The insurer is justified in rejecting both the enrolment and the subsequent claim. However, given how frequent the issue is, some policies include a feature that covers such omissions. Insurers are generally not forthcoming to offer this feature.

Managing expectations

A group plan customer arrives at a hospital with high expectations. In the era of instant banking and payments, turnaround expectations from insurance are similar. Senior executives expect even more. Group plans do deliver more than most retail policies in several respects. However, the policy features are often oversold and the claim experience under-delivers. These gaps can be narrowed.

Employers and brokers need to explain the features in plain words, without overcomplicating them. Insurers can strengthen their service orientation, offer only those features that they are willing to honour and build systems around them.

The Author is Co-Founder, Securenow Insurance Broker