Will higher veterinary fees fuel pet health insurance?

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Inflation is hitting many sectors of the United States economy, and there is no reason to suspect the veterinary profession will be spared. Veterinary hospitals, like many businesses, are seeing an increase in the cost of supplies and materials. Additionally, the demand for veterinary services increased exponentially during the COVID-19 pandemic, as people acquired pets and doted more on their existing pets. The net effect has resulted in a major labor shortage for both licensed veterinary technicians and veterinary doctors, which is driving up compensation for these team members. The effect of inflation and the increased demand for veterinary services in an already tight labor market will lead to price increases for veterinary care at all levels.

Expenditures at the veterinary hospital are made with discretionary income. Although price increases in the past have not resulted in a major decline in client visits, it is fair to ask whether that may be different this time around. One factor that may be different now is that the scale of increases may need to be more on the 10% to 20% vs a more traditional 3% to 7% annual increase. The higher level of fee increases will test how elastic or inelastic demand for veterinary services are with the general pet-owning public.

During the COVID-19 pandemic, families bonded with their pets more than ever, with most (95%) considering them to be a family member.¹ Opting out of care because of cost is likely not a popular choice for most pet parents at this point. Are we at an inflection or price point where more pet parents will be motivated to purchase pet health insurance, wellness packages, or both?

Pet insurance is geared toward unexpected expenses and allows pet parents the peace of mind that they will have available funds to pursue treatment in their pet’s time of need. Policies have been available in the United States since 1981 and, over time, the number of companies offering pet insurance has grown to approximately 20 in business today. But pet insurance is still far from commonplace, with approximately only 3% of pet owners in the United States carrying a policy.^2,3 When pet insurance initially came on the market, it did not get much support from the veterinary community for fear that it would end up mimicking human health insurance, where third-party payment abounds, along with lots of red tape.

Pet insurance has not gone the route of human health insurance in terms of reimbursements. Instead, most companies have the client submit a claim, and they are reimbursed directly. Thus, the hospital collects fees at the time of service as normal. Trupanion is one pet insurance company that reimburses the hospital directly, but this is done at the time of checkout, and there is no lag time.

In contrast, wellness packages are about planned care, and these packages allow for clients to budget or spread out payments over the year. Wellness plans have been available for nearly 30 years and were originally popularized by Banfield Pet Hospital. In the wellness model, hospitals typically receive client payments monthly, with an automatic draw from the client’s credit card or bank account. In some ways, these payments can be considered a reimbursement for delivered services. One downside to the wellness plan model is that you do have occasional failed payments that can require time and effort to make the account current. Overall, wellness plans have been considerably more popular than actual pet insurance.

In Europe, pet insurance is relatively commonplace, but it has yet to become mainstream in the United States, where pet parents have not overwhelmingly seen the value. Part of this may be that it has not enjoyed widespread endorsement in the media here and veterinary offices either haven’t specifically endorsed it or have found little client interest.

Pet owners can expect to see substantial increases in pet health care costs near term if they haven’t already. Perhaps this will be the tipping point that will drive clients to obtain pet insurance in larger numbers.

Pet insurance has grown approximately 20% each of the past 3 years in the United States, so it does appear that pet parents are warming up to the idea and seeing the benefit of being better prepared for the unexpected.³ Although a low number of pets (3%) are insured in this country, California bucks this trend, with 19% of pets insured. California is also one of the most expensive states for veterinary care, so it does support the thesis that as pet care costs go up, so does the number of insured pets.³

Wellness plans are also likely to gain in popularity as pet care becomes more costly, giving clients a way to budget out preventive care. The bottom line is that many pet parents want to take good care of their pets’ health care needs, but when funds are not available, economic euthanasia becomes a reality. Pet parents that have the foresight to obtain both wellness plans and pet insurance are in the best position to avoid tough economic choices when it comes to their pets’ medical care. Yes, as a profession, we must increase fees, but at the same time, we must do a good job of promoting insurance and wellness plans, which is a win-win-win scenario for all involved.

Rothstein is the founder and copresident of Mission Veterinary Partners, headquartered in Novi, Michigan, which operates more than 250 veterinary hospitals in more than 30 states. He is a frequent presenter at veterinary conferences and veterinary schools and can be contacted at jeff.rothstein@mvetpartners.com.

References

1. 57 pet insurance statistics you need to know for 2022. Shortlister. Accessed June 16, 2022. https://www.myshortlister.com/insights/pet-insurance-statistics
2. Metz J. Best pet insurance of 2022. Forbes Advisor. Updated April 13, 2022. Accessed June 16, 2022. www.forbes.com/advisor/l/pet-insurance-yt
3. Mawhinney W. What is pet insurance, how does it work & what is covered? a pet parent’s guide. PawlicyAdvisor. Accessed June 16, 2022. https://www.pawlicy.com/blog/what-is-pet-insurance