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A Health Insurance System that Works

Why does the market function better for pets than for humans?

May 7, 2012, Vol. 17, No. 32 • By ELI LEHRER
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Around the time Lisa Mulhearn’s Old English Sheepdog, Goober, turned 12, a veterinarian discovered a bone tumor in his nose. The doctors at Red Bank Veterinary Hospital in Tinton Falls, New Jersey, gave Mulhearn a grim prognosis. Without expensive chemotherapy treatment, her dog—the newly divorced woman’s “best friend”—would die a painful death.

Photo of An online pet-insurance primer

An online pet-insurance primer

TRUPANION.com

But Mulhearn had purchased an insurance policy for Goober. The policy let her stay with her vet, pick whichever hospital she wanted, and decide between treatments ranging from a costly, good-enough-for-humans, pinpointed radiation to older, more-common-for-animals, unfocused treatment. She weighed the options with the care and concern of a deeply worried parent. “The premium treatment would keep Goober at the hospital for the daily treatments—he had been a pet store dog and not the most stable mentally,” Mulhearn explained via email. “Knowing I was doing this to keep him with me, I didn’t want him to spend what could be his last few months at the veterinary hospital. I decided weekly treatments would be best.”

It wasn’t easy. Much of Goober’s fur fell out and his vision failed in one eye. But the treatment worked. The tumor got small enough for doctors to remove. And an insurance policy that cost around $80 a month covered a large chunk of a bill that approached $20,000. Mulhearn, for her part, is thrilled with what she got: “no network requirements, no referrals, no hoops,” she says in describing her insurance. Indeed, Mulhearn, herself covered by an HMO that required everything to go through a “gatekeeper,” jokes that Goober had better health insurance than she did.

The contrast is instructive. The market for pet health insurance is a competitive one that offers many popular, desirable policy features—including many that politicians want to impose on the human health insurance industry. But it’s not perfect. A detailed look at the market, the least regulated broad health benefits system in the country, suggests it would be impossible for the human health insurance system to simultaneously do everything people say they desire, contain costs, and follow purely market principles. This isn’t a reason for free market health care reformers to despair but, rather, a cause for them to be careful about what they promise.

The positive aspects of the pet insurance market aren’t trivial. For starters, it offers far more choices. Only 3 companies market individual health insurance in New Jersey, while at least 10 write policies for dogs and cats. And the pet insurance carriers offer plans with benefits to fit any budget. Almost all pet insurance policies provide the same coverage at any hospital or vet, whereas almost all human health policies have no or limited benefits for “out of network” care. While people over 50 can have a very difficult time finding individual health insurance at any price, coverage for older dogs and exotic breeds isn’t a problem since several companies will write a policy for any dog or cat of any age. And many of the features politicians have felt themselves compelled to mandate in health insurance plans are provided by pet carriers as a matter of course. Even very cheap policies often throw in some “wellness” coverage that discounts routine tests and checkups. And the pricing schemes are also more attractive than those in the private individual health market. Although pet insurance premiums rise yearly as individual pets age and veterinary costs go up, many pet insurers don’t increase them on the basis of claims history, and most promise never to drop coverage no matter how sick a pet gets.

All these attractive features exist in a market with far, far fewer rules than the health insurance market for human beings. Each of the 50 states regulates pet insurance underwriters to make sure they can pay the claims they reasonably expect to receive and the entire industry to make sure it uses legally allowable insurance contracts. (Most regulators treat it as a form of the “inland marine” property and casualty insurance used mostly to cover trucking.) This treatment of pets as property—which is how the law usually treats them otherwise—explains a lot of the pet insurance marketplace’s success and also sheds light on its limitations.

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