David 0:00

So a lot of us have children, and of course, being responsible adults and parents. When we have children, we make sure we have insurance, but that's our two-legged children. What are we doing for our four-legged children? We'll find out on this episode of Shift Shapers.

SPEAKER_00 0:17

This is the Shift Shapers Podcast, connecting benefits advisors with thought leaders and entrepreneurs who are shaping the shifts in the industry. And now, here's your host, David Saltzman.

David 0:30

And so we have invited Aaron Oaks, who is CEO of United Pet Care, to join us. And Aaron came to us, he had a podcast that probably ran just a couple of weeks ago. You heard Eric Silverman, and Eric, as always, was talking about voluntary benefits at which he is the master. And he mentioned off-handedly that pet insurance is the number one selling and number one most appreciated benefit in all the voluntary benefits that he does. So we thought we'd follow up with a great conversation with Aaron, because that's what he knows all about. Welcome, Aaron.

SPEAKER_02 0:59

Thank you, David, so much for having me.

David 1:01

It's our pleasure. A little tiny bit about your journey. How do you get to be doing what you're doing? I don't suppose that as a child you said, I want to be CEO of a company that does pet insurance.

SPEAKER_02 1:09

Very correct. Yeah. I think I wanted to be a fire truck, actually, not a fireman, but a fire truck. So that's evolved a little bit. So I spent most of my career in what I now call non-pet healthcare or human healthcare. Worked for several large payer and providers, uh, eventually migrated to the oncology space. And it was actually a personal journey that brought me into the pet world. So my wife and I adopted a pandemic puppy, as we know just about everybody in the United States did. 23 million have entered into American homes since March of 2020. And realized pretty quickly during a time of personal transition for both of us that not only was this a pet, this was a pretty key catalyst to our mental health, our happiness, our relationship dynamic. We got really interested in the pet space. We had always been animal lovers and saw an opportunity in kind of the heavy air quotes new normal presented by the COVID-19 pandemic. We actually purchased a pet retailer together, rebranded, and after a couple of months, my wife kicked me out to run it on her own. But I had been bitten by the bug and so started looking into pets as an industry, but other kind of alternative business models and came upon United Pet Care.

David 2:20

That's awesome. So what are the deficits in pet care as we have known it? What are the things that maybe there are holes or parts that need to be improved?

SPEAKER_02 2:28

Yeah, so a lot of pet care trails human health care by, you know, somewhere between 10 and 20 years and won't open this can of worms. Obviously, we still have some limitations with how human healthcare is delivered in the United States. And those unfortunately are exacerbated many times when it comes to the treatment of our fur babies. One thing to note that is uh, you know, kind of a harsh realization for a lot of folks the first time they go to the vet is that these are doctors. You know, their average medical debt is almost on par, not quite as much, but can be, you know, very akin to a medical doctor for human health care. And the equipment, when I was in the radiation oncology space, we sold the same machines into the pet space as we did the human space. And so I think people just are not quite psychologically prepared for what pet care costs. And unfortunately, the traditional pet insurance market is still relatively immature in that there's a lot of players who, in aggregate, have very low market share. So the market dynamics are still kind of imbalanced in favor of service providers, in that there, you know, for the most part, are no negotiated rates, which just means that the average insurance company pays cash rates just like you or I would as a consumer off the street.

David 3:37

So if you buy traditional, I'm thinking as you're talking about dental insurance, we always tell clients dental insurance is just essentially like trading dollars. Is that kind of what's happening in the more traditional pet insurance space? Is that you're just kind of prepaying care that you're going to get anyway, and maybe you'll have a large claim or not?

SPEAKER_02 3:53

I would say that's right. I would say, in kind of addition to that, the where that generally manifests itself is in exclusions in pre-existing conditions. And so obviously now we've gone through several rounds of legislature to have you know stricken that mostly from most human insurance. Pets don't have the benefit of that kind of body of work which has been done. And so I've heard pet insurance described as a great product for all of the stuff that you're not going to need it for. So if you've got a flat-nosed pet, anything related to respiratory is almost exclusively not going to be covered. Things like bilateral conditions, if your pet has had a surgery on one side, the other side is immediately excluded from future care. And even things like hip dysplasia for labs and just basically the most common conditions for most pets. So it can be a really great product for things that are truly unforeseen, accidents, injuries, and care or things that are not related to breeds. But that's really where the rubber meets the road, or is those conditions that are going to be most common and eventually inevitable as the pets age. That tear just continues to go up year over year as the pet ages, making it less affordable to maintain insurance into the time where you're going to likely need it the most.

David 4:59

Is there also a challenge in the current market getting insurance for adopted dogs or older dogs who are being rehomed?

SPEAKER_02 5:06

There is. So actually, both of our two guys who I can see off camera just sleeping peacefully are both rescue pups. They both spent a little bit too much time in the rescue, had some unclear health history. And so both of them would be considered categorically uninsurable. Now it's not exclusively true for all rescue pups, but it is challenging. And typically the longer they spend in the rescue, the more challenging it is to get that complete health record, which is required, you know, to make a pet insurable.

David 5:32

Is this a growing market? I mean, I know there are a lot of articles out about how millennials and Gen Zs are either deciding not to have two-legged children or deferring children, but boy, they love their four-legged pets. Is that a growing part of the market?

SPEAKER_02 5:45

Yeah, children are the new exotic pets, as we like to say. You have incredibly expensive and you have to be a little bit crazy to own one. So, but pet parenthood definitely has skyrocketed. Unfortunately, there really hasn't been a proportional increase in pet insurance coverage, although it has significantly increased. As of right now, less than 5% of pets in the United States are covered by some sort of financial protection. And that's in stark contrast with 50% of millennials consider pets to be starter children, and a full 95% of pet owners consider their pets to be a member of the family. And obviously, I firmly believe that that's because right now that financial model doesn't offer value to the average consumer.

David 6:25

So where do you start if you're going to fix the problem?

SPEAKER_02 6:28

Yeah, so we took a little bit of a different tact, and we kind of build ourselves as modeled after an HMO for fur babies. So just to be clear, we're not insurance, we don't underwrite. But what we do is the hard work that most pet insurance companies to date have not done in going to veterinary providers and pre-negotiating rates on in-house services on behalf of our patients. And so what that allows us to do is on the other side of our network, offer a flat rate, no exclusions, no pre-existing conditions, just a much cleaner, all-inclusive alternative to traditional pet insurance.

David 7:03

But risk is not being transferred back to the parents of these animals. The risk is still being underwritten by you guys.

SPEAKER_02 7:10

So we don't underwrite in the traditional sense, but we are making a market. So when I say the risk, it's actually a risk that's being eliminated in a sense of those rates are guaranteed regardless of the pet that shows up and the condition of that pet. So effectively, our value proposition to our veterinary partners, and obviously where it kind of comes to roost with your podcast and your audience, is we distribute exclusively as a voluntary benefit offered by employers. So on the other hand, we provide veterinarians with a better breed of pet parent, is what we kind of call tongue-in-cheek. These are folks that are psychologically thinking about their pet in the same breath as their two-legged children, their family members, and they are folks that truly want to consume the best possible care for their animal and are just looking for a financial mechanism to do so. The benefit to the pet parent is that those savings are pre-negotiated, they're public, available on our website, and they're guaranteed, also delivered at time of service. So from a budget perspective, uh financial planning perspective, you know exactly what it's going to cost you and you know what you're gonna save before you go into the vet.

David 8:14

That's awesome. So you mentioned the analog to an HMO model. Do you also get into the needing referrals if a dog needs specialty care? That part of the HMO model, which was so contentious and such a pain in the caboose.

SPEAKER_02 8:29

Yeah, great question. So the reason we use that HMO loose analogy is we actually do require our pet parents to pick a primary care vet. And that for us supports better continuity of care for the animal, much longer, deeper relationships, better care. And then also from a veterinary perspective, that's a sticky customer that they know that they can count on for high share of wallet and loyalty for years to come. So that's why we use that HMO. So really we kind of reinforce that relationship with the primary care vet. We do also have specialist vets and emergency vets that are included within the network. That one-to-one relationship obviously doesn't apply there because they may be referred elsewhere by their provider. And obviously, that's hopefully less of a long-lasting relationship and more of a one-time basis.

David 9:12

So it's kind of like a medical home or direct primary care for animals.

SPEAKER_02 9:16

That's what we're trying to accomplish. And you know, what we found, again, very analogous to human health care, when you're worried about what the doctor is going to cost you, you wait. And a little problem becomes a big problem. You, or in this case, the animal, suffers during the interim. And that opportunity to intervene and provide preventative care really oftentimes is missed. And so the entire ethos of our product and our company is to reduce the financial anxiety around a trip to the vet so that people go more often and that the animals receive more and better care.

David 9:47

So take me through the continuum. I'm a pet parent and I decide that I want to become a part of your plan. Just practically on a day-to-day basis, what are those encounters and those payments and that flow of money and visits look like? Can you take us through an example?

SPEAKER_02 9:59

Yeah, absolutely. So you would go to whomever the CEO of the Saltzman group might be and let him know that you're going to resign immediately if he doesn't start offering pet protection as a benefit. And of course, he'd acquiesce because you're such a valuable employee. Of course. So in that case, the next time you go through open enrollment, or honestly anytime, because we don't require a life event, we try to be as integrated with the benefits flow as possible. And we've spent significant time, money, and effort integrating with every major benefit administration system. Strategic advantage of our product is we don't require any questions about the pet's health, so we can offer that rate without taking somebody to a third-party website. So you log into your benefits flow and you know, kind of generally in the same position as dental or vision, you'd have the option for united pet care. And that money typically will come out via payroll deduct on whatever pay cycle that you're on. Our program is $17.50 for the first pet, $16.50 for every pet thereafter, as long as the employer agrees to payroll deduct. So flat rates that can be counted on reliably. And again, that's per month. Yeah. Uh that's per month. So yep, exactly. About a Starbucks, depending on how extensive your order is, about a Starbucks per week.

David 11:09

Okay.

SPEAKER_02 11:10

And then from there, you get access to our entire network of veterinary providers. And so you receive an activation email. You can look, you can, of course, do this before you decide to enroll. We have a location-based search functionality to see if your vet is on the plan, or at least to see if there are some really highly rated vets that are within a reasonable distance from your home. Once you activate, you then pick that primary care vet that generates your membership card and activates your membership, which also affords you access to other benefits as well. Things like 24-7 televet coverage, which is for those, you know, dreaded 3 a.m., how much Halloween candy is safe for my dog to ingest so that you don't have to go to an emergency vet or something out of pocket.

David 11:50

So Mr. Pickles gets sick. I'm on your plan, and I take him to the vet who's part of the plan and with whom I have a relationship. Is there a fee structure? Is there a cost structure? How does the money flow there?

SPEAKER_02 12:03

Yeah, great question. So once you're there, that relationship is entirely between you and the vet. And of course, if there are any discrepancies, we facilitate those conversations and we intervene where we need to. But in general, it is applied directly at service. The easiest way to think about it is it's 25% off of anything that the vet does within their own four walls. If they have to send it out, typically that means the vet doesn't control the margin profile, which means we don't include it on the plan. And some of our vets actually have what I call kind of the oil change. They'll give 50% off or even free annual vaccines just to get folks in because again, better care for the animal. And then once you're in, the vet has a better understanding of what that animal's health needs are going to be more broadly.

David 12:44

So essentially, I'm renting your network, but you guys aren't taking risk. I'm still paying for services. I'm just paying a discounted fee that you've prenegotiated.

SPEAKER_02 12:52

That's right. Yep. And you can see that at the time of service. So when you check out, we integrate within the vet's HIS effectively. And so when you pull up as a UPC member, that discount will be automatically applied at checkout, and you can see exactly the total that you've saved, you know, before the credit card gets run.

David 13:08

That's awesome. Do your vets give priority visitation to your members because they know there's a flat fee and they're going to be paid up front?

SPEAKER_02 13:15

Good question. A lot of our vets will prioritize. Typically, though, they actually get paid agnostic of utilization. So it's we pay that as a per member per month, almost like a capitation payment, regardless of whether or not you show up. But we do partner with as many of our vets as possible to track utilization and to track spend because it's just allows us to make the product better and also for us to continue to confer value to our vets.

David 13:39

Okay. I think I missed a step someplace. So let me just clarify for the audience. You're negotiating, you're prenegotiating discounts with vets for a whole wide range of services. Are you also paying them a capitation? And if so, are you then taking risk? Because it sounded to me earlier as though as though you weren't.

SPEAKER_02 13:55

Yeah, it's a great clarifying question. So what we do, it's honestly revenue share is the best way to look at it because it is agnostic of utilization. So when you sign on and you pick ABC Animal Hospital as your vet for Mr. Pickles, what then happens is we generate a roster on a real-time basis to say David Salzman is now a new client of yours brought to you by United Pet Care. And then we take a portion of your membership due and share that with the vet. Now, from that point, actually, we don't know if you show up and spend $10,000 or, you know, maybe you have a light year and you never go to the vet. But every month on the first of the month, as long as you're an active member who has given that ABC vet as your primary clinic, we continue that revenue share flow. So it's a little bit different than the traditional model.

David 14:40

Yeah. Yeah, it's, you know, us old insurance dinosaurs have to kind of get our head wrapped around some of these new things. So we've got a couple of minutes left. I'm curious where you see your industry going in the next three, four, five, ten years. What do you think is going to happen? What are you seeing out there in the field?

SPEAKER_02 14:56

Yeah, I mean, first and foremost, uh, one of my favorite benefits statistics is now a higher percentage of the American workforce require pet care than require vision care. And when you move over to that millennial and Gen Z, kind of that coveted workforce demographic, that ratio is about two to one. Wow. And so, and now more and more, even sometimes beyond salary and core benefits, because you have a good preponderance of Gen Zers that are still on their parents' health insurance plan, they're looking for being treated as a whole self at work. And a huge part of that is whether or not their fur babies are accounted for. So, you know, obviously I've drank the Kool-Aid, but I believe in the next couple of years, if someone, an employee signs on with a company that doesn't at least offer a few options for pet protection, whether or not that's subsidized by the employer, they may start to wonder the type of company that they had just signed up to work with.

David 15:43

That's interesting. And it bears out the stats that Eric was talking about a couple of episodes ago about it being, you know, highly utilized and highly regarded in terms of employee appreciation.

SPEAKER_02 15:53

That's right. And I think it dovetails into, you know, another trend that Eric likes to speak of, which is the benefit shopping spree. You know, what we've seen a lot of our kind of forward-thinking employers and brokers do is allocate a small, flexible pool of funds. Because obviously, although 75% of employees have a pet, not everybody does. So rather than say, I'm going to pay for every employee, you know, subsidize their United Pet Care dues, they say, hey, here's 500 bucks a month, and you can allocate that over tuition reimbursement, financial education, or pet protection. We're, of course, huge advocates of that just from an advancement of benefits, the benefits horizon in general. But of course, we feel pretty good about where our benefit stands within the stack from a demand perspective.

David 16:32

That's awesome. So a little money purchase plan, as we call it, in the other side of the industry. Absolutely. Super. Aaron Oaks, CEO of United Pet Care. Thanks for a fascinating discussion. And please do come back as your industry changes and new things come online. We'd love to. David, thanks so much. It's been a pleasure speaking with you.

Announcer 16:48

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