Subject: HIV Test On Magic Johnson Was for Insurance Date: Published: 11/8/91 (233 lines) Source: Wall Street Journal. Copyright Dow Jones & Co. Inc. At Risk: Fateful AIDS Test On Magic Johnson Was for Insurance --- Such Screening by Insurers Enables Them to Avoid Feared Financial Disaster --- But Public Gets Part of Bill ---- By Susan Pulliam Staff Reporter of The Wall Street Journal Los Angeles Lakers star Earvin "Magic" Johnson recently underwent what was expected to be routine medical testing for a life insurance policy. The results, announced at a Los Angeles press conference yesterday, shocked the nation: One of the greatest athletes of his generation was infected with the AIDS virus and would end his career as a professional basketball player. How Mr. Johnson discovered his infection suddenly casts a spotlight on the intersection between AIDS, the worst infectious disease of the era, and the insurance industry, which once feared the disease would depress profits for years and jack up premiums of all kinds. As recently as 1987, experts predicted that by the year 2000, life insurance companies would pay a cumulative total of as much as $50 billion in death benefits on individual policies because of AIDS. The experts were wrong, and Mr. Johnson's experience helps explain why. Even as the AIDS toll continues to mount -- as many as 47,000 people are expected to be diagnosed with the disease this year, and many more will learn they are infected with the HIV -- insurers have paid only a fraction of what they expected. For the insurance industry -- but not for AIDS patients -- the worst may be over. The largest factor in the industry's apparent escape from financial disaster has been its use of blood testing to screen out insurance applicants carrying the AIDS virus. "If it hadn't been for the life insurance, I wouldn't have known," Mr. Johnson said at his press conference. "I took the test only because of a life insurance policy." Though many companies began using the tests as early as 1985, the practice was subjected to strenuous legal challenge in many states, leaving the industry in doubt for a period of years about whether it would be allowed to rely on the procedure. By 1989, both federal and state courts had upheld the insurers, however, changing forever the way insurers do business and introducing medical testing into insurance decisions on an unprecedented scale. "Before AIDS, an insurance company could issue a policy to a 35-year-old male and do minimal underwriting {medical screening}. AIDS changed that," says John Hanrahan, assistant actuary at Prudential Insurance Co. of America. The implications of HIV testing stretch even further, however. Indeed, the insurance industry's response to the AIDS crisis is a case study in how tenaciously insurers' will defend their right to deny insurance to individuals based upon medical information about them. Though medical underwriting has long been an accepted part of the insurance business, battles such as the one over HIV testing are likely to be repeated in the future as more types of medical information, including genetic information, becomes available to insurers. The insurance industry's widespread use of blood tests has been costly to society, to be sure. Most important, the practice can leave the sick without access to insurance, at a time when they need it most. Although the same is true for other serious and fatal health conditions, it is by no means less tragic. Others who carry the virus are locked into their current jobs because of fear that a job change could also mean losing insurance coverage. Fear of being fired by an employer because they carry the HIV has prompted others to use pseudonyms for treatment or to pay for treatment out of their own pocket. But the industry says the tests have allowed it to keep premiums for all policyholders lower by reducing exposure to AIDS claims, which would raise costs. The tests also have allowed insurers to detect other health risks in applicants, such as alcohol and drug abuse, in addition to the HIV. At Prudential, while the company expected AIDS claims on individual life insurance as a percentage of the total to reach 15%, it now believes the percentage will not rise above 7% -- if it gets that high. Last year it paid out $14.2 million or 2% of its total individual life insurance claims for AIDS deaths. "It's gone from being an unknown to being measurable -- and it's not as bad as we feared," Mr. Hanrahan says. Similarly, AIDS claims at Lincoln National Life Insurance Co. were half the size projected last year, says Richard Robertson, chief financial officer. "It's pretty clear that AIDS is manageable from an insurer's point of view," he says. Ironically, Lincoln National's president, Ian Rolland, was one of the industry people doing a lot of worrying out loud about the issue several years ago. Many others, too, were spooked about the impact of AIDS. The fears were fanned by a 1986 conference in Berkeley Springs, W. Va., where the Centers for Disease Control released startling projections. At the time it was believed 1.5 million people were infected. In three years, the CDC predicted, the number of people developing AIDS in one year would triple to 58,000. That touched off panic in some quarters of the life insurance industry. A newsletter, AIDS Insurance Reports, carried an article that was widely circulated titled "Apocalypse Soon." It predicted AIDS would ultimately lead to "two nations -- infected and uninfected -- where one stood before." The calculation took CDC data and assumed the worst-case scenario for spread of the disease. Under the model used, new AIDS diagnoses each year would leap to 190,000 by the year 2000. At an October 1987 presentation in Montreal, a team of actuaries made a similarly worrisome, albeit less emotional, prediction of the disease's impact on the life insurance industry. The authors of that study believed AIDS claims would eventually total 10% of all death claims, enough to lead to serious financial problems for some companies and to force others to raise premiums for all. "By the time people die from cancer or heart disease, we have already built their claim into our reserves," says Mr. Hanrahan of Prudential. By contrast, AIDS often strikes so early in life that insurers cannot collect enough premiums to prevent losses. As AIDS claims mount, they throw off the companies' calculations for the amount of premium revenue they will need to cover payouts. The outlook has improved dramatically since 1987, however. Nearly all of the earlier estimates have been lowered. The CDC now believes the number of people carrying the HIV in the U. S. numbers one million, rather than 1.5 million. Though the CDC once predicted the number of new AIDS cases reported this year would be as many as 70,000, it now estimates 47,000. Part of the explanation is undoubtedly the role of educational programs about the epidemic and safer sexual practices in both the homosexual and heterosexual communities. And rather than spreading rapidly among heterosexuals as some expected, AIDS has spread more within groups such as intravenous drug users, who typically aren't buyers of life insurance. As a result, Medicaid is increasingly footing the tab for AIDS medical costs. "We have a lot of data that shows a decline proportionately in the people covered by private insurance and a big increase in people covered by Medicaid," says Peter Arno, an economist who has studied the effects of AIDS on the nation's economy. As these trends have taken shape, both life and health insurers have revised their estimates of the eventual impact. The American Council of Life Insurance now believes life insurers will pay a cumulative total of $10 billion in AIDS death claims under individual life insurance policies by the year 2000, rather than the $50 billion once foreseen. "We're running somewhat below even that {lower} projection," says Daniel Case, an actuary with the ACLI. Last year, life insurers paid out an estimated $1.2 billion, slightly more than their $1 billion payout in 1989. And health insurers paid out $534 million last year, exactly equal to the amount of AIDS claims they paid in 1989. One reason horror stories in the insurance industry related to AIDS are rare is that most insurers began testing as early as they could. Initially, testing for the HIV represented a conundrum for insurance companies, however. Though testing has come to be accepted as an insurer's right, it presented a thorny public relations dilemma for the industry. When some companies announced that they had adopted blood testing policies, regulators in some states and AIDS activists objected swiftly and vehemently. Legal challenges were made in New York, California, the District of Columbia and Minnesota. It was argued that testing constituted unfair discrimination. But by 1989, both federal and state courts had upheld insurers' right to test for the disease, just as they are able to screen out applicants with other serious and terminal illnesses. At first, the test also had the disadvantage of being expensive. At $75, it cost too much for insurers to use for all but the largest policies. They believed that left them open to exposure from people with the HIV who would apply for insurance just under the cutoff amount. Prudential, for example, began using blood tests several years ago for life policies of $500,000 and over. As the tests have become less expensive, however, Prudential has lowered that amount several times and now tests before selling policies as small as $50,000 to $60,000. Most life insurers have similar practices, testing for policies over $100,000. If the applicant tests positive, the insurance company will ordinarily reject him or her. Among health insurers, the use of blood tests varies more widely. Typically, large employers, which are self-insured and use an insurer only for administration, do not test their employees for AIDS before offering medical coverage. Blue Cross and Blue Shield companies, which serve as an insurer of last resort in many states, typically do not test for the HIV before offering coverage either. Employees of small companies, however, are often tested by their employer's health insurer before qualifying for medical insurance coverage. That has had a huge impact on the thousands of individuals who now carry the virus. "Many small companies try not to hire people with HIV because of the perceived impact on their health insurance premiums," says June Osborn, dean of the public health school at University of Michigan. Mark Scherzer, a New York attorney who arranges seminars on topics such as insurance for people with AIDS, says many clients consult him on whether to change jobs after they have tested positive for the disease. "I advise against it," he says. "If they're going to work for a small employer, they're reducing their long term financial security." An equally important problem, he says, is that people who carry HIV will often pay their own medical bills, rather than submit insurance claims, out of fear that they will be dismissed by their employers. "I'd say 20% of the people at my seminars have been in that situation," he says. One young lawyer at a large national law firm, who spoke on the condition of anonymity, went to see his doctor under a pseudonym and paid for treatment himself for one year after he tested positive for the HIV. "If I filed claims I was convinced my employer would find out about my status and fire me," he says. Recently, because of health concerns and his desire for a less strenuous work schedule, he decided to tell his employer and encountered an unexpectedly compassionate response. Others have not been so lucky, however. "It's an irrational system that restricts job mobility according to something that has nothing to do with ability," Mr. Scherzer says. [This article is made available here by Dow Jones Co. for the personal and non-commercial use of callers to this bbs, in the hope that it will be of some help to those who are suffering from the disease and others who are seeking to help them.]