updated 8/17/2004 10:42:19 AM ET 2004-08-17T14:42:19

Veterinarians aren't what they used to be, and the cost to visit them has changed, too.

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This is how Yorkshire, England, vet and best-selling author James Herriot described a fellow veterinarian's office in his great 1972 book All Creatures Great and Small: "Some of the bottles on the shelves fell short of the ethical standards I had learned in college. Like the one labeled 'colic drench' and featuring a floridly drawn picture of a horse rolling in agony.... The small animal equipment lay on green baize shelves, very neat and impressively clean. Hypodermic syringes, whelping forceps, tooth scalers, probes, searches and, in a place of prominence, an ophthalmoscope. 'My latest purchase,' [the vet] murmured, stroking his smooth craft.'"

Today, Herriot would likely find a clinic equipped with a magnetic resonance imaging machine, computer tomography equipment, an aromatherapy room, even a shrink, as advanced human diagnostic tools and specialists have crossed over to animal medicine.

But technology also means high cost. Americans spend $34 billion on pets annually, according to the American Pet Products Manufacturers Association. Fully half of that money pays to cover veterinary care and drugs, as procedures like skin grafts and chemotherapy have become commonplace. Yet just 70,000 of the 70 million U.S. households owning a pet, or 1 percent, have purchased pet health insurance, spending $140 million on premiums last year. That's far below what Europeans spend. In the United Kingdom., 20 percent of pet owners have such insurance; in countries like Sweden it's as much as 45 percent.

Pet insurance policies
Given that an estimated 40 million Americans lack their own health insurance, many pet owners may think their pets will wing it as well. There's a perception, not unfounded, that paying for pet care as you go may actually be cheaper. To boot, now that general insurance has become commoditized, pet policies, at least in Europe, are wildly diverse. "It's the most complicated personal insurance product we've come across," says Brian Brown, co-author of a 56-page pet insurance study released in April by the British financial research firm Defaqto.

Brown, whose clients include top British banks and insurers, like Aviva, HSBC Holdings' HSBC Bank, Allianz, Bank of Scotland and Marks & Spencer, looked at 150 policies offered by 50 British insurance providers. "The danger is that there's a lot of variety, but they are being sold off-the-shelf as if they were the same," he says. Brown says that policies vary in the way they exclude pre-existing conditions, cap coverage per incident and even discontinue payment if an illness lasts for more than a year.

"Some products look expensive, but they are worth the money because they give you much more coverage," says Brown. For a 6-year-old Labrador Retriever, the annual insurance premium in England would range between $300 and $1,000, depending on coverage purchased.

Not much saved
Stateside, Consumers Union of the U.S. surveyed five plans in the United States last year and published a report saying that pet insurance is almost never worth the money. "The most important thing you need to know about pet insurance is that it is a form of enforced savings that almost never covers the entire bill," the report says. "You can accomplish the same thing by paying the same monthly premium to your savings account." Indeed, the group that is "buying a policy may end up increasing a pet owner's total expenditures on veterinary care by thousands of dollars."

The U.S. market, which sees Europe as its model, is smaller with cheaper premiums starting from $100 to $500. There are three main insurance providers in the United States: Veterinary Pet Insurance, Pethealth and Pet Assure.

VPI, based in Brea, Calif., is the oldest among them. It opened for business in 1980. To date, the company has written 300,000 policies; it grossed $94 million in 2003, a 35 percent increase over the previous year. Amy Corsinita, VPI's spokeswoman, is unfazed by the Consumers Union's finding. "Buying pet insurance is like buying peace of mind," she says. "Sure, it would be nice to put vet money into your savings, but does anybody do it?"

Pet Assure, based in Lakewood, N.J., has perhaps the most comprehensive plan on the market. The company, which has 100,000 clients, offers a 25 percent discount for services within its network of 2,000 vets. Consumers pay as little as $72 annually for one pet, or $167 for four pets. There's no deductible and no premium penalty for pre-existing conditions; the company doesn't cover nonmedical services such as grooming.

Pet insurance may still be a small business, but one thing is certain: Vet bills won't be getting any smaller. "It's a vicious circle," says Defaqto's Brown. "If the vet knows that the pet is insured, that gives him the opportunity to carry out more treatments, care gets more expensive, and there's more demand for insurance."

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