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November 19, 2012 at 6:00 AM

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Part 3: The fine print in pet-insurance shopping

adambubba.jpgAdam Karp, pictured above with Bubba, is a lawyer in Bellingham who exclusively practices animal law throughout Washington and Idaho. He answers questions in the third part in a series about pet insurance.

Question: Is pet insurance worth it for most owners?

Answer: Insuring animal companions is a no-brainer if you would otherwise be willing to spend four figures per emergency or treat a diagnostic-intensive condition.

Veterinary Economics magazine reports that 47 percent of surveyed pet owners "would spend any amount necessary" on veterinary care to save a pet's life. Almost three-fourths would spend at least $1,000.

The American Animal Hospital Association further found that three-fourths of pet owners would go into debt to care for their pet.

A 700-page economic study commissioned by the veterinary profession determined that dog and cat owners would spend an average of $92 a month to maintain their companion animal's health, or more than $13,250 in veterinary expenditures alone during the pet's lifetime.

Premium plans may run as high as $800 a year per geriatric animal, but much less for adolescents, and while claims may be rarely made, the premium will frequently be lower than the cost to self-insure.

It also will allow you to better absorb the impact of high veterinary bills without carrying excessive credit-card or CareCredit interest.

That said, pet insurance does not work like human medical insurance in one critical respect: Unlike insurance for humans, which, aside from a co-pay, allows you to tender the claim to insurance, wait and see what part they cover, and then pay the balance not covered at some later time, insurance for pets requires you to front the entire cost and get reimbursed by the insurer afterward.

Q: How do I determine what I really want in an insurance policy?

A: Begin by examining your risk-aversedness relative to your own health-insurance preferences and the answer becomes simple: abide the golden rule and insure your animal as you would yourself or your loved ones.

But philosophic ideals often collide with fiscal realities. Thus, if economics render the gold standard nonfeasible, consider a bronze -- or I should say -- steel standard by examining your auto coverage.

While animals are definitely not inanimate hunks of metal, the car provides a surprisingly useful basis for comparison:

-- Most people will not spend more to repair their car than the cost to buy a new one, and in any event rarely incur more than $10,000 in repair costs.

-- Cars have an average new price in the range comparable to what juries and courts have awarded for the wrongful death of a dog or cat.

-- The average age of a vehicle on U.S. roads is 11, which is comparable to the average life expectancy for a dog or cat.

-- Lastly, most auto-insurance premiums cost about the same as animal health insurance.

If you drive a car with an expired time- or mileage-based manufacturer warranty, or expired aftermarket warranty, you are in much the same position as one who cares for an animal. Oil changes, tire rotations and balances and other mileage-calibrated servicings resemble the annual checkups, blood chemistries, vaccinations and other diagnostics for your dog or cat.

In addition to routine vet visits, your animal may require medication, surgery or other forms of treatment that come with everyday living, no different from fixing mufflers or overhauling engines that break from everyday driving.

Therefore, if you plan on being that forever home and want to have the wherewithal to provide veterinary care until death, insuring for low-deductible "collision" and "comprehensive" coverage (i.e., catastrophic accident or injury) is a prudent and compassionate fallback position.

Q: How would you recommend someone go about shopping for insurance? Is there a checklist?

A: As in any market, the best advice I can offer is caveat emptor.

Below are links to each of the U.S. pet-insurance companies so you can conduct further independent review:

Pets Best
Healthy Paws

Better Business Bureau (BBB) complaints: This nongovernmental organization rates businesses and offers dispute-resolution services. It also evaluates each of the pet-insurance companies.

As of early January 2012, I found the following BBB ratings, accreditation statuses and complaint histories. PetPartners and PurinaCare are not accredited but, nonetheless, have excellent ratings.

Below I provide the total number of complaints closed in the last three years and twelve months, and indicate the number not resolved (meaning that BBB found the insurer made a good-faith effort to resolve the complaint but the customer was dissatisfied with the response).

The best complaint history -- in terms of total grievances -- belongs to Healthy Paws (0), and -- in terms of unresolved grievances -- Healthy Paws and Embrace (0), although you should note that Embrace resolved all three complaints to consumer satisfaction.

The worst complaint history -- in terms of total grievances -- belongs to VPI (105) and 24PetWatch (99), with unresolved percentages of 19 percent and 22.2 percent, respectively.

The worst percentage of unresolved grievances goes to PurinaCare (67 percent), although it only had three complaints in three years.

Adjusting for the total number of complaints allows you to determine the real meaning of the unresolved percentage. I weighted the percentages by the fraction of three-year complaints for the subject insurer against the total number of complaints in the last three years among all insurers (395).

With this weighting, the worst record goes, in this order: 24PetWatch, VPI, ASPCA, Pets Best, Petfirst, Petplan, Trupanion and then PurinaCare.

The reader should keep in mind the missing variable: total number of policies active over three-year and one-year periods.

VPI has been in business the longest and has, by far, the largest market share, so one would expect a greater total number of complaints.

The relevant question is whether the number of complaints is proportional to the number of policyholders.

According to Pet Airways (, which recently partnered with VPI, VPI has nearly 500,000 policyholders. (publishing Packaged Facts), claimed in May 2008 that VPI had 71 percent market share, 24PetWatch 12 percent, and ASPCA 7 percent.

Insurer Rating Accredited 3-Yr Complaints 1-Yr Complaints Unresolved
Pets Best A+ Sept. 2005 31 6 12
Petplan A- Oct. 2008 26 9 6
ASPCA A+ Dec. 2009 53 10 19
Embrace A+ Sept. 2006 3 1 0
PetFirst A+ Dec. 2006 48 21 9
Trupanion A+ Jul. 2008 18 14 4
VPI A+ Jan. 2001 105 29 20
PetPartners A+ No 9 2 0
24petwatch A+ Aug. 2004 99 38 22
PurinaCare A- No 3 2 2
Healthy Paws A- Jan. 2011 0 0 0

Q: Which elements of a policy are most important? Less important?

A: Diagnostics (like MRIs or CT scans), surgeries, transplants, specialist consults and medications often comprise the big-ticket items.

For animals going into renal failure and requiring semiweekly or bidaily fluid therapy, though, even the cost of lactated ringers and venosets can add up.

The conditions not covered are too numerous to examine here, but insureds must pay close attention to breed-specific exclusions and almost universal noncoverage for dysplasia and ligament-tear repairs.

Healthy Paws will not cover dogs kept for commercial reasons, including "racing dogs." They also will not pay for injuries resulting from animal fighting.

The policies also tend to universally bar any claims arising from intentional harm to an animal by the insured, the insured's family member or resident of the insured's household. They also do not cover declaws, dewclaw removals, tail docking and ear cropping.

Petplan's policy excludes cloning.

Pets Best offers some bonus benefits such as mortality coverage for burial and cremation.

Petplan offers coverage for costs to advertise and pay a reward for a lost dog or cat, and to cover boarding fees or certified pet-sitter expenses if the insured is hospitalized and unable to care for the animal.

Petplan also offers behavioral therapy by a licensed veterinarian but not obedience training.

And Trupanion offers similar additional benefits coverage for about $5 a month including third-party property-damage coverage up to $25,000. However, this $25,000 rider does not cover bodily injury (e.g., dog bites person), and it will not cover claims involving damage to property owned by you or a member of your family; whether the rider includes animal-on-animal injury is unclear as the term "property" is not defined.

VPI will not cover diagnosis and treatment for "age-related changes" to eyes and ears.

Healthy Paws defines "accident" as an unexpected and unintended event causing injury. My concern is that it appears not to cover intentional harm to your animal by a third party (e.g., neighbor shoots cat).

Healthy Paws defines "medication" as only that which is FDA-approved, raising the concern that many veterinarians use medicines off-label (i.e., in a manner not expressly FDA-approved).

PetFirst only covers procedures within the country, so if you travel to Mexico or Canada with your animal, do not expect PetFirst to offer reimbursement.

Consider each insurer's bedfellows and determine if their affiliates support or oppose your positions on important animal issues.

For instance, the AKC markets 24PetWatch. Repeatedly, in cases where animal guardians have sued those responsible for the wrongful deaths of their dogs and cats, asking for compensation properly calibrated to the intrinsic value and emotional distress suffered, the AKC has retained counsel to file amicus curiae ("friend of the court") briefs asking appellate courts to limit damages to fair market value and deny emotional distress damages (except in cases of intentional or malicious harm), in essence protecting those in the animal industries (e.g., pet-product manufacturers, veterinarians, pharmaceutical companies, feed companies) from ever paying more than the cost to just buy or adopt another dog or cat.

The AKC also has taken the position that "Debarking is a viable veterinary procedure," that ear cropping, tail docking and dewclaw removal are "acceptable practices integral to defining and preserving breed character and/or enhancing good health," and that using dogs in research is acceptable provided "all efficacious alternatives" are first explored. See here.

Q: I want a policy that covers all illnesses, accidents and cancers, catastrophic situations, chronic disease, all advanced testing. Is this realistic? Do all policies cover these things? Is chronic disease handled differently? What about pre-existing or breed-specific problems?

A: The questions illustrate why readers must ask for the policy and check it against their expectations before buying.

I cannot overstate the need to know your animal's current problems, your animal's likely future problems, and your future wishes for the animal's well-being (e.g., spay or neuter) before selecting an insurance plan -- and to pay attention to renewal notices that update you on changes to the policy from year to year.

That said, it is realistic to expect full-spectrum coverage for accidents and injuries, and, in the case of animals insured from adolescence, for illnesses. Policies typically define each word, and each has consequences.

Generally speaking, a congenital condition is one that exists and can be found at birth.

A hereditary condition is one genetically transmitted but may or may not exist or be found at birth (in fact, it may not ever manifest until very late in life).

A developmental condition is one that results from faulty development of the body while aging that may not be genetically triggered and could exist and be found after birth during the animal's formative stages.

Q: Some plans allow me to choose the deductible and cap. What kinds of things should I take into consideration when deciding a $50 vs., say, $500 deductible?

A: Buyers must carefully examine and understand the nomenclature of insurance coverage, specifically the terms deductible, coinsurance/co-pay, caps, and premiums.

If the average "incident" runs between $1,200 and $2,000 (we can use $1,500 as a good figure), and you have one incident per year, you can calculate the exposure with and without insurance this way:

With Insurance at 90 percent coverage and $250 deductible: $1,500 cost of treatment minus $250 deductible equals $1,250. Ninety percent of that is $1,125 coverage from insurance. Add the premium, which is probably $400 a year. This means a total outlay of $400 plus $375, which equals $775.

Without insurance: $1,500 cost of treatment is the total outlay.

Sometimes, insurers subtract the deductible from the claim before calculating the co-pay. Fidgeting with the co-pay and deductible can fluctuate the premium to meet your budget.

Generally, there are three caps in play at any one time -- lifetime, period and incident.

The lifetime cap is the maximum amount the insurer will pay for the life of the insured animal. Once reached, you may as well scrap the policy.

24PetWatch claims to distinguish itself by offering unlimited lifetime coverage for accidents, but it still caps lifetime illness coverage at $72,000 for dogs and $60,000 for cats.

You must pay attention to the distinction in covered peril, as an incident that may serve as the basis of a claim may arise from an accident, illness, or injury.

The period cap is the most the insurer will pay for that animal in the one-year term; and because insurers can decide not to renew the policy for any reason within typically 30 to 60 days before the end of the policy term, this makes the lifetime cap basically illusory.

A frugal insurer may allow you to hit one period cap (and possibly two), but would likely never continue to insure an animal who hits the period caps multiple years in a row because the premiums paid for the rest of the animal's life would almost certainly not cover the total benefits paid to date.

Lastly, there is the incident cap. And because many policies define "incident" so as to pool or stack multiple conditions, the insurer can stop paying for those multiple conditions when the total amount claimed exceeds a single-incident limit (instead of applying a per-incident limit to each individual condition).

Be mindful of the occasional procedure, condition and breed-specific exclusions or caps, particularly where the afflictions suffered by different breeds frequently arise from genetic predisposition.

In this respect, exercise care in identifying the breed(s) of your animal, and be sure to correct your veterinarian if he or she charts an incorrect breed composition.

The closest the state of science can presently get to a "gold standard" in breed identification is DNA testing, although with Heinz 57-type mixes, DNA results may prove of little utility because of an unacceptable margin of error.

If your insurer decides to impose an exclusion or benefit cap based on the animal's breed, be mindful of the above. The time to ascertain your animal's breed composition is before -- not after -- applying for insurance, because your own breed identification in the application will likely be used against you should you attempt to retreat from it after a claim is denied.

Q: Is there an advantage to using a company that has been around for a long time or a local company?

A: Locavorism should be encouraged and Seattleites have two to choose from -- Trupanion and Healthy Paws, located in Seattle and Bellevue, respectively.

Q: How do I determine whether the insurance company is sound and will still be around when my young dog reaches old age?

A: Though not as critical a factor given that most policies will never pay more than $100,000, in addition to policy language one should examine the financial strength and issuer credit rating of the underwriter of the policy she or he intends to buy.

As of January 2012, I confirmed the following ratings through A.M. Best. All are secure (FCR of B+ to A++) and investment grade (ICR of bbb to aaa). The financial strength rating (FSR) estimates the ability of the insurer to meet its policy and contractual obligations; the issuer credit rating (ICR) assesses whether the underwriter is investment-worthy.

Only one underwriter, Trupanion's, was not reviewed by A.M. Best.
Below is a matrix of both the FSR and ICR for each underwriter, including outlook (forecasting likelihood that rating may upgrade, downgrade, or remain the same based on financial and market trends):

Insurer Underwriter FSR FSR outlook ICR ICR outlook
Pets Best Aetna Ins. of Conn. A Stable a Stable
Petplan AGCS Marine Ins. A+ Negative aa- Negative
ASPCA United States Fire Ins. A Stable a Stable
Embrace RLI Ins. A+ Stable aa- Positive
PetFirst American Alternative Ins. A+ Stable aa- Stable
Trupanion American Pet Ins. NR N/A NR N/A
VPI National Casualty Comp. of Madison, WI A+ Negative aa- Negative
PetPartners Markel Ins. A Stable a Stable
24petwatch Praetorian Ins. A Stable a Stable
PurinaCare Central States Indemnity of Omaha A+ Stable aa- Stable
Healthy Paws Markel Ins. A Stable a Stable

Adam Karp founded and served as the first chairperson of the Washington State Bar Association's Animal Law Section, and recently founded the Idaho State Bar Association's Animal Law Practice Section. He also has served as a vice chairperson of the American Bar Association/TIPS's Animal Law Committee since its formation. He regularly writes about and speaks around the country on animal law, and he has taught animal law at the University of Washington School of Law and Seattle University School of Law since 2004.

Tuesday: Ins and outs of shopping for pet insurance
Previous posts: The hunt begins, a vet's view of insurance.

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