Since the last half of '96, medical new about AIDS has been good. But the media have jumped the gun in speculating about the financial implications of new AIDS treatments. Those speculations are impacting people with AIDS as much as any real changes triggered by the drugs.

What's the real story?

No matter what their philosophy, those in the trenches agree that the jury is out on the new drugs. The studies were simply too short and too small before they were rushed to market - and the results are far too mixed now.

Many of those with enough insurance, discipline, and health have shown wonderful results. Many experience devastating side effects and keep switching from drug to drug to find something that works. Some can't adhere to the strict requirements. Some do fine for a time only to see their health suddenly collapse. Some can't take the drugs for medical or financial reasons.

Few know how long the good effects will last; few know if the supply of ever newer drugs can be kept up. The day-to-day reality of these new treatments is anything but clear - and is constantly changing.

But reality seems to have little to do with the media's interest in these new drugs. Editors desperate for copy of any kind have been sending out reporters to find a story since the Fall. Finding little substance, their editorial speculations often have often become the story instead - and those speculative stories have often had negative, unintended financial impact on those with AIDS.

The winners and losers in this media blitz include:

• those applying for disability,
• those on disability,
• those going onto Medicare,
• those who spent down their assets to get Medicaid,
• those who maxed out their credit cards,
• those with outstanding tax bills,
• those who sold their life insurance before 1/1/1997,
• those speculatively selling their life insurance now, and
• those needing to get cash out of their life insurance in the future.
• Disability: Income, Work, and Career

Social Security

First, is anything different? Surveys and interviews with Social Security reveal that policy and practice remain unchanged. A lot more data is needed before Social Security would consider any change. Because the criteria by which Social Security's decisions are made are written down, changing them is would be a lengthy technical and political process. The last change in 1993 involved extensive negotiations with AIDS activists representing many diverse constituencies. No one looks forward to repeating that process.

The media hype casts these issues dangerously into black and white, either/or, or one-way decisions. Nothing could be further than the truth. None of the interviewers who've called me knew of the existence of a long-time program that stands ready to help those who think they're ready for work again: the trial work period program.

This program allows people receiving Social Security Disability Income (SSDI) to earn whatever they can for a total of nine months in any ongoing five-year period before Social Security undertakes a review. (A month worked is counted as one of those nine if more than $200 is earned.)

If the amount earned is more than $500 a month the review determines whether a consistent pattern of back-to-work earnings has been established, whether the income has been temporary, and whether health factors have fundamentally changed. However expenses incurred so that work becomes possible can be deducted from the total income received to determine a net amount - and these expenses are far more liberally defined than the IRS medical expense deduction. They can include medical expenses, transportation, training, uniforms, etc.

Even if the person is declared to be working, the 10th month of benefits is paid plus two more months - a little bit of seed money to cover the journey back to the workforce. During any month in the following three years, if the person falls ill and cannot work they have but to call the social security office to ask that their check be sent out for that month (providing a medical statement that illness has returned). If they relapse, they can go right back onto disability without a waiting period.

What's important is that these features are possible for any one on Social Security - which is the bulk of those out on disability.

Private & Group Insurance

No surveys or interviews with private carriers have revealed any change in the disability decisions of insurers because of the new drugs. The fact remains that disability is granted if a doctor shows that medical or mental symptoms prevent someone from working. Just as simply having HIV doesn't qualify someone for disability, simply taking the new drugs doesn't disqualify them. No cases have surfaced to date which can be traced to the new drugs; if you know of any, please let me know.

Of course private disability carriers have never been as structured nor as helpful as Social Security. Equally true, there are bad insurers who have always resorted to technicalities and tricks to get out of paying claims - just as there are excellent insurers who honor their promises in spirit as well as to the letter.

The tricks have included suddenly stopping benefits whether there's good news or not - effectively shifting the burden of proof again to the person on disability. I had a case like this a year ago where an aggressive case manager called upon a person I was helping to literally take up his bed and return to work - she didn't realize he was hospitalized at the time. Insurers also have the custom that although they may approve mental health claims easily at the outset, they stop payment within the next 1-2 years. Insurers sometimes even offer lump sum settlements to get claims off their books. Insurers try to put words in the mouths of physicians and twist the words on their reports. Bad carriers send field hacks around to eyeball people on disability - and on occasion go to the expense of hiring detectives. I've had carriers question whether a trip to Greece was grounds for returning to work. I fear the worst practices of managed care may now be adopted by insurers at some point in the future. But most insurers now do little more than ask physicians to update the status of people with HIV yearly.

The potential problem is that the media speculation have in fact prompted insurer staffs to show they're on top of things and that they're studying the question. Most insurers now know that treatment advances - and disappointments - are common with AIDS because of the virus's ability to mutate. The new problem now is that a disreputable insurer may use the hype to justify the unjust claim practices they've been practicing all along.

Vigilance and strong defenders are vital against this kind of ever-present danger. It doesn't pay to tell insurers what they don't need to know. It's not wise to downplay one's condition with a doctor. It's a good idea to make sure your doctor documents what you say. But there's no clear and present danger at this stage.

There is in fact a similar opportunity as with Social Security. Most insurance contracts have clauses covering recurrent disabilities. Under these clauses it's possible to return to work and if the attempt fails within usually six months the person goes back on disability payments immediately. These programs just like the claims process is not structured or published as with Social Security - so people need to proceed cautiously.

This ability to try work can be turned to significant financial advantage. Many who have outlived their expectations sold their life insurance - and have now run out of money. If they were to return to work, they would usually be entitled to the group life insurance offered by the job immediately upon employment. If they then had to leave work because symptoms resurfaced, they can convert that life insurance - and replant their life insurance garden. Now they have a policy which would be perfectly saleable in two years if their health was poor; now they have rainy day money.

The Real Problem

The real danger is not from insurance detectives - it's from panicked physicians and patients. The real harm occurs when people believe the scare stories and assume that they'll be turned down if they apply for disability - when a time-out from work might boost their health. I'm now getting calls from people who start out by saying "I assume by what I read that it's too late for me to apply for disability...." Further harm occurs when people fear a phantom denial or bogeyman harassment so much that they prematurely abandon their benefits before they're ready medically, mentally, and financially.

It's important to avoid is a premature return to work - and patient panic. Patient and physician both tend to forget that it's their data that determines disability in the end. The physician's role in this process has always been compromised by the traditional strong bias in physicials towards optimism; this helps healing but it hurts disability applications. It can result in patients not taking advantage of a disability benefits time-out or in patients returning to work without planning and preparation. Patients often give away their power in the disability process by living in purely in hope - perhaps along the banks of denial; this too can help healing but can shortchange the time, money, and stress-relief benefits that disability offers. If patients have developed the habit of relying on authority instead of managing their own illness, they are even more vulnerable to the hype of the drug companies and journalists. Disability determinations have always been difficult; the media speculations have made an already complicated situation even more problematic.

Statistics tell the truth: over 100 people a week now call the AIDS Project LA about back to work concerns - yet not a single cancellation of benefits had occurred. Little has changed financially except the media overlay. That's not quite true. The side effects, high anxiety, and depressing realities of the new drugs in fact have sometimes added to the disabling effects of the virus. That should be added to one's bad new diary to cite in case a disability carrier gets carried away and tries some tricks.

The Forms of Work

Re-entry requires careful management; it's a major financial transition with many ramifications where many things can go awry. I have one case where someone was called to help out his old employer off-the-books; while he was there he got a call from the insurer asking him if he was back at work. I have budding photographers and writers who are stifling their creative genius out of an exaggerated fear that they will be "found out" - that their avocation will be mistaken for a new vocation. Yet I have others who have founded nonprofit organizations that demand far more than any job had previously - who can openly continue their disability benefits because they are working at their own pace, in their own way, without salary.

The key is that paid work demands consistent performance, day-in, day-out - something that's often not possible with HIV and especially not possible with the side-effects and requirements of the new drugs. Paid work and volunteering are not the same. I have another whom I've helped who is mothering his old research project towards completion - while he's on disability; he's able to do that simply because he shows up when his health permits, he naps when he wants, and he exits when his physical needs are greater than his creative needs.

Re-entering the workforce is a shock after being out several years. The world of work changes in but a few years - especially high-tech fields. The world of work has become awfully mean and demanding in the 1990s. The 90s have seen organizations downsize & disappear and specialties & skills subside in short periods of time. Personal life seems to have gone out the window. Employers are demanding 110% of an employee's time. These trends don't dictate staying on disability but they do imply preparing carefully for the demands of new work. People on disability usually need new training before working again.

This is particularly true since it is highly likely that any work obtained will be unlike work done before. "Back to work" is a misnomer - because life moves forward. We rarely return easily to any earlier stage of development or line of work. People on disability aren't put on ice. They grow, they age, they reflect. They often come to appreciate other things of value in life than money-making; they come to realize that life's needs can be very few and the highest wants don't necessarily require money; they move on to new interests. Disability has a way of accelerating one's learning curve about goals, values, and what's the best way to deploy one's time.

There are government programs that pay the educational fees and retraining expense of people on disability; these are usually run through the states. There are programs where even people on welfare can put money aside tax-free to start a business - while continuing to receive benefits. Most universities have career centers and extensive computerized testing programs which often can be accessed free-of-charge. Turning to such resources should be a first step when news turns good. Using disability to train for new skills may be the best practical manifestation of optimism and hope.

Beware of re-entering the workforce at a low level - people tend to get pegged where they start. It's far better to learn a new trade, adopt new interests, get the necessary capital, and take the time required to thoroughly plan what role career is going play in this new stage of life. Just as disability was far more livable with good benefits, work will be more successful if it's both satisfying and fairly-paid. Getting back to work takes work.

Medical insurance

The first dilemma with new treatments for any illness is paying for them. The first problem is that most insurers wait as long as possible before paying for new treatments or tests. In the past I have seen patients wait 9-12 months before review committees got around to reviewing the literature - and they wouldn't have bothered to do that without relentless follow up. I've seen these committees dissolved when insurers were changed by employers - or when insurers merged. Patients with no money to pay for new treatments can't afford such delays.

The new treatments for AIDS have revealed how shredded the public safety net has become. A year after their introduction less than a half of the states were paying these costs for people without medical insurance. Now there is little problem. But what of the next round? And what of the states in which Medicaid limits patients to three prescriptions a month? Rationing is definitely here to stay where it hurts most - with cutting edge treatments. I recommend more than before that people save for a non-reimbursed care treatment fund - and build liquidity to cover drug introductory periods.

With the new treatments more people on long-term disability will go onto Medicare because they're living longer. Yet only one state - NY - permits people to keep their individual coverage when they go onto Medicare. Medicare doesn't cover pharmaceuticals - and in many states Medigap policies cover only up to $1500/year worth of the new drugs. This is the cost time-bomb that may jolt state drug-reimbursement programs yet again. Congress came up with the money at the last crisis. Will they continue to do so as the numbers swell because people are kicked off their private insurance? If you have private funds safeguard them for that rainy day.

A great deal of planning should occur before becoming Medicare eligible. Most of those I talk to don't realize that Medicare is automatic 29 months after disability and that each state and each type of medical insurance policy deals with Medicare supplements differently. Medicare was designed for people over 65 who presumably have enough savings to pay for the substantial out-of-pocket costs that Medicare doesn't cover; people on disability aren't in the same position and can be hit hard by those costs.

Those going off Medicare on social security have free Medicare for 36 months as part of Social Security's back to work program. It is possible that people going off Medicare would be hit with a 12-month pre-existing condition exclusion for drug coverage on any new individual medical insurance they might get - even if their drugs were paid by a state drug program. Since each state regulates medical insurance, going off Medicare will have widely varying impacts on the ability to get full-scale individual medical coverage again. Study these impacts carefully before becoming Medicare eligible.

Credit and debt

When disability looked like a one-way street, many people going out on disability either spent down assets, declared bankruptcy, or simply stopped paying their creditors. Many found that their state laws often protected their disability incomes from the claims of creditors; often old balances were written off.

Yet credit problems can impair an important resource required by new treatments and tests: liquidity. New drugs that aren't reimbursed right away by health plans demand cash to pay for them until they are reimbursed.

Going off disability also can trigger a sudden need for liquidity. Any life change requires financing - and returning to the world of work amounts to a relaunch of You, Inc: communications costs, printing costs, contact development, transportation, clothing, and grooming. This effort can be nipped in the bud by a lack of cash or credit.

Thankfully rebuilding credit has become much faster and easier. Materials are available by sending payment to Bankcard Holders of America, Publications, 524 Branch Drive; Salem, VA, 24153 for their "Building Credit" package - $4. Membership is $24 per year - and worth it if you have credit problems.

Taxes

Going off disability may also mean paying the piper on some stiff bills. If taxes were owed the Federal government, they're ready and waiting for that first paycheck. Those with large tax obligations may find themselves locked into the safe haven of disability status - a true financial catch-22 of the new drugs.

Another catch-22 awaits those who sold their life insurance and didn't pay the taxes prior to 1/1/1997 - perhaps thinking they wouldn't be around to face them. There is no question that this was income on which tax was due even though 1099 forms were never required to declare the money to the IRS.

In practice, here are some ways this question is being handled. Please note that this is not tax advice, that I am not a CPA or tax attorney - and that you should consult one if you have a problem here. If there is a serious audit in which bank records are requested, the payment will be glaringly obvious. This happened in one case several years ago - and the taxpayer paid the tax but the IRS did not impose penalties. In another case involving accelerated benefits a legal aid attorney and her interns opposed the IRS on grounds that were emotionally appealing but probably not technically solid; yet the IRS backed off presumably to avoid establishing precedent. It is possible that the IRS is not seeking to drag terminally ill people into tax court; but what if they adopt the media's opinion that an AIDS cure is at hand? Caution is the best counsel.

What's a taxpayer to do? A few taxpayers are declaring the amount and then declaring in an addendum to their return the reasons for which they feel the amount is not taxable. Most appear to be letting the money go undeclared - but now they are superconservative about aggressive deductions and live with a potential cloud over their head.

Executors of estates who were aware of the receipt of a settlement by the deceased and who didn't declare it have a great deal to worry about since they are personally responsible for the tax if the liability surfaces. They too must worry about tax alligators in the swamp - especially since in fraud there is no time limit as to their liability.

Those selling life insurance in 1977 face ambiguities in practice as well. Although a law passed in 1976 made viatical settlements tax-free where life expectancy is less than two years and where the buyer is licensed in the state of the seller (if that state requires licensing) the IRS is still in the process of designing the 1099 forms by which it will be declared. There is no procedure yet for payers; the information payers should put on the forms is not yet identified. This lack of definition sets the stage for misinterpretation, information getting lost during the course of the year, and exploitation by the unscrupulous. It's a tax mess.

Selling life insurance

The greatest impact of new treatments is on viatication. Like any financial market, the funding of viatical firms reacts wildly to news, speculation, and hype. At first there was a panic - and now chaos.

The panic occurred immediately after the Vancouver AIDS conference. In but a few months "mainline" bank and insurer funding had virtually dried up. For example, in New York nearly 3/4 of the buyers pulled out. Sellers overreacted as well - unloading policies without concern for the tax consequences. Since all settlements were taxable income prior to 1977 these sellers or the executors of their estates are sitting on a tax time-bomb.

Panic has given way to chaos. In a matter of months, high-risk private investor money in search of high-returns has mushroomed. Equally speculative selling has occurred. Now scare articles are appearing about investor scams that are drying up those sources. In the current market all bets are off.

This new money is being corralled in by what I call the "cowboy" viatical deal makers. These firms rely on brokers to bring in buyers and other brokers to bring in sellers. They're middlemen who make the deal - at a stiff price.

Since these middlemen don't get paid unless they make a deal, they have been offering extraordinarily high offers - far higher than offers that used to be made by the firms who've now fled the market. Why? All that the cowboy firms care about is the fees they make from putting the deal together. If it takes a high offer to snag a policy from a buyer to make that happen - so be it.

The small investors left owning shares in the policies sold won't know if the deal was bad until 2-5 years later. Since small investors are usually "pooled" to buy a policy they have little ability to check out the facts before purchase - unlike the self-funded mainline companies.

Because of these dynamics the cowboys especially want policies held by people whose life expectancy is mid-range - 24-36 months. Why? With life expectancy so vague they can claim to investors that life expectancy is really much lower - and that can justify the higher price used to snag the policy and serve as a slush fund out of which must be paid multiple broker commissions.

Because their middleman fees and these broker commissions are so high, the cowboys can't pay much more than 70-75% for policies - even when the seller truly has a very low life expectancy. All the rest is profit and finder's fees. This means that a person who has to sell because his life is truly in danger is penalized in the current market while the person who is selling his policies speculatively is making a killing.

The irony is that mainline firms worked with much cheaper money and bought policies for themselves. This enabled them to pay up to 80%-90% for a policy from someone with a very low life-expectancy. This also made them extremely reluctant to bid at all on people with mid-range life expectancies. They wanted a sure deal.

To give an idea of the aberrant differences current conditions have produced, here's one recent example

• a person with a high 240 t-cell count whose life expectancy on paper is easily 2-4 years received a 63% offer from a cowboy company;
  
• a person with 10 t-cells, who has had to be taken off the new drugs and whose prognosis is poor indeed received a 64.5% and 65% offer from two mainline companies.

Lastly, many cowboy firms do not give consumers the same safeguards that mainline firms did - or that strict licensing states like New York require. Unlicensed firms do not pay money into a genuine escrow account held by a truly independent third party; without this the seller is signing over the policy on faith alone. They do not respect the requirements for disclosure in this extremely complex transaction. Their contracts are not subject to the review of any insurance department. They possibly can change the contract page dealing with price - with no recourse. They can and do renege on written contracts if the funding suddenly dries up; that can tie up a policy for months - making it unsaleable elsewhere.

The downside of this feeding frenzy is very bad news indeed.

• Life insurance with AIDS is rainy day money. It may be foolish to pull the cord on an asset as valuable as this just when the sun has come out - for it may be raining again. The time to sell is when sickness is manifest, not in recovery.
  
• The bubble may pop on this market very soon. The media hype about the new drugs is causing small investors to hold back and require lower offers. Articles are starting to appear about how small investors are being taken to the cleaners by the cowboy firms - especially through "investment seminars" on viatication in states where many retirees with investment money live. Class action suits are being readied.
  
• Speculative selling may be giving rise to speculative buying of life insurance by people with AIDS through fraudulent application. Yet over half of the states have fraud statutes that could be used to override the two-year incontestability clauses that are standard in most life policies. A surge of illegal guerilla activity like this may prompt insurer backlash that might make such policies unsaleable.
  
• If the market implodes because of these factors, there may be few funding sources left willing to buy the policies of people with AIDS for some time. For people who count the blessings in months, that would be a catastrophe. Like it or not, viatication has been a lifesaver for many when the chips were down. If the new drugs fall short of their promise it will be a sorry state of affairs if the greatest innovation in personal finance since health insurance were to be temporarily out of commission because of speculation.

A more immediate danger to current sellers stems from the fact that proceeds of these sales from 1977 onwards will be declared to the IRS. They are taxable if life expectancy is more than two years and if the buying firm is not licensed in the state in which the seller is resident. Since most of the current speculative buying and selling is taking place in cases life expectancy may be more than two years and where buyers may be unlicensed, a tax bill may be in store for many sellers in 1978.

Many cowboy firms and many of the brokers they employ are downplaying or denying the taxability of these settlements and capitalizing on the lack of published regulations from the IRS. However the law as passed is quite clear on these two requirements.

The most damaging requirement may be residency. Many brokers are claiming that it is their license that counts, not the buyer's; that's simply not true. The problem is that many cowboy firms are not licensed in the key states where many with AIDS live: New York, Florida, Texas, and California. In their eagerness to seal a deal, many of them are giving false assurances that will come back to haunt buyers or their executors in 1998.

If residents of states that require licensing deal with non-licensed firms, the money is taxable. The amount may well catapult them into a much higher tax-bracket. This is not nickel-and-dime finance. We're talking about very real, very formidable federal tax obligations.

Yet if the residents of licensing states deal only with licensed companies they may be in store for an even ruder surprise: there may be few takers for their policies. In New York, for example, there are only two mainline and two cowboy firms. In California a similar dramatic fall has taken place. This almost eliminates the possibility of competitive bidding - and bars New Yorkers and Californians from access to the cowboy firms making extraordinary midrange offers.

The shift to cowboy firms has one more extremely negative consequence: it has increased the role of brokers in the industry. Brokers already have been getting 5-7% commissions. They already have no incentive to get a competitive offer - just to get the highest commission - because their commission is paid on the face value of the policy, not the amount obtained. These bad practices are not aggravated by cowboy companies letting some brokers get whatever commissions they can and by commission bonuses for volume. Moreover, many brokers and cowboy firms are denying that the IRS requirements for taxability exist. Since most sellers do not understand how the industry operates, since the industry changes a great deal, and since illness prevents the sellers from fully acting as cautious consumers, much more consumer abuse has resulted.

What should a seller do?

• don't sell unless it's truly raining - unless the need is there;
• research any other way to generate funds, such as accelerated benefits;
• search out a mainline firm if health is extremely poor;
• seek out cowboy firms if health is mid-range;
• respect the IRS life-expectancy and residency requirements;
• avoid any "free" help offered by anyone getting a commission from the buyer;
• get help if viatication is necessary from someone experienced in dealing with the current market, to negotiate the best price, to protect against consumer abuse, and to make sure the transaction is tax-free;
• have an attorney review all closing package documents.

Implications

These events highlight how the sporadic way medical information is released can prompt media overreaction - and how that speculation can hurt those who are serious ill financially. This makes progress seem sudden and causes people to lose perspective. This kind of unreality and speculation can ruin a financial market; in the financial affairs of the seriously ill they can be lethal.

Whether or not an illness is life-threatening or chronic has major implications in both medicine and finance. This is a major shift decided by the medical profession - not the press. For only when illness truly becomes chronic do we return to standard operating procedure where true planning is possible. As long as illness remains life-threatening, crisis management is the order of the day in personal finance.

The personal bottom line is that all these ballpark statistics and speculations don't give us our aisle-and-seat numbers. Disability determinations are made not because of generalities but because of specific symptoms at the workplace. Even viatications ultimately will occur because a person's health is truly very bad. The financial reality of AIDS is serious enough - we don't need or benefit from speculations about it.

The new AIDS treatments may actually increase uncertainty and shatter time-frames - making an illness like AIDS an even greater financial crisis than before. Now we must plan for many more possibilities than before. In the present climate, even our contingency plans must have contingency plans. Financial mistakes in such an atmosphere are all too possible.

Whatever the news, patients need to recall the financial planning maxim "plan for the worst - and hope for the best"