Health claim rejected after six years: moratorium, pre-existing disease and misuse of a cashless authorisation
A family floater of ₹10 lakh was issued on 8 August 2019 to a 52-year-old self-employed man. The product carried a 36-month waiting period for pre-existing diseases, and the policy has been renewed without a break, with premium paid on time. In November 2025 he underwent a total knee replacement at a network hospital, and the bill was ₹4.80 lakh. He had been diagnosed with osteoarthritis in February 2024 by an orthopaedic surgeon and treated conservatively since then. The insurer rejected the claim on two grounds: that he had not disclosed hypertension and a BMI of 31 in 2019, and that osteoarthritis was a pre-existing disease. The rejection letter is one paragraph long and does not identify the policy clause or the documents relied on. The hospital had earlier been given cashless authorisation of ₹3 lakh, and the insurer has used that authorisation to adjust the final bill. He came to know of the rejection ten days after discharge.
1. Is the rejection sustainable? Reason from the moratorium and the waiting period.
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Moratorium. Continuous cover has run from 8 August 2019, so the sixty-month moratorium was completed on 8 August 2024, under the IRDAI (Health Insurance) Regulations, 2016 as carried forward in the Master Circular on Health Insurance dated 29 May 2024. After the moratorium the insurer may not contest the policy or a claim on the ground of non-disclosure or misrepresentation, save for proven fraud, and permanent exclusions continue to apply. There is no allegation of fraud here, and none could be made on a BMI of 31 and treated hypertension unconnected to the claim. The first ground therefore fails outright.
Waiting period. The product carried a 36-month waiting period, which expired on 8 August 2022. Osteoarthritis was first diagnosed in February 2024, eighteen months later, and treated conservatively until surgery. A pre-existing disease means a condition diagnosed or for which medical advice or treatment was received before the policy began or during the waiting period; the insurer must prove that, and the orthopaedic record says otherwise. The second ground therefore also fails.
Procedural defect. A one-paragraph rejection that cites no clause and no document does not meet the requirement of a reasoned decision under the Protection of Policyholders' Interests Regulations, 2017.
Conclusion. The rejection is not sustainable. The insurer should pay ₹4.80 lakh less any non-payable consumables and the policy's stated co-payment, with interest for the period of delay, and should issue a corrected decision in writing. If it does not, the insured has a strong case before the Insurance Ombudsman under the Insurance Ombudsman Rules, 2017.
2. What is wrong with the way the cashless authorisation has been handled, and what should the insurer have done?
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What an authorisation is. A cashless authorisation is an approval to the network hospital to admit and treat up to a stated amount, given on the basis of the information then available. It is not a final settlement, but neither is it a provisional payment that the insurer may silently set off against the bill months later. The insurer's conduct here effectively converts an approval into a unilateral adjustment, which is unfair dealing whatever the merits of the underlying coverage question.
What the Master Circular on Health Insurance requires. A decision on a cashless request within one hour of receipt; final authorisation within three hours of the hospital's request; and settlement or written rejection of the claim within the prescribed timelines, in any event within the timeframe fixed by the Protection of Policyholders' Interests Regulations, 2017. Any rejection must be in writing, must state the clause and the documents relied on, and must inform the insured of the grievance redressal officer and of the Ombudsman route.
What should have happened. The insurer should have taken the coverage decision on osteoarthritis and non-disclosure before or during the hospitalisation, informed the hospital and the insured in writing of any shortfall it intended to dispute, and paid the undisputed portion within the timeline. Having authorised ₹3,000,00, it should not have adjusted it against the final bill while simultaneously repudiating the claim without reasons.
Action now. Treat the case as a service failure as well as a coverage failure: reverse the adjustment, decide the claim afresh with reasons, and log the file for a review of how network authorisations are converted into rejections, since the pattern, not the individual case, is what attracts regulatory attention.
3. How would your answer change if the policy had been issued on 8 August 2024 with the same 36-month waiting period and the osteoarthritis had been diagnosed in February 2024?
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The position reverses, because both the waiting period and the moratorium then run against the insured.
Waiting period. The 36-month pre-existing disease waiting period runs to 8 August 2027. A claim in November 2025 falls inside it. The diagnosis in February 2024 precedes inception, so the insurer has clear documentary proof that the condition was pre-existing to the policy - the orthopaedic consultation note and any prescription or imaging report dated before 8 August 2024. The pre-existing disease exclusion therefore applies, but only if the insurer can show the condition was diagnosed or treated before inception; a bare assertion is not enough, and a condition first manifesting after inception cannot be pushed back into the waiting period.
Moratorium. Sixty months runs to 8 August 2029, so the policy is still open to challenge and the moratorium does not assist the insured.
But the non-disclosure ground remains weak. The alleged non-disclosure of hypertension and a BMI of 31 must be material and causally connected to the claim; knee osteoarthritis is not caused by treated hypertension, and regulators and ombudsmen consistently disallow repudiation of an unrelated claim on an unrelated non-disclosure. The insurer should therefore rest its decision on the pre-existing disease exclusion, cite the specific clause and the pre-inception medical records, and pay the claim if it cannot produce those records.
The lesson. The same facts produce opposite outcomes depending only on dates, so every health claim file must establish three dates before any decision: inception, waiting-period expiry, and moratorium completion. Deciding without those dates is how insurers end up repudiating claims that are contractually payable.