A Burden Too Heavy to Bear

By Gordon Bock

Never insure a burning house, warns an old adage much quoted in the $930 billion U.S. insurance industry. Now many of the nation's 2,000 or so commercial insurance firms are brandishing that slogan in a new kind of fire fight: the battle over who should pay the spiraling health costs for victims of acquired immunodeficiency syndrome, or AIDS. Insurance regulators and special-interest lobbyists argue with increasing fervor that the companies that cover some 140 million Americans must shoulder a greater part of the growing AIDS load. For their part, insurance executives complain that one of their industry's fundamental principles, the right to evaluate risk, is under attack. The outcome of the struggle is also of vital interest to individual policyholders, who might see premiums rise as the deadly virus spreads through society.

Behind the growing controversy is the sad fact that AIDS, which has already claimed the lives of more than 23,000 Americans, often bankrupts its victims before it kills them. Typically, an AIDS sufferer will die within three years of contracting the malady, but only after incurring hospital bills that can run as high as $30,000 a year. So far, that disaster has impinged only marginally on the balance sheets of the insurance industry: excluding nonprofit groups like Blue Cross and Blue Shield, AIDS-related private- insurance claims last year totaled an estimated $745 million, or 1% of total commercial life insurance and health insurance payouts nationwide.

As the incidence of AIDS cases increases, however, so will the payouts. Between now and 1991, if the number of AIDS victims grows to a projected 400,000, the cost of their treatment will total more than $37 billion, estimates the California-based Rand Corp., a private research institute. Much of that money will come from public health programs like Medicare and Medicaid, and from the pockets of the victims themselves. But $10 billion or so could be paid out by private insurance firms. A recent study, by Massachusetts Actuaries Michael Cowell and Walter Hoskins, predicts that by the year 2000, AIDS-related deaths could cost life insurance companies up to $50 billion. Asks William Carroll, executive director of the Life Insurance Association of Massachusetts, an industry group: "Are we supposed to sit and wait for this flood of claims?"

Clearly, most insurers do not intend to. While honoring existing policies for AIDS sufferers, most firms are trying to limit the risk of signing up future AIDS victims -- and have thereby stirred up an outcry. Some companies have hired investigators to inquire into applicants' life-styles, presumably to discover whether prospective policyholders are homosexuals. The hottest issue: whether insurance companies have the right to test for the presence of AIDS-related antibodies in the blood of would-be policyholders. Even a positive test result is by no means a definitive sign that a person will contract AIDS. But in a survey last year of 324 life and health insurers that write more than 70% of the nation's policies, 91% of the firms said they would deem "uninsurable" anyone whose blood shows signs of the antibodies.

Los Angeles-based Transamerica Occidental Life (1986 revenues: $1.9 billion) two years ago became the first insurer to announce that it would impose an AIDS blood test on anyone who sought an individual life insurance policy. Many rivals, particularly among the 50 major insurance firms, have since begun testing anyone seeking a high-value individual life policy. But those measures are less sweeping than they seem: some 85% of U.S. insurance policies are provided through group plans, which are usually unaffected by the testing dictum. Even where tests have been applied, the results so far have been minor. Transamerica received 168,000 insurance applications between January 1986 and June of this year, and rejected only 82 on the basis of suspected or diagnosed cases of AIDS.

To insurers, the right to test applicants for AIDS is identical to their right to conduct any other medical test. But many AIDS support groups and health-care activists demur. "Access to insurance coverage is synonymous with access to adequate health care in this country," says Glen Maxey, executive director of the Lesbian/Gay Rights Lobby of Texas. Maxey, along with others, argues that it is unfair for the industry to expect public health-care insurance to pick up the slack.

! Some state regulators appear to agree, and have banned, or at least curbed, the private industry's use of AIDS tests. In December, Massachusetts ruled out AIDS testing for life, health and disability policies, though Governor Michael Dukakis later eased the ban for some policies worth more than $100,000. In New York, a regulation that takes effect in September bans AIDS testing for hospital and medical insurance, while continuing to allow it for life and disability policies. Since last year the District of Columbia has permitted no blood testing at all for AIDS antibodies. In California, insurers are prohibited from testing for antibodies, but companies have skirted the ban with less specific tests that measure the general condition of applicants' immune systems.

Restrictions have already had a chilling effect on some insurers. In the District of Columbia, 42 of the area's top 50 insurance companies, including New York Life and Prudential, have stopped selling life policies because of the blood-testing ban. Other insurers have issued dire warnings about the financial fallout from such testing restrictions. Declares Robert Waldron, director of the New York office of the American Council of Life Insurance: "Individuals will see insurance that costs $1,000 today climb to $5,000."

In an effort to cope with the insurance problem, 15 states have started risk pools that provide health insurance, at rates that can run as high as four times the usual, to people who would otherwise be uninsurable. In recent years more than 20,000 applicants have joined such pools, which could get a boost from legislation pending in Congress that encourages states to create them. That measure may be helpful, but it is unlikely to ease the continuing pressure on private insurers to allocate more funds to the hapless AIDS victim.

With reporting by Robert Ajemian/Boston and Scott Brown/Los Angeles