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Bungling the AIDS Crisis…

…as an insurer in 1987. An Institutional Investor expose on the failure of an industry to handle a plague.

This article was originally published December, 1987.

AIDS and fear: They are inseparable. The nightmare has just begun, but acquired immune deficiency syndrome has already scratched the American consciousness like the icy claw of winter. Is there anyone who hasn’t heard of AIDS, who does not instinctively link it with death and doom, who has not quailed just a little at the thought of being infected? The AIDS crisis may tough people differently, but fear is something they all understand.

This is a story of how, in an isolated rivulet of American life, that feral emotion has estranged two most unlikely groups: the insurance industry and the gay community. The result, aside from their mutual enmity, has been the politicization of AIDS. Insurance companies have become ensnared in a briar patch of gay rights and public policy issues. The debates turn on two central questions: Should insurers be allowed to test for AIDS, just as they do for other catastrophic diseases? Or is this a violation of the gay person’s right to privacy? And if the industry won’t pay for AIDS, who will? This may not look like fear, but the smell is there because each group is frightened of something terrible.

Life and health insurers are afraid of losing money, although at first glance it’s difficult to understand why. The numbers themselves – if the callousness of such a statement can be forgiven – are minuscule. “Only” 25,000 people have died as a result of the virus – out of a population of 230 million; that’s barely one ten-thousandth of 1 percent. Anywhere from 1 million to 1.5 million Americans are estimated to carry the AIDS virus, which, even at the upper range, is a mere six hundredths of 1 percent. And, according to the industry, only half of these people would normally be included in the insured population. As a result, AIDS-related claims thus far have had minor financial impact and amounted to about 1 percent of total life insurance claims last year.

As the epidemic spreads, however, the number of claims will certainly grow. And it’s this baleful vision of the future that unnerves the industry. As one trade association official puts it, “What’s in the pipeline is hydraulically driven – and it’s frightening as hell.”

Everyone’s problem

The first major assessment of AIDS’s likely impact on the insurance industry came from State Mutual Life Assurance Co. actuary Michael Cowell, in a wide-ranging study he co-authored last August with fellow State Mutual actuary Walter Hoskins. The report projects that by the year 2000, AIDS will cost insurers $50 billion in claims on individual and group life business that’s already on the books – assuming that insurers screen new life insurance applicants with blood tests. Without testing, the total would be billions of dollars more. And Cowell did not measure the likely impact of AIDS on health and disability insurance, which will generate billions of dollars in claims on its own. It would take a catastrophe of unprecedented proportions to threaten the solvency of the entire industry. But it’s entirely possible that many smaller insurers will think they don’t have an AIDS problem.

Insurance company executives are perhaps even more spooked by the unknown, by all the things that medical researchers don’t understand about AIDS. As they prepared to jump into this noisome swamp, no one knows how deep it is. This apprehension is not easily translated into a financial projection. The danger is perceived viscerally, felt rather than seen, as one might sense the menacing presence of a stranger in a dark room.

Cowell’s study was a tour de force in navigation through such uncharted territory, but he agrees there are countless “imponderables” in the AIDS equation. The result in an uncomfortable degree of iffiness. For example, Cowell assumes there will be no meaningful infection of the heterosexual population, that AIDS will remain primarily a disease of intravenous drug users and gay mean. Emerging trends are not necessarily moving in favor of his thesis, however. The New York City Health Department reported in October that IV drug users – the vast majority of whom are heterosexual men and women – now account for 53 percent of the city’s AIDS cases, versus 38 percent for the homosexual and bisexual men. Moreover, the city’s heterosexual transmission rate from 1985 to 1986 showed a 131 percent increase, versus only a 56 percent jump for homosexuals, reports Manhattan-based Gay Men’s Health Crisis, the largest AIDS service group in the world. Granted, New York City may not be representative of the entire country. But since the IV drug users group is one of the major channels through which AIDS is spreading to the heterosexual population, this trend is alarming.

Nor is there any provision in Cowell’s report for the recent findings of Finnish and American researchers that it can take up to fourteen months – not the six assumed by most scientists – before antibodies are detectable by commercial blood tests. The possibility of an increased latency period “makes our testing procedures less certain, and to the extent to which that’s true, we take on more risk,” says Prudential Insurance Co. vice president John Snore. For all their dismay, insurers were actually quite slow to identify the AIDS threat. The Centers for Disease Control in Atlanta report that 73 percent of the country’s AIDS cases have originated among homosexual and bisexual men. Yet most companies outside New York and San Francisco, two cities with large gay enclaves, naively assumed they had little exposure. True, they may insure relatively few heroin addicts, but whatever made them think they didn’t insure homosexuals? Gay men buy insurance just as do other people who have no children or spouses but large amounts of disposable income, remarks a gay life insurance broker in New York, who seems a bit perplexed that anyone would find this fact surprising. And with homosexual and bisexual men comprising upwards of 6 percent of the adult population, according to the National Academy of Sciences estimates included in the Cowell study, that’s a lot of insurance.

Former Massachusetts insurance commissioner Peter Hiam recalls meeting with insurance company executives early in 1985 and pressing them for their reading of the AIDS threat. Because of an earlier public health background, Hiam was already interested in the disease – and worried. Frew executives shared his concern. “It just wasn’t much in their consciousness yet; scary, sure, but it didn’t affect them,” he says. “After all, look at whom I was dealing with: white, heterosexual, middle-class men. Most of them were my age or older.”

Many insurance executives reacted in knee-jerk fashion when they finally saw AIDS for the menace it is. Some responded as straight men and women might be expected to when confronted with the still emotion-laden subject of homosexuality. They tried to shun individuals commonly stereotyped as gay: hairdressers, florists and so forth. Mark Senak, legal director for Gay Men’s Health Crisis, cites a memo one insurer sent to its agents writing group business.

“[It] went so far as to [exclude] any profession in which there’s not a high degree of physical exertion. A way to weed out homosexuals, right? Another job they [excluded] was restaurant workers, and I thought, ‘Boy, they never bused a table.’”

Most companies now decry this so-called lifestyle underwriting. They charge in turn, however, that many AIDS victims have tried to defraud them by applying for life insurance after the disease has been diagnosed. Prudential says it has denied twelve life insurance claims totaling well over $1 million because it feels misrepresentation has occurred. Other insurers report similar experiences.

Testing question

The dispute between the two groups has crystallized over the issue of testing. Underwriters worry most about individual life policies, which, unlike group insurance and individual health and disability products, is not repriced annually, thus giving insurers little opportunity to recoup losses. AIDS victims cannot be included in the insured population, underwriters argue, because a company could never charge enough premium to cover the expected claims. There is growing sentiment among medical researchers that virtually all individuals testing positive for AIDS will eventually develop the disease. And AIDS has thus far proven to be inexorably fatal.

Lincoln National Corp. chairman and chief executive officer Ian Rolland, who was among the first in the industry to sound the AIDS alarm, believes insurers have a right to screen for this disease just as they would for any other serious health condition. “That’s my right,” he says. “That’s Lincoln National’s right, which I need to exercise.”

For their part, members of the gay community are fearful of being unmasked to a hostile society. Gay rights advocates are desperately afraid – indeed convinced – that insurance companies will not be able to protect the confidentiality of the tests. “There are a lot of people walking around this country who are bona fide homosexuals,” explains the gay broker. “They don’t want other people to know about it.” Insurers tend to brush this argument aside, responding they’ve taken extra precautions to protect the results of AIDS blood tests. “I’m the only person at Lincoln National who has access to this information,” insists chief medical director Donald Chambers. “We can’t take greater care than that.”

Opponents of testing aren’t convinced, and they all have horror stories to bolster their case. GMHC legal director Senak tells of one instance in upstate New York in which a client was tested for the AIDS antibody without his consent. A blood sample was taken, but he was told it was only for routine medical tests. “It’s a pretty small town,” relates Senak. “[He] goes to a party, a social function. He hears a rumor, because there are employees of the insurance company there, that he is gay and has AIDS because he tested positive for the antibody.”

The problem is that this and similar evidence is generally anecdotal, so it becomes nearly impossible to determine whether breaches of confidentiality have been widespread.

Understandably, few people will press their cases in public. “We [haven’t received] many complaints,” says New York State insurance superintendent James Corcoran, “and I’m convinced we [haven’t] because [people] don’t want to come forward and say they’re gay.”

Equally disturbing to those working with AIDS patients is what they see as the creation of a new class of uninsurable people. Senak estimates that 40 percent of his 1,650 clients are neither covered by a group plan nor able to purchase their own health coverage. Although many of these people are indigent, there is still a large percentage that could afford coverage if someone would sell it to them. Most of these uninsurables will be dumped on Medicaid, a joint federal and state insurance program for the poor. Medicaid already covers 54 percent of the AIDS cases nationwide, the American Medical Association estimates.

The consequences of being an AIDS untouchable are stark. Senak has seen it happen many times. “The person who doesn’t have adequate coverage ends up being harassed by hospitals that naturally want to be reimbursed – and by his doctors,” he explains. “There aren’t that many physicians even in New York who will see people with AIDS. So maybe they’ll have to go to a clinic somewhere. And the end result is that they die sooner.” AIDS treatment is so expensive – ranging between $50,000 and $150,000, according to a variety of sources – that patients with personal savings go through them quickly. Says Senak, “I’ve seen people go from being middle-class to being homeless in six months.”


Insurance companies argue that opponents to testing have distorted this simple matter into an emotionally charged gay rights issue. And they blame the gay rights lobby, a well-organized group that includes Gay Men’s Health Crisis and Lambda Defense Fund, among others. “They’re a dynamite lobby,” admits a state insurance trade group official who has crossed swords with them. “They do fantastic work. They know everybody. They’re well wired. They’re very effective speakers for their cause.”

Lincoln National’s Rolland believes that if gay men weren’t the primary victims of AIDS, testing would be a non-issue. “It’d be like cancer or heart trouble or whatever,” he theorizes. “That’s what politicizing is all about. The disease is all wrapped up with other issues rather than [isolated as] the simple fact that this is… an illness.” And this politicization makes it harder for politicians to address the AIDS crisis effectively, he argues.

Gay rights advocates are extremely sensitive about AIDS being portrayed as their problem. Senak argues that the perception of AIDS as a gay problem has led to much foot-dragging and inspired a “lethargy” that conventional society cannot afford. And it’s true that an ever larger number of heterosexuals are being infected. A great many of Senak’s clients, moreover, are women. He cites on Monday morning in October: “My first client comes in to sign her will. She brings her four- and five-year-old kids to watch her. The client after that was nine months pregnant. Sure, it’s our problem, because we’re the only ones dealing with it. But I’d like to see you convince [either of the women] that it’s a gay problem.”

For all its reputed clout, the gay lobby hasn’t won many battles so far. Insurance companies are not doing some form of testing in all 50 states and the District of Columbia. The fiercest battles have been in the nation’s capital, where the U.S. Senate, which oversees the district’s affairs, overturned a local law prohibiting insurers from denying coverage to persons testing positive for AIDS; and in New York and Massachusetts, where insurers went to court and won temporary injunctions against regulations that would have allowed testing for life insurance (unrestricted in New York; above $100,000 in Massachusetts) but not for individual health, disability or group insurance. A central issue in all this skirmishing has been the matter of who pays for the AIDS victim’s medical costs. According to industry estimates for 1985, about 150 million Americans were covered under employer-sponsored group medical plans. According to a recent survey conducted by Johnson & Higgins, the benefits consultants, 81 percent said they would continue bearing the major costs of AIDS treatment. So for a large segment of the population, corporate America may ultimately pay for AIDS.

Between the cracks

At this point, many AIDS victims – IV drug users in New York City, for example – were never a part of the insured population to begin with. Medicaid has paid for the majority of AIDS cases, various studies show – but many of these people may have fallen under Medicaid anyway. What’s more difficult to gauge is the number of people who must pay for AIDS treatment on their own – who don’t have group insurance but are also above the poverty line and therefore aren’t eligible for Medicaid until they’ve exhausted their personal savings. Industry figures do show that at least 16 million people bought their own health coverage in 1985. Ultimately, in the opinion of lobbyists in both camps, the number is large enough to warrant concern. “I was surprised at the number of people who do fall through the cracks,” says Barbara Burgess, legislative counsel for John Hancock Mutual Life Insurance Co.

When GMHC lobbied against testing in New York, the group was so concerned about retaining its constituents’ access to the health insurance market that it agreed to life insurance screening in return for a ban on testing for health coverage, admits Senak. “Our public health policy is being threatened by a private business practice,” he says.

There appear to be at least some in state government who agree with Senak. Corcoran says New York tried to prohibit testing for health insurance “to make sure that an essential service is available to everyone in the state.” According to a variety of industry and gay lobby sources, New York Governor Mario Cuomo – who announced the testing ban – was worried about economic impact if the industry didn’t pick up at least some AIDS cases. Since Medicaid is funded partly by state revenues, every AIDS patient that private issuers cover is one less Albany has to pay for. Corcoran denies that Cuomo acted out of his own political self-interest, but if the contrary reports are true, it seems that New York also has something to fear from AIDS.

Massachusetts’ attempt to prohibit testing for health insurance had few practical ramifications for the state’s private insurers, since they write virtually no individual health policies. That coverage is largely provided by Blue Cross/Blue Shield. Yet insurance lobbying sources say the same thinking prevailed. “It was a matter of shifting the cost of AIDS fully onto the insured population rather than have the government shoulder any of it,” says a vice president for a large Massachusetts insurer. Consumer affairs secretary Paula Gold says Massachusetts opposed testing for individual health policies because, unlike individual life, insurers can readjust the premium to reflect losses. But she insists that insurers should not be allowed to dump the burden of paying for AIDS cases solely on the state.

Insurers are violently opposed to the idea that they should be the primary payer for AIDS patients not covered by group insurance. The very notion that health insurance is a right, and that companies are therefore obligated to provide it, makes many executives blanch. “The costs of this disease should not be laid on the back of any one industry,” responds Rolland at Lincoln National. He blames government – both federal and state – for its failure to act decisively. “A lot of politicians have not been willing to step up and face that this is society’s problem and society ought to deal with it,” he says. If that means pushing for corporate and individual tax increases to establish publicly funded catastrophic health insurance plans – “and taking some political heat for doing so” ¬– so be it.

Alliance proposed

Rolland even goes so far as to propose an alliance between gay rights advocates and insurers to force the political establishment to face its responsibility. Both groups would benefit: The industry would escape a potentially tight jam, while the advocates would get coverage for their constituents. Rolland says flatly that AIDS patients are entitled to some form of health coverage. And he believes the industry is more empathetic to the gay community’s concerns than one might gleam from the adversarial relationship. “Maybe there hasn’t been enough dialogue between us and them,” he offers. “I think we’re not as bad as they think we are. We may have more sympathy for their cause than they think we do, because we really haven’t talked. There’s not much communication that goes on. You know, I have not talked to a gay person about this issue.”

For his part, Senak is highly skeptical of Rolland’s conciliatory posture. “I don’t know if that isn’t a lot of hot air,” he says. Senak has met routinely with industry leaders in New York – most notably John Carter, chairman and CEO of Equitable Life Assurance Society of the U.S. – without appreciable results, he notes. As far as Senak’s concerned, it all comes down to what insurance companies are willing to pay for. The Life Insurance Council of New York sponsored legislation last year to form a high-risk pool for state residents who can’t buy health coverage, AIDS victims included. The bill was axed by lawmakers who didn’t like its $80 million price tag for the first year alone.

Senak points out that LICONY’s proposal included no contribution from the industry in form of a premium tax or some other type of levy. A LICONY official counters that his members would be willing to pay their fair share as employers, “but I don’t think it’s fair to make us subsidize something that is society’s problem.”

This is a recurrent theme whenever high-risk pools are discussed with insurance executives. The industry’s financial contribution is always the sticking point. Insurers are willing to help just as would any other employer, but they recognize no greater moral obligation to help solve this health care financing dilemma than, say, a telephone company has. “Don’t single us out!” is a message that comes through loud and clear.

So, for the AIDS patients who don’t have insurance – a small group now, but who knows what five years might bring? ¬– it appears unlikely that the cavalry will ride to their rescue anytime soon. Risk pools have been formed in fourteen other states, but their experience with AIDS has been inconclusive. Massachusetts Governor Michael Dukakis is pushing for a comprehensive health insurance program that would help AIDS victims in that state, but so far without success.

And in the face of October’s stock market crash and renewed preoccupation in Congress and the White House with the federal deficit, not to mention the continued staff and membership upheaval in President Reagan’s AIDS commission, it’s questionable whether much leadership will be forthcoming from Washington.

In the meantime, the AIDS crisis may soon reach the point where the solvency of the insurance industry is one of society’s lesser problems.

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