Beware The Silver Bullet Solution To Pet Health Insurance Reimbursement

The author offers up advice and opinion on the topic of Pet Health Insurance Reimbursement.

As a practicing veterinarian, an original board member of the country’s oldest (27 years) and largest provider of pet health insurance, Veterinary Pet Insurance Company (VPI), and current member of VPI’s external Veterinary Advisory Board, I believe I have a unique perspective on the pet health insurance industry. As such, I think Dr. Jack Stephens’ article “80% Reimbursement: A Straightforward Model for Pet Health Insurance” needs some clarification and comment. 

Dr. Stephens argues that an 80 percent reimbursement insurance model is preferred because it is easier to understand and provides greater transparency to policyholders regarding actual claims reimbursement amounts.

Dr. Stephens indicates that the following concerns have been raised regarding the 80 percent reimbursement model:  (1) costs will rise due to increased veterinary fees and greater utilization, (2) rates and claim costs cannot be predicted with any accuracy due to constantly escalating utilization and fees, and (3) 80 percent reimbursement will lead to financial collapse or at least bad results for the insurance company, resulting in its pulling out of the market or going insolvent.

As evidence that these concerns are invalid, Dr. Stephens indicates that two pet health insurance companies that pay 80 percent of the invoice have been in business for more than 10 years. This is true, but omits important information.  The two companies that have been around since the late 1990s do not offer lifetime coverage, although they do pay 80 percent of the invoice. 

With one of these companies, once a condition is identified (e.g., diabetes) and a claim is paid, related claims in subsequent policy periods are deemed pre-existing and are no longer covered.

The second company has lifetime biological systems limits. For example, once a lifetime limit for the cardiovascular system is reached, no further claims will be paid related to this system.

Over the last 27 years that VPI has been in business, more than 50 pet health insurance companies have entered and left the market.

For the average premium amount, these systems limits are $1,500; they can be increased up to $5,000 for additional premium.  It is arguably these additional limits that have enabled these companies to stay in business for more than 10 years. Although it is true these companies will pay 80 percent of the invoice for less severe conditions, the amounts reimbursed on chronic and serious conditions are likely far less than 80 percent.

The human medical experience suggests that the concerns raised are legitimate. If the pet insurance company pays 80 percent of the invoice–with no policy limitations–it has no way to control the exposure to rising costs other than to raise premiums or reduce reimbursements in some manner. 

On the human side, the rapid increase in costs and premiums is what caused the health insurance industry to move from the indemnity insurance model to managed care. Dr. Stephens actually makes this point by indicating in his article that:  “Any concerns are easily mitigated through premium adjustments, deductibles, per-incident limits and other policy provisions as history has demonstrated.” 

Adjusting deductibles and other limits merely means the insurance company is no longer paying 80 percent of the invoice.

The most common way health insurance companies protect themselves when using a percentage of invoice reimbursement plan is through a “usual or customary” clause. In this method, the insurance company compares the fees charged and medical procedures performed against what it believes to be “usual or customary” for the hospital’s given location. 

For example, the insurance company may challenge the standard fee for a procedure such as treating an ear infection. Or the insurance company may challenge the number of blood tests performed while monitoring an animal’s condition while hospitalized.  Dr. Stephens does not even mention this most common form of cost control. 

Read the fine print of any pet health insurance policy offering an 80 percent reimbursement plan and you are sure to find the “usual or customary” language.  A particular company may not be currently using this device but it has the contractual right to do so at any time.

VPI has long used a benefit schedule as its policy form. Although certainly no panacea to simplifying pet insurance, it is a fair and transparent form of coverage. Most importantly, the benefit schedule is the furthest coverage form from managed care on the market. 

As with all pet insurers, VPI’s insurance contract is between the company and the insured. However, VPI pays out based on its benefit schedule with no regard to how the veterinarian practiced medicine in the specific insured case.

The benefit schedule design eliminates the need to ask: “Is the fee charged appropriate for that surgery?” or “What type of procedure did the veterinarian use?”  These kinds of questions are the greatest danger of the 80 percent reimbursement model. 

Since the insurance companies paying 80 percent will be exposed to rising medical inflation due to the increasing sophistication of veterinary medical care, it is likely they will at some point (if not already) be forced to use the “usual and customary” clause in their insurance contracts to limit reimbursements. 

This will present itself as reductions from the 80 percent reimbursement to the insured with the explanation that the practicing veterinarian used a procedure or medication that is deemed by the insurance company to be overly expensive.

Although I cannot say this will happen for certain, I can say it will never happen under VPI’s benefit schedule policy form.

The truth is, there is no way to make pet health insurance as easy as we would all like. If a straight 80 percent reimbursement model worked, some company would have been offering it for a long time now. In addition, if it didn’t work on the human side, why should one assume it will work on the animal side of medicine? 

Certain pet insurance companies are trying to convince veterinarians that their policies are easy to understand so that we veterinarians support their products when asked by our clients about pet health insurance. 

Veterinarians should leave the intricacies of pet insurance to be handled by the companies and should avoid being taken in by an alluring promise to make pet insurance easy. Unfortunately, it isn’t an easy subject. The insurance companies will need to mitigate their risks through other policy limits such as “usual or customary” clauses or other mechanisms such as chronic condition limits.

Further, reimbursement is only one dimension of an insurance policy. Premium is very important to the insured client and many clients are willing to trade off lower reimbursement for lower premiums. 

Paying a set percentage of veterinary fees exposes the insurer to veterinary fee inflation.  Therefore, policyholders may experience more frequent price increases. These companies may be able to hold prices for a brief time, but eventually they will need to increase their prices to stay in business, or lower their reimbursement amounts.  

Company longevity is also important. If a company exits the business, clients will be left without coverage. This will be particularly problematic for animals with ongoing medical conditions that will then be considered pre-existing and not coverable by a different insurance company. Over the last 27 years that VPI has been in business, more than 50 pet health insurance companies have entered and left the market.

Although not as complicated as medicine, insurance is complicated. Beware of the unintended consequences of the silver bullet solution.


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