Pet Insurance: Benefit Schedules As Managed Care

Jack L. Stephens, DVM, the father of pet health insurance in the U.S., wrote an article about the 80/20 percent reimbursement model of pet insurance on June 25, 2009. On August 20, 2009, Tom Kendall, DVM, replied, warning of pitfalls in that model making the case for a benefit schedule. In this piece, Dr. Stephens responds and poses a challenge.



Pet insurance can and must be easy and straightforward to understand. Pet owners need to know how much they will be reimbursed for their pet’s care, otherwise how can pet owners plan financially? 

With the benefit schedule you describe, clients receive 50-55 percent reimbursement of veterinary care according to the VPI report to the Vet Partners Association.  I believe this is a form of managed care, when fees are set with no regard to practice cost, quality of care, differences in economic areas and, of course, the severity or complications of treatments. 

For example, as you know, not all pets with pancreatitis respond the same, so how can there be only one benefit amount?

When reimbursements are much lower than actual cost, many clients make the wrong assumption: Their veterinarian must have overcharged. This is not good for the pet owner, the veterinarian or the pet insurance industry. 

A benefit schedule in the early days of pet insurance made more sense because most veterinary care was similar. Not so today, where cost and delivery of care vary widely. It is the insurance company’s responsibility to keep up with medical cost and reimburse appropriately.
Offering choices in plan coverages allows pet owners to choose the level of coverage that best coincides with the cost of care or their risk tolerance; benefit schedules do not allow this.

There is nothing wrong with economy plans or paying lower premiums and receiving lower reimbursements, as you state.  In fact, I agree they have a place and stated such in my 80:20 article, linked to Veterinary Practice News.  I simply think pet insurance companies that offer these plans should set proper expectations for lower reimbursements.  Tell pet owners up front, “For a lower premium you will receive 50-55 percent reimbursement on average” or whatever the average is. 

Restricting reimbursement through setting fees or a benefit schedule restricts care.  At Pets Best and most all other pet insurers, we simply reimburse for a percentage of the client’s expenses and let policyholders and their veterinarian decide the level of care.  It should not be our role to set benefit amounts for each diagnosis, but to respond to the current level of care and fees for pets.

There are no “usual and customary fees” in veterinary medicine. Fees vary widely, even in the same community based on a host of factors. At Pets Best Insurance, we simply want veterinarians charging insured clients the same as non-insured clients for similar care.  If so, then they meet our definition of “usual and customary” and we pay 80 percent of their fees, after a deductible up to the policy limits chosen by the client.  Other companies may have differing methods, but most all simply pay a percentage of the charges.

As far as deductibles and policyholder co-payments; these out-of-pocket contributions keep cost under control by having the client involved in the cost of care. With pet insurance, unlike human health insurance, the client is paying the insurance premiums, paying the entire cost of care up front and then seeking reimbursement.  This is an entirely different model utilizing consumer discretionary spending, not employer paid.

Certainly, cost and utilization of veterinary care will rise over time, as will the premiums to cover the higher cost, not restrained by automation or volume.  What is wrong with that principle?

The pet owner benefits by reducing his risk with better care and has peace of mind that he can financially care for the pet.  If the cost becomes too high, they can accept higher deductibles or lower paying plans, as you suggest.

In regard to your repeated comments about the many failures of pet insurance, the competition is alive and well and it’s only going to grow. Competition increases awareness and provides more options and different pricing structures.  Old models have to change with the times and not be trying to limit competition, or risk being left behind. 

Finally, as to your suggestion of leaving veterinarians out of the “intricacies of pet insurance,” that is where we could not be more opposite in our positions.

Having veterinarians and veterinary medicine involved is exactly how we can avoid having problems in the future. Let’s not sit on the sidelines, allowing third parties to dictate to us. Let’s be involved in forming the future direction of pet insurance.

This is exactly what the AVMA Group Health and Life Insurance Trust is doing with its exclusive partnership. The AVMA GHLIT is educating the profession, influencing coverage and helping set the future direction of pet health insurance.  It has a seat at the table, and is not simply observing from the outside.

Tom, after 30 years of our being colleagues, I know you love our profession. Let’s go on tour with this debate and discuss these and many other subjects we did not address. 

We can forge a better future for our profession that helps more pets receive the care they need.

Jack L. Stephens DVM
Pets Best Insurance

Founder and former CEO
Veterinary Pet Insurance Company

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