An upward trend in pet insurance may set the animal health market on a new course
By Laura Thill

Pets are people, too. At least, more owners are starting to feel that way, according to experts. It follows, then, that more owners are investigating options for ensuring their pets’ health, and as the cost of healthcare continues to rise, pet insurance appears to be one of the best solutions. And, what’s good for the pet, is good for the veterinary products distributor rep.

“Pets have moved from the backyard to our bedroom,” says Carol McConnell, DVM, vice president and chief veterinary medical officer, Veterinary Pet Insurance Co. (Brea, Calif.). “The human-animal bond has become very real, and we embrace our pets.” Other factors attributing to the upward trend in pet insurance are the
rising costs of animal healthcare and increased awareness of pet insurance as an alternative to paying out-of-pocket expenses.

“Pet owners today are willing to spend more for their pet’s care,” says Jack Stephens, DVM, president, Pets Best Insurance (Boise, Idaho). “They are beginning to treat them more as children, with regard to both spending and emotionally.”

Particularly in tight economic, times when people have to cut back, pet insurance becomes even more important, adds David Goodnight, DVM, president and chief operating officer, PurinaCare® (San Antonio, Texas). “Many don’t have the same reserves they once did,” he says. “Their bank accounts are dwindling and they [risk] running into a situation where they can’t afford treatment for their pet.”

This is evidenced by the fact that the amount of money consumers are willing to dole out for their pet’s treatment has leveled off in recent years. “According to a report in DVM Newsmagazine (Advanstar Communications, Lenexa, Kan.), for a long time, we saw almost a 50 percent increase [every several years] in the cutoff at which clients stop paying for treatment and, instead, euthanize their pet,” he points out. So, in 1997, the cutoff was $576, in 2000 it was $795 and in 2003 it was $961, according to the report. By 2006, the cutoff had climbed to $1,450, but then dropped to $1,407 by 2009. “Of course, we must put this in perspective,” says Goodnight. “[Animal healthcare] procedures are more costly today. Still, this could be a reflection of the economy. True, in tight times, people have to find ways to cut back. But, at the same time, having pet insurance becomes [especially] important.”

How it affects the market
McConnell sees some geographic variability in the degree to which pet insurance has caught on, although it is hard to say why. “We do see more people in urban and suburban areas insuring their pets, but this could be attributed to lifestyle differences [of the pets] or differences in incomes. It’s difficult to say why we see this trend, but we do.” But, regardless of the variability, pet insurance will continue to grow in popularity, she says. “I have been in the industry for 27 years and at VPI for the last five, and we process about 80,000 claims each month. We have doubled our number of policy holders and employees in the last five years.”

To a large degree, whether or not an animal clinic or hospital sees greater or fewer insured patients depends on what veterinarians are discussing with their clients, she adds. “It depends on the veterinarians’ attitude toward pet insurance.”

Indeed, “a lot depends on the effectiveness of the marketing at a veterinary practice,” says John Tait, DVM, president, American Animal Hospital Association (AAHA). “Regardless of where they are located, veterinary practices that are better at marketing and creating awareness and value-added [services] among clients will have more insured patients.”

Whether or not pets are insured, however, “the onus of what pet owners agree to do for their pets still lies largely with the veterinary hospital they visit,” he continues. The decision to follow through [on expensive life-saving procedures for their pets] is not influenced only by whether or not insurance is present, but by the recommendation and advice of the veterinarian, the case-by-case prognosis, other existing health conditions and more. Insurance helps remove the cost barrier for clients. As long as any other conditions or barriers to intervention can be overcome to the client’s satisfaction, it is more likely [he or she] will comply.”

Nevertheless, it appears that more and more insurance companies have sprung up in the last decade. Stephens estimates there are about 15 nationwide, and the plans they offer are more comprehensive and “pay better and faster than before,” he says. The availability of pet insurance will definitely impact the animal health market in the near future, he notes. “Clients can do much with pet insurance today. With the new plans paying 80 percent, they have five times the leverage on their money. If, on average, they [are willing to] stop treatment at $1,407, if insured, that amount will get them over $7,000 in pet care, and their out-of-pocket costs will still be the same (e.g., $1,407). “Insured pet owners appear to be more likely to bring in their pets for diagnosis and treatment,” Stephens continues. “We are seeing a lot more diagnostics being done for insured pets.”

On the flip side, “people without pet insurance will look for band-aid treatments if finances are a problem,” says McConnell. “So, if a pet’s broken bone needs to be pinned or plated, the client will instead ask the veterinarian to splint or cast it.”

This should be no surprise, considering the high cost of medical diagnosis and treatment, according to experts. “A pet owner can spend about $1,000 on a cat scan or MRI, and this doesn’t even include follow-up treatment,” says Goodnight. “Chemotherapy can cost thousands and thousands.” The alternative is for clients to have their pet euthanized, he adds. But, with the increased availability of pet insurance, “MRIs, cat scans, advanced orthopedic procedures and chemotherapy have become [much more] mainstream in the last several years.”

As clients spend more on their pets, veterinarians will invest more in ultrasound equipment, MRIs, X-ray, etc., which is good news for distributor reps, Stephens adds. At this point, “the impact to the industry is not large enough to be considered a major factor, but the trend is there and it will be.”

Cost and coverage
Although the cost of pet insurance does not come close to that of a typical human health insurance plan, clients must weigh the cost and benefits to determine what type of plan best suits the needs of their pet. “The cost of insurance varies, depending on breed, pet’s age, location (if the client lives in an area where animal healthcare costs less, he or she will pay less for insurance) and the size of the deductible,” says Goodnight. The idea is that clients subsidize only their own pet, not a breed that is more or less expensive to care for, or a pet that lives in a region with a higher or lower cost of living, he explains. “For instance, the Chihuahua is one of the healthiest breeds of dog,” he points out. “Great Danes tend to have more orthopedic issues, Sharpies have skin issues, and a high percent of Labradors are prone to hip dysplasia.” Most policies, such as PurinaCare’s, are geared toward coverage of dogs and cats.

Clients may choose from more limited plans designed to cover accidents and illness only, or more comprehensive plans, which also cover wellness visits (e.g., blood work, vaccines, spaying and neutering, heartworm prescriptions and flea control, dental scaling and polishing, etc.). Rates vary slightly from one company to the next, but generally range from $300 per year for an accident/illness plan to $500 per year for wellness coverage as well. So, for a 1-year-old Labrador living in Marietta, Ga., PurinaCare would charge the following rates:

Deductible Premium
$100 $43.06/month
$250 $35.93
$500 $27.50
$1000 $17.43

And, though clients tend to follow their veterinarian’s lead when it comes to the care of their pet, VPI data shows that clients with insured pets are more compliant with pet vaccine schedules and heartworm and flea prevention, says McConnell.

Loopholes?
Perhaps one factor that has prevented the pet insurance market from taking off sooner is that of loopholes. “We deal with insurance plan loopholes all of the time,” says Goodnight. “Sometimes an insurance benefit is adequate in one region [of the country] but not another. Sometimes, a pet is diagnosed with, say, diabetes, and the next year that same policy won’t cover that disease. We don’t do that,” he adds. In fact, PurinaCare covers heredity conditions as a means to help clients avoid loopholes, he notes. “It’s very important for clients to ask the right questions when they look into insurance plans.”

“The number one insurance principle (human or animal) is that no insurance company will cover a pre-existing condition,” says McConnell. “Insurance is about stats and numbers. What is the likelihood that something will happen?

“Each year, the insurance contract is renewed,” she continues. “Some insurance companies may change their deductible or premium. With some companies, if the pet gets sick in its first year on the policy, the company covers it. We will cover [that same disease] in the pet’s second year on the policy. But some companies may use this as an opportunity to drop coverage for the particular disease. As a doctor, I find that offensive. It limits my ability to treat the animal. And, if the owner decides to switch to another insurance company, now the pet has a pre-existing condition and can only get limited insurance.

“Still, most insurance companies do cover chronic conditions and will cover the particular disease throughout the pet’s life,” says McConnell. Like Goodnight, she believes it is critical for clients to ask questions about a new policy and, in particular, to ask about chronic condition coverage.

However, Stephens notes how frustrating it can be for veterinarians when clients whose pets have pre-existing, non-covered, conditions pressure the vet to help them battle the insurance companies for coverage. “Pet owners understand they can’t crash their car and then purchase [a new insurance policy] to cover [the damage] after the fact,” he says. “Yet, they have no problem trying to get coverage for a condition already manifest in their pet. Then, they pressure their vet to get involved, and the vet just wants to treat the [patient].”

That’s not the only reason why some veterinarians may be skeptical about pet insurance. “Some vets are fearful of pet insurance becoming similar to the human healthcare [system], where fees are set, treatments are controlled and patients must [work through] networks,” says Stephens. “Nevertheless, pet insurance will [boost the industry] by greatly increasing the amount of money spent on companion pets.” With millions of pet owners paying affordable premiums, the money will be available to cover expensive treatments for pets in need, he adds.

“Pet insurance will have a tremendous influence [on the industry],” he continues. “Without it, the profession will have to push back on the rising cost of having a pet and the negative image [that arises when there is no] mechanism to help pet owners pay for sophisticated care.”