Besides the obvious limits that are stated in an insurance policy such as annual maximum, per-incident maximum, deductible, and co-pay amounts, there is another variable that isn't so obvious that is an important factor in determining how much a pet owner is reimbursed by the insurance company when they file a claim. Insurance companies figure their reimbursements in one of three ways:
1. A simple computation based on whatever the veterinarian charges. For example, if the total invoice is $2000 and everything on the invoice is a covered item and the deductible is $100 and the co-pay is 20%, the reimbursement would be:
$2000 - $100 = $1900 x 80% = $1520.
This is the easiest method for pet owners to understand and generally gives pet owners the largest reimbursements. Since it is based on the actual charges of the veterinarian, it keeps up with inflation. Most of the newer companies use this method. One criticism of this method is that premiums may rise faster because the only limit on reimbursements of covered expenses is whatever the veterinarian charges.
2. The reimbursement is computed from a "benefit" schedule based on the veterinarian's diagnosis. Sometimes these reimbursements can be as much as 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 does place limits on what the insurance company will pay, the premiums may be lower for this type of policy.
3. The reimbursement is based on a fee schedule of "reasonable and customary" fees for your geographic area of the country. Each charge on the invoice for a procedure or product is compared to the fee schedule and the insurance company will reimburse according to the schedule. If your veterinarian charged more, then you are responsible for the difference.
Fees can vary for a certain procedure from practice to practice even within the same city. Each practice has it's own unique philosophy of practice and overhead which will affect all it's 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 higher technology e.g. CT scan or MRI or perform more sophisticated surgery than your regular veterinarian. Perhaps even your regular veterinarian uses ultrasound, endoscopes, laser surgery or more advanced dental equipment, etc. Perhaps they have a newer hospital and a larger staff. Judging whether a veterinarian's fees are reasonable should not be measured by what is considered customary according to an insurance company's fee or benefit schedule, but on the perceived value you receive in return for the fee.
If you look closely at the fine print in the policies of companies that figure reimbursements using method #1, some also state that they pay benefits based on what is "reasonable and customary." For the time being though, they use that as a fall back - only 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 schedule routinely as a limit on reimbursements in order to keep their premiums competitive?
Unless they are updated frequently, benefit schedules and fee schedules can become obsolete due to inflation.
Be sure and take into account how a company figures your reimbursement when making the decision to purchase pet health insurance.
Dr. Kenney is a practicing veterinarian in Memphis, Tennessee. He author's a blog ( http://petinsuranceguideus.com ) devoted to teaching pet owners how pet insurance works and to helping them make informed and wise decisions when selecting a company and policy to cover their pet.
The blog also offers the latest information on each of the pet insurance companies that insures pets in the United States along with podcasts, videos and even a free Pet Insurance Toolkit to help pet owners when researching pet insurance.