She, along with her co-authors Liran Einav and Atul Gupta of Stanford, tried to find what that something else could be in their study on pet health care presented at the American Economic Association annual meeting in Chicago. “We often blame generous insurance and significant public sector involvement, but those are absent from pet care,” Ms. Finkelstein said.
Some health economists say generous health insurance and significant government intervention in the health care market promote unnecessary spending. They note the United States spends more of its G.D.P. on health care than other similar advanced economies yet does not exhibit broadly better health outcomes, a sign of inefficiency. But other economists argue that health care is so valuable that we might reasonably spend even more on it than we do today.
Which camp is right?
The three economists pointed out that, in contrast with the market for human health care, there is much less government involvement in pet care.
Pet health insurance is also much less common. More than 90 percent of Americans now have health insurance, an industry that has been with us since before World War II. But only 1 percent of dogs and cats are insured for pet care, a relatively new product. (According to the North American Pet Health Insurance Association, the first pet health insurance policy in the United States was written for Lassie, the TV dog star, in 1982.)
So the economists’ focus turned to the commonalities. Human and pet health care are both provided by experts — doctors and veterinarians — who’ve undergone lengthy and expensive training and occupational licensing. That expertise commands high salaries. It also gives them the authority to recommend treatments and tests, the need for which most consumers cannot independently judge.
You trust your vet as you would trust your doctor to do what is best, especially when an emotional decision is being made. Both human and pet health care are accompanied by strong emotions, making it hard to rationally weigh the value of options. Moreover, the need for care, whether it is for a pet or a human, is difficult to predict and often urgent, again threatening our ability and willingness to shop for the best deals.
Though routine veterinary visits might cost pet owners only a couple of hundred dollars per year, a serious condition can be very expensive. A dog’s kidney transplant can run $25,000, and a cat’s cancer treatment can cost $10,000 or more. Even if such high costs are extremely rare, it is not as uncommon for a pet owner to encounter a $2,000 to $4,000 bill at some point, particularly near the end of a pet’s life.
“It makes you think that the emotional nature of the treatment decision may be important in explaining high and sometimes heroic end-of-life health care spending,” Ms. Finkelstein said, “whether on your dog or on your mother.”
If emotions are in fact driving the higher spending, will it hasten the trend toward more pet insurance? The pet health insurance industry is growing, with total premium volume up about 17 percent in each of the last two years. It’s one of the fastest-growing employee benefits; Delta Air Lines, Hewlett-Packard, Microsoft, U.P.S. and Xerox now offer it.
The most common policies cover care for injuries due to accidents, as well as care for illnesses like arthritis or cancer, with monthly premiums starting around $22 for dogs and $16 for cats. But premiums can be higher depending on breed, age and where you live. Some other policies also cover preventive care, like vaccinations.
In general, plans won’t cover pre-existing conditions, pregnancy and birth-related costs, or animals less than a couple of months old. Typically owners pay 20 percent of treatment costs, with plans picking up 80 percent, though some insurers offer other cost-sharing options.
Is pet insurance a good deal? Consumer Reports explored its value last year and concluded it’s typically not worth the price. Only if your pet has very high care costs will insurance pay out more than you would pay in premiums. According to analysis by Ms. Finkelstein and her Stanford colleagues, nearly two-thirds of all pet care costs is spent by just 20 percent of households with pets. This guarantees that most policyholders won’t get back what they pay in. This is true of human health insurance, too, and for the same reason.
But the point of health insurance — whether for humans or their pets — is to protect against the risk of catastrophically high costs, not to make money.
Consumer Reports suggests an alternative when it comes to pet care: self-insuring. Many pet owners could probably build up several thousand dollars in an emergency fund that could be used to help cushion the blow of unusually high pet care costs. Saving enough to weather a serious, human medical condition that could cost tens of thousands of dollars year after year or more is not something most Americans could do.
Though you might reasonably avoid pet care insurance, you really can’t do that with human health insurance. Human and pet health care may have some commonalities, but this isn’t one of them.