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America’s Next Entitlement?

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eye on the news

America’s Next Entitlement?

Pet insurance, a new employment perk, could become tomorrow’s human right. August 23, 2018
Economy, finance, and budgets

A Minneapolis marketing firm has begun offering its employees paid time off when they adopt a pet, the New York Times reports. This latest workplace perk, dubbed “fur-ternity” or “paw-ternity” leave, is spreading to workplaces around the country. It was “kind of a no brainer” for Allison McMenimen, a vice president at the company featured in the Times profile, who noted that “for a lot of people, their pets are their children.” On this view, new pet owners should enjoy similar benefits as new parents.

Substituting pets for children has become familiar among millennials; pet ownership among this cohort runs at a higher percentage than that of the general population, and these young “pet parents” spare no expense in caring for their “fur babies.” As quirky as it may sound, paid pet leave is just the tip of the iceberg. Pet insurance, for example, is a booming business. More than 2 million cats and dogs in the U.S. and Canada were insured last year, generating $1.15 billion in premiums—a 16.8 percent increase from 2016. As employers look for new ways to attract and retain younger workers, pet insurance—a benefit currently offered by about 5,000 companies, including Microsoft and Xerox—is on the way to joining paid vacation time and health insurance as a standard employer benefit. If it happens, get ready for a massive shift in how America views its pets and how it pays for them.

Economists note that when we insure ourselves against a certain risk, we often increase our exposure to that risk. People with auto insurance, for example, tend to be more reckless than uninsured drivers. This phenomenon, called moral hazard, leads people with health insurance to consume unnecessary and expensive services, since they are sheltered from its real cost. In 1940, per-capita health expenditures were just $511 (adjusted for inflation). Thirty years later, this number had climbed to an inflation-adjusted $1,762; and in 2016, average per capita health expenditures reached $10,348. Behind this dramatic growth in health spending was the IRS’s 1943 decision to make employer-sponsored health insurance tax-exempt, leading to a vast expansion in the percentage of Americans with private health insurance—from less than ten percent in 1940 to more than 50 percent by 1950. Simply put, Americans consumed more health care once someone else started footing the bill. Health insurance has grown from an employer-sponsored benefit to a government-protected human right, something to which everyone is entitled but that no one actually pays for. This transformation put American health care on an unsustainable path of waste, debt, and spending.

Another example: before the financial crisis of 2007, subprime mortgages made it possible for people with bad credit to own homes, reinforcing the notion that homeownership was fundamental to the American dream. Similarly, federal student loans made attending four-year college possible for increasing numbers of lower- and middle-class Americans, until attending four-year college became the norm —and American students had racked up $1.5 trillion in debt.

It’s easy to see how this same scenario could play out with pet insurance. In a tight labor market, employers are offering more benefits to appeal to workers. If companies begin including pet insurance in their benefits packages, a big chunk of the costs associated with owning pets could be shifted to the employer, making pet ownership cheaper and more appealing—and even more so, if employer-sponsored pet insurance gets a tax exemption. That might sound absurd, but it’s probably no more absurd than the idea of tax-exempt employer-sponsored health insurance sounded in 1930. Washington, being incapable of regulating a benefit without building an entitlement program around it, could then pass a law creating Petcare, offering pet insurance to those Americans whose stingy employers haven’t joined the modern world.

Some states are already taking steps to make pet insurance more like health insurance. In 2015, California passed a law imposing disclosure requirements on pet insurers and mandating that they offer a 30-day period wherein policyholders can claim a full refund. A bill being considered in New York would make it illegal for pet insurers to deny coverage on the basis of preexisting conditions. Sound familiar?

Not since the 1940s have a few adjustments to a small portion of the insurance market had the potential to bring about broad societal change. It’s not unimaginable that pet insurance will come to be seen as a human right, and that its costs will be increasingly socialized. As the pet insurance industry expands, Americans should heed the lessons of the last half-century, and avoid this moral hazard before it’s too late.

Photo: AleksandarNakic/iStock

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