Diane Sermersheim thought her children might get sick when the weather turned last December, but instead it was her 4-year-old Irish setter who ran a fever and suffered diarrhea.

A battery of exams, blood samples, medications and two vet bills later, Sermersheim ran up $314.17 for what turned out to be “the crud.”

Her experience reflects the frustrating reality of pet ownership. Animals get sick, fall in holes, chase cars and suffer from congenital maladies. Dogs run up the highest bills: They’re more active, more likely to be outside and more prone to congenital and hereditary problems, says Mark Warren, president and CEO of Pet Health Inc., the holding company for PetCare Pet Insurance.

More and more, pets are viewed as valued family members and spending on their health care has grown correspondingly. According to a Packaged Facts study in November 2005, the spending on veterinary services increased 76 percent from 1994 to 2003. Reflective of that increase, a survey of VPI policyholders in 2006, revealed that 70 percent of the 5,200 respondents would spend any amount to save their pets life.

That’s where pet insurance steps in.

A crossbreed of coverage

Pet insurance policies resemble a cross between indemnity products and automobile coverage, with many options to weave through.

Whether insuring a dog or cat, expect to pay a deductible, a co-pay or both. Some companies reimburse on a benefit schedule, others opt for a flat payback that typically hovers at 80 percent.

“If your pet’s condition is minor, insurance coverage helps a little,” says Jack Stephens, DVM, founder of VPI headquartered in Brea, Calif. “But where we really shine is when you have a large medical problem and you don’t have that $1,000 or $2,000 in your pocket.”

Most plans do impose annual payout limits between $10,000 and $12,000, which you can raise by buying a deluxe package policy.

Levels of care range from an accident-only policy at PetCare to VPI’s comprehensive coverage and maintenance rider that pays for check-ups and teeth cleaning.

Somewhere in the middle, most plans step up to the plate to pay for gastrointestinal upset, dermatitis, ear infections, bladder infections, asthma, skin tumors, cancer, diabetes, broken bones, X-rays, diagnostic tests, surgery, anesthesia, hospitalization, prescriptions and lab fees.

However, coverage for common procedures like spay and neutering depend on the company, and some players require extra cash to cover vaccines. VPI excludes pre-existing conditions (unless the pet has not needed treatment for the problem in the proceeding six months), congenital problems and hereditary defects. PetCare says yes to these conditions, depending on your state.

VPI bases its rates on the pet’s age — older dogs reach as high as $500 a year for its premiums. PetCare offers enrollment to dogs up to 8 years old, 6 for select breeds; elderly insurance hopefuls are directed to the senior plan.

Another major competitor Petshealth Care Plan (previously known as Petshealth Insurance) eschews age until a dog reaches 13 years after which they qualify for just the accidents-only plan.

At that point, both companies refuse coverage for newcomers. Count on some companies to consider breed as well — larger dogs such as boxers, bulldogs, Great Danes and Irish wolfhounds cost more, if they can even get insurance — for the most part Chinese Shar-Peis are restricted to accident-only coverage. And rest assured these companies don’t hesitate to pull vet records if your first claim rolls in too fast.

“We have many owners that get a diagnosis, take out insurance without mentioning the condition, and try to bill us for the treatment. Then they’re surprised when we won’t cover it,” says Stephens. “Would you wreck your car, buy auto insurance and try to claim the damage against the new policy? That is the only area of contention we ever really have.”

Still, VPI’s renewal rate pushes 72-73 percent a year, with more than 392,000 policies currently in force.

According to a recent American Animal Hospital Association survey, 1 percent of pet owners carry this insurance, with the average premium costs hovering at $141 each year. Of course, price ranges swing from $30 at the low end to $678 annually, depending on the options you choose. The right answer lies in your risk tolerance and ZIP code.

“If I had it to do over again, I wouldn’t go with a fixed fee schedule,” offers Michelle Cooper, a Westchester, N.Y., owner of a black Labrador mix. “The 80 percent payback works out better because I live in a more expensive area.”

Stephanie Stephens, too, sucked in her breath at her first veterinary bill after she moved from Denver to Los Angeles with five cats who became ill in August 1999. The group exam revealed her smallest baby had a tumor in her chest, so Stephanie coughed up $3,500 for surgery.

Two months later, a $700 MRI revealed the tumor had returned. Stephanie chose euthanasia, and quickly bought pet insurance with a special cancer coverage option for her two youngest cats. Her policy totals $408, payable in monthly chunks.

“I only made $35,000 a year at the time,” she says. “It would bankrupt me to go through another surgery.”

The coverage dilemma: What’s good for the vet isn’t always sensible for pet owners.

Susan McCullough, author of Housetraining for Dummies, passed on coverage after she decided the fine print meant she’d get relatively little bang for her bucks.

For example, here’s a sampling of the anomalies Urbanhound.com found when it compared companies’ policies, asking if they would cover a Labrador retriever’s $2,500 hip replacement at the Animal Medical Center in Manhattan:

Compared companies’ policies:
  • VPI charges a $50 deductible per incident, then pays up to 90 percent of the benefit schedule, or up to 90 percent of the veterinary bill whichever is less expensive. Unfortunately, a Lab’s failing joints fall under hereditary defect category so the confusing tables are moot.
  • PetCare Pet Insurance doesn’t provide for routine care but pays 100 percent for each accident and illness up to $3,000 per incident after the deductible has been met. If the fictitious Lab’s owner ponied up for the Gold level coverage they’d be in luck as that plan covers congenital or hereditary conditions.
  • Pet Assur extends a discount of up to 25 percent on vet procedures — in this case $625 off the hip surgery; not bad for a $99 annual membership fee — but you have to work with one of the docs in its system, which currently involves 2,000 names across the country.
  • Petshealth Care Plan slaps a surcharge for coverage in New York City, and it reserves the right to say no or redo the bill if it thinks the vet has overcharged. But, once again, “congenital anomaly” raises its ugly head for the hurting pup.

Filing reimbursement claims also falls on the pet owner’s shoulders. According to Stephens, this method cuts down on over-utilization and fraud.

“Most of our claims are in the several hundred dollar range, which consumers can put on their credit card. We try to reimburse within a week,” he says.

“But the back-and-forth paperwork and faxes I found way too frustrating and time-consuming,” she says. “It was a pain filling out the forms, which needed to be signed by the vet and almost always were bounced back, delaying reimbursement.”

The final straw came when she submitted a $145 bill in May 2001 but didn’t receive her check until September. She dropped the coverage.

Never buy a policy from a company not licensed in your state. Without this protection, the company could go under and leave you holding the bag for outstanding treatments and unused premiums.

Finally, understand that pet insurance revolves around emotion. The truth is, a policy won’t always save your pet’s life.

Warren knows it’s ultimately a numbers game: Say the bill amounts to $3,000 with a 20-percent co-pay. You’re still on the hook for $600, and statistically euthanasia becomes an option for most owners at the $474 mark.

“It’s still possible for that pet owner to put the dog down, even with insurance,” he adds.

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