Pet insurance complaints prompt California legislation

July 12--Stuart Waldman did all he could to help a dog that had been in his family for eight years. Treating the Anatolian shepherd came at a high cost: $17,000. When Waldman rescued his next dog, he decided, he would buy pet insurance.

"God forbid anything happen again," the Los Angeles resident and former Assembly aide said. "We wanted to be prepared."

At least that was his thinking at the time.

"We have been completely unimpressed ever since," Waldman said. "We get claims rejected constantly because of a pre-existing condition. In fact, we've never had a claim that has gone just straight through. They always reject it. We always have to appeal."

Waldman doesn't necessarily regret paying for coverage, still hoping his dogs are protected for the "big thing," but he wishes buyers could more easily access information before enrolling.

While only a sliver of American pet owners hold policies -- 1 percent -- the niche insurance has become an increasingly tempting option. Veterinary care can be costly, experts say, with more sophisticated medicine on the market and owners who treat their pets like members of the family.

Unlike human health care coverage, insurance for dogs, cats, even hedgehogs, falls into the category of property insurance. Providers have considerable leeway to place coverage limits and can carve out exclusions for pre-existing conditions or hereditary diseases.

Many policyholders complain that their plans are confusing at best and misleading at worst. It's an issue only worsened by expectations that coverage requirements for pets mirror guidelines for human health care.

With complaints to the Department of Insurance on the rise, Assemblyman Matt Dababneh, D-Los Angeles, is reviving an effort vetoed by former Gov. Arnold Schwarzenegger to set guidelines for the largely unregulated industry.

The measure gives insurance regulators a greater ability to oversee the plans, but its primary focus is on making policies more transparent. It features disclosure requirements and includes a 30-day trial period during which policyholders would have the option to return their coverage.

"Consumers weren't confident in the product they were buying," Dababneh said.

In an interview, he pointed to one policy's exclusions list to demonstrate what information consumers might be missing. The list of 21 exceptions included hereditary diseases, neutering and treatment of fleas or worms. The insurance company currently has the discretion to show consumers the information upfront or not, he said. The legislation would require it.

The pet insurance industry, composed of about 10 primary providers, has by and large not taken a position on Assembly Bill 2056. But supporters of the new disclosure requirements tout a key endorsement from Veterinary Pet Insurance, the largest provider in the U.S. The company issued its first policy to Lassie in 1982.

The firm is already forthright with its clients, VPI spokesman Curtis Steinhoff said, and supports the legislation because it would create industry standards and eliminate bad actors.

"We think that it's important to bring uniformity to policy language and disclosure," he said. "Because there are now so many companies in the market, we felt it was important that everyone was playing by the same rules."

With lawmakers on break, the measure is awaiting Senate approval. Still, it faces few foreseeable roadblocks and little resistance from key stakeholders. The North American Pet Health Insurance Association originally opposed the bill but is now remaining neutral. When the bill, which sailed through four committees with no opposition, came up for a vote in the Assembly, it was approved 78-0.

If the proposed legislation is approved by the Senate and signed by the governor, California would be the first state to impose basic requirements for pet insurance. The industry has not faced exhaustive regulation in any state, according to Patrick Storm, a spokesman for Insurance Commissioner Dave Jones, who supports the legislation.

"Pet insurance is still the Wild West and that's what we're trying to rein in," Storm said.

High veterinary expenses can place a burden on pet owners. A report prepared in 2011 for an American Veterinary Medical Association conference included several cost drivers: fee increases, longer lifespans and the availability of more advanced medicine.

"As treatments become more advanced and as pharmaceuticals become more advanced, there are costs that come with that," said Charlie Sewell, a lobbyist for the Pet Industry Joint Advisory Council. "You are seeing it in the world of pets just like you are seeing it in the world of humans."

Americans this year are expected to spend an estimated $15.25 billion on care for their pets, according to an industry group forecast. That outlook, from the American Pet Products Association, does not even include over-the-counter medicine costs.

Treating a benign skin mass, a top surgical procedure for dogs, can cost around $1,000, according to VPI. Tooth extraction, a common procedure for cats, costs an average $900.

Kelly Byam, a veterinarian based in Elk Grove, is currently treating diabetes in a miniature poodle whose owner has insurance. Without it, Byam said, the owner might have had difficulty paying for expensive treatment. If owners purchase the insurance in advance, before their pets develop a "pre-existing" condition, it can save lives, she said

"They can do more than they would otherwise because cost is such a concern," Byam said. "You have to pay out of pocket for animal care."

That was not the case for Oakland environmental lawyer and consultant Gary Lucks, who said marketing led him to expect his insurance to cover 90 percent of costs, when in reality his plan only covers 90 percent of what it allots for certain procedures. When his golden retriever was treated for a ruptured spleen in 2006, he was outraged to find his policy refunded a fraction of his actual costs -- about 35 percent.

"I felt that they over-promised and under-delivered," said Lucks, one of the bill's sponsors.

Under the measure, companies are required to disclose limits, premium adjustments and coverage exceptions. It also sets industry-wide definitions for policy terms.

The bill, for example, defines a "pre-existing condition" as an ailment for which veterinarians have offered to consult or for which pets displayed symptoms in the past. The definition came out of "extensive negotiations" between the industry, Dababneh's office and the Department of Insurance, according to a letter of support from Nationwide Insurance.

The provider, which lists VPI as an affiliate, said the language is necessary to "maintain product availability" and prevent owners from purchasing coverage only when their pet gets sick.

Dababneh does not currently have pets of his own (he grew up with dogs and cats). Still, the freshman lawmaker considers the legislation a "great win" and hopes the California proposal will serve as a model for other states.

"There's obviously a big new opportunity for us here in California to once again lead the way, and I think it will really, hopefully, help consumers and their pets across the country," he said.

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