Wow, beautiful dogs!
Blue Heelers are a pretty longed-lived/sturdy breed, relative to their size. So 9 years isn't terribly old in terms of capital investment.
Kudos for getting pet insurance, seems it was the right call.
I agree that for either option, it's definitely a good idea for her to lose some weight. It's definitely a good idea to put less pressure on her joints.
Hoping for the best
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