Investing in Death Benefits Ð Exploiting AIDS patients


Dorothy Guellec

Once

the domain of the terminally ill, viatical settlements or arrangements – the

reassignment of a life insurance policy to a third party in return for a cash

settlement – are set to explode in the next decade as the market evolves to

include healthy seniors looking to sell their life insurance policies.

The

word viatical comes from the Latin word viaticum, which were the provisions

given to Roman officials as they embarked on a journey. In these settlements the

terminally ill person receives a portion of the face value of his or her life

insurance policy, if lucky enough to have one, in a lump sum.

Typically

an AIDS patient, who is working, will have insurance, but be unable to keep up

with the payments after the illness sets in. The viatical broker will re-sell

the policy to an individual or institutional investor who will receive a higher

percentage if the patient’s projected life span is short. 

In

the summer of 1996 several things happened to change the face of viatical

settlements. First, there was growing public awareness of AIDS treatment options

that have the potential of prolonging the life of AIDS victims, making the

settlement companies more cautious about their predictions of life expectancies

for AIDS patients. Second, the health reform legislation that passed made the

proceeds from viatical settlements exempt from federal taxes under some

circumstances. That made viaticals more attractive to the average life insurance

customer. There are now scores of companies in the field, with more jumping on

every year. The shorter the person lives, the higher the return. This might

strike some as ghoulish, as it should, and the scanty press coverage mentioning

that AIDS support groups view “viatical settlements as a valuable option for

AIDS patients who, due to their weakened immune system and susceptibility to

opportunistic infections, are unable to work full time or at all” distorts the

entire picture. We have to expect that from the mainstream media so lax on

self-censorship.

I

spoke with Dr. Jesse LaMonda CEO of Accelerated Benefits Corporation (EDD not

MD) in Orlando Florida. He said that this scheme was a “win win situation for

all.” He told me that the patient (the industry has spread to seniors too who

do not have AIDS) with AIDS needs money either for medical treatments or living

expenses, so it is a win for him. The investor gets a hefty return on his or her

money so it is a win too. The broker gets a nice bonus so he wins too. 

Kendall Morrison was interviewed on ABC news about these investments. It

certainly wasn’t a “win win “ for him. “I was in so much pain. I had

something called neuropathy, where the sense of touch was replaced with a sense

of pain. I had literally to spend every cent I had on medication, on health

care.”  It was a devastating time until Kendall saw a magazine ad that

offered something too good to be true. It was a plan to buy out his $350,000

life insurance policy, the only asset he had. In Kendall’s case he was only

able to get $175,000, half the face value. Now he had money to live on. The

people who bought this policy stood to collect $350,000 (they made the payments

Kendall could no longer afford) when he died, which was expected to happen in

two years. This strikes me as morbid and unethical. I tried to get some

confirmation of this from one of the leading Bioethicists Daniel Callahan,

founder of the Hastings Center. I spoke with him this morning and he said that

he had never heard of viatical settlements, and could not comment, but he could

comment on research. He said, “If research were to continue on people who

wanted to live very long lives, maybe until 150 then that would be social chaos

and I do not support that.”

Many

people who bought viatical settlements were cleaning up because AIDS used to be

a guaranteed death sentence. As one broker said, “people were dying to make a

killing.” For Kendall’s investors there was an unexpected surprise. Six

months after his payout, in the summer of 1996 something remarkable happened.

Researchers at an AIDS conference in Vancouver introduced a new class of drugs

called protease inhibitors. Nearly overnight the life expectancies for many AIDS

patients stretched far out into the future. Kendall said “this is the first

time where I really felt like someone wanted me dead.”

On

January 31,2000 a Fort Lauderdale viatical company, billed as the nation’s

largest, was under criminal investigation and also sued in civil court for more

than $600,000. This investment is completely unregulated, and so widespread

greed prevails. Eight men, in six Florida cities, were named in arrest warrants

issued in May 2000 for their part in fraudulent activity that Insurance

Commissioner Bill Nelson says ultimately targets the elderly who invest in life

insurance policies sold as viaticals.

In

another instance according to the Toledo Blade (August 7,2000) investors

nationwide face $75 million loss. Toledo’s Liberte Capital Group LLC

specialized in viatical settlement contracts. Federal agents claim they

uncovered serious improprieties in the way the business was run. Hundreds of

life insurance policies will lapse next month unless the Toledo Company can come

up with monthly premium payments topping $350,000. The escrow account is empty

and the doors of the downtown Toledo firm are locked. The assets are frozen.

Investors are worried. Is this a way to live?

Despite

mainstream stirrings to the contrary, most people favor a one-payer system when

they understand what it is, and how easily it could be set in motion.

If

we were to have this scheme in place then aberrations such as viatical

settlements would disappear, along with the other private insurance companies

that profit by making life miserable for the rest of us. Do they have no shame?

I guess not. A one payer system could easily be financed by a small tax on gas,

eliminating the defense budget which stands as high as it did during the height

of the Cold War, and close scrutiny of all the so-called programs we have to

benefit the very rich in this country. I am not and Economist but my intuitive

common sense tells me that this is possible. It is a reality in every developed

and even underdeveloped country –just not here.

 

Thanks

to Colleen Fuller for providing the inspirational idea for this article. In

1996 North American Viatical Investments set up shop trying to lure Canadian

investors. Luckily the “Depression-era legislation prohibited this type of

insurance scheme in Canada with the exception of Quebec, Nova Scotia, New

Brunswick and Saskatchewan.” Of course there is less need for them as

patients can get all their prescriptions via the Canada Health Act without

involving themselves in fraudulent, immoral, and maybe unethical business

insurance.