There is another factor that I haven’t written about yet on this Healthy Assurance blog that is an important factor in determining how much a pet owner is reimbursed by the insurance company when she or he files a claim. If pet owners aren’t aware of this, it can catch them by surprise. Insurance companies figure their reimbursements in one of three ways:

1. Based on whatever the veterinarian charges. For example, if the total invoice is $2000 and everything on the invoice is covered — with a deductible of $100 and 20 percent coinsurance, the reimbursement would be:

$2000 - $100 = $1900 x 80% = $1520.

This is the easiest method for pet owners to understand, and most of the newer companies use this method. Since it is based on whatever the veterinarian charges, it keeps up with the inflation of veterinary fees. However, this can be a double-edged sword for pet owners, because while it usually results in higher reimbursements, it may also lead to more frequent rises in premiums. Perhaps this is why some of the newer companies have recently started offering policies with lower premiums that have higher deductibles and/or coinsurance limits. Over the years, as my own health insurance premiums have risen, I’ve had to raise my policy’s deductible several times to be able to afford health insurance. In the past year or so, several pet insurance companies have raised premiums significantly, and from reading pet forums and review sites, this has really caught some pet owners by surprise.

2. The reimbursement is computed from a "benefit" schedule based on the veterinarian's diagnosis. Sometimes these reimbursements can be comparable to method 1. However, sometimes they can be significantly less than method 1. For example, if your pet gets sick with pancreatitis and the maximum reimbursement allowed for this diagnosis is $865, but your submitted claim is for $2000, you'll get reimbursed $865. Using method 1, you would get reimbursed $1520. Most cases of mild pancreatitis will be less than $865, but a severe or complicated case can cost thousands of dollars. Because the benefit schedule places defined limits on what the insurance company will pay, the premiums may be lower for this type of policy.

3. The reimbursement is based on what are considered "reasonable and customary" fees for your geographic region of the country. Each charge on the invoice for a procedure or product is compared to the fee guidelines, and you are reimbursed accordingly. If your veterinarian charges more, then you are responsible for the difference. Each company that uses this method usually uses a combination of their own internal data and external sources to arrive at what is reasonable and customary.

Fees can vary for a certain procedure from practice to practice even within the same city. Each practice has its own unique philosophy of practice and overhead, which will affect all its fees. For example, if your pet is referred to a specialist, does the fee schedule take this into account? A specialist's fees are higher because they have more expertise and may use more advanced technology (e.g., a CT scan or MRI) or perform more sophisticated surgery than your regular veterinarian. Perhaps even your regular veterinarian uses ultrasound, digital radiography, endoscopes, laser surgery, or more advanced dental equipment, etc. Perhaps he or she has a newer hospital and a larger staff. There are several different ways to repair a ruptured cruciate ligament in a dog, and the price for each procedure will vary depending on the technical difficulty and equipment required. Sometimes, which technique is used will depend on the personal preference of the surgeon.

Therefore, the reimbursements from pet insurance companies who calculate benefits according to usual and customary, or to a benefit schedule, may be lower than whatever your veterinarian charges on some procedures or medications — especially if their guidelines/schedules aren’t updated frequently.

If you look closely at the fine print in the policies of companies that say they figure reimbursements using method 1, even their policies may state that they pay benefits based on what is "reasonable and customary." For the time being though, they only use these guidelines when a fee for a procedure seems way out of line. Will there be a time in the future when they are forced to use the reasonable and customary fee guidelines routinely as a limit on reimbursements in order to keep their premiums affordable and competitive?

Be sure to take into account how a company figures your reimbursement when making the decision to purchase pet health insurance. Read a sample policy and also ask a company representative which of these three methods they use when calculating reimbursements.

Dr. Doug Kenney

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