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The Protease Shock Waves: An Early Report

February 1998

Across the nation, at least two distinct patterns have begun to emerge as a result of the protease drugs. For those benefited by the drugs, people previously on disability have contemplated a return to work. Others, whom the drugs haven't helped, fear that the "protease hype" will lead to a premature cutoff of their disability benefits, severing their lifeline. In a sense, the AIDS crisis has already been turned on its head by the emergence of the new treatments, and the changes have only just begun. Other important new issues have arisen, such as unequal access to the new treatments, and the earliest studies show conclusively that minorities are simply not getting the drugs, or enjoying their benefits, to the same extent as white people. That issue, as important as it is, is beyond the scope of this particular legal article.

For many who expected to die, and made their decisions accordingly, the fact that they are still here comes as a blessing, but also something of a rude shock. Let's take a quick look at some of the earliest shock waves we've begun to experience.

1. Financial Ramifications.

Things used to be simpler when people with HIV most often developed AIDS, and then most often died. Historically, people confronted by the ravages of the disease often put financial issues very much on the "back burner," generally figuring "it doesn't matter, because I'm not going to be here anyway." From that perspective, completely blowing one's credit standing became no big deal, credit cards could be maxed out to the limit, not paying income taxes became an understandable proposition, and the idea of saving for retirement seemed a joke. Countless people with HIV have sold their life insurance and blown the proceeds for a good time and a song, focusing (appropriately, under the circumstances) on the here and now. But suddenly, at least for many, things are different. We're still here after all, and many of us are now forced to deal with the consequences of some of the choices we made earlier.

What can we do about that? Not as much as we can more effectively and appropriately plan for our futures. Although we have no crystal ball and must live with a measure of uncertainty about our futures in this epidemic, it's probably the wisest course to assume that we're all going to be here for a while. Accordingly, yet another shift in our perception is called for. For many years we've all labored under a "crisis management" model, dealing with immediate and pressing crises and failing to focus on the long term. That was once called for, but things are different now.

The idea of planning for retirement may even now seem somewhat optimistic, but at least consider the possibility. If you're here now, you may still be around then! If so, your failure to plan accordingly may affect the quality of your life in the later years. Another basic change required in perspective: if you're going to be here a while, preserving the availability of credit can be important for numerous reasons. Without it, various important options may be foreclosed for you. Who knows, you might want to buy a house some day, or a car, or get a loan to start a business. Just keep that in mind. Be careful about burning bridges. Again, the prudent course may be to assume that you're going to be here a while, and to act accordingly.


Although still useful in many cases, this tool is simply not what it used to be for people with HIV. In a nutshell, bankruptcy is a federal court procedure in which one's debts to creditors (not including secured debts, such as home mortgages or car liens) are "discharged," or officially wiped out by the court, if the applicant is unable to pay them. Conceptually, the purpose of the law is to give debtors a "fresh start," providing them with a clean financial slate with which to once again get started. Bankruptcy offered a perfect remedy for people who had committed themselves to substantial debt (After all, isn't that the American way?!), but whose situations had suddenly dramatically shifted as a result of sickness, and the diminished income resulting from their inability to work.

Some people are still sick, or becoming sick, and are presently or potentially unable to pay their bills. For those, bankruptcy may be a great option. For many others, though, better choices may be available. The bad news is that bankrupcty can be the ultimate bad news in terms of your credit rating, and that can come back to haunt you in the future. If you need it, don't hesitate, but don't leap into it without a great deal of thought. And remember: often you get what you pay for. Beware of attorneys offering "el cheapo" bankruptcies; they will rarely offer you the best level of attention to your case. The best attorneys, in fact, will not rush you into bankruptcy, but will sit down with you and help you decide if that course of action is in your best interests. Beware of a "cookie cutter" approach, especially if your situation is complex in any way. Be sure to ask whether you will be able to keep one or two of your credit cards (there are ways), and if you're confronted by debt that would not be "dischargeable" (your attorney will let you know this), ask whether a hardship discharge might be appropriate.

True, you must trust the experts as they guide you through the maze, but never leave your instincts at home as you follow through on any course of action that's going to be important to you. Keep your eyes open. If you don't care enough to do that for yourself, who will?

Dealing with Creditors.

Key issue is taking control. Sticking your head in the sand is always an option, but never your best bet. Remember that financial issues tie in directly to overall well-being, and also raise issues of isolation, guilt, and shame. Remember: no matter how much of a mess your finances are in, you are not alone. If you find yourself in financial trouble, possibilities may exist for effective negotiation. Find out about the availability of Consumer Credit Counseling Services, which will help you consolidate your debts and figure out a payment plan that is likely to work for you. (Check on this through your local United Way charity, or with your state's consumer protection (or similar) department.) Often, your creditors will allow repayment over time, or waive ongoing interest as inducements for repayment of the loan.

Understand: such plans are actually funded by corporate interests, which realize that if they don't show some flexibility, declaring bankruptcy may be your only option. (In other words, better that they lose a little now than a lot later.) No matter where you live, there may be such a service open to you. It's free, and it could solve your problem in the least damaging manner, so check it out.

Another possibly helpful strategy:

A series of self-help groups have arisen around the country (such as Debtors Anonymous) for people financially out of control. Support and more information may be helpful to you. If you feel participation in such a program might be of assistance, find out whether that option might be open and available to you.

If obnoxious collection agencies are the problem, they must stop upon written request. It's important to try and deal with the issue, but if they're driving you nuts be aware that you have the legal right to make them stop. Send them a letter, certified mail, return receipt requested, and have it typed if possible. (The more official looking, the better.) Reference the name of the creditor and your account number in the letter, and include the following language: "Under 15 U.S.C. 1692c, this is my formal notice to you to cease all further communication with me except for the reasons and in the manner specifically set forth by law."

2. Today's Viatical Market.

Despite a highly-publicized financial shakedown in the industry as the protease hype filtered in, the industry is still going strong after all. People can still sell their policies, but the market is very different than it used to be. The percentages offered have continued to decline, but after an initial "bottoming out" appear to have stabilized at a slightly higher level. Viatical companies have made plans to survive by branching out into other terminal diseases, and at least for the time being have continued to show interest in the HIV market.

In short, the sky hasn't fallen yet on the HIV-related viatical industry as once might have been anticipated, but it may be sagging a little bit.

Federal Taxability and State Licensing.

Although the proceeds of viatical settlements have always been historically taxable, no 1099's or other reporting mechanisms have ever been required by the buyers of the policies. Countless sellers have therefore chosen to play "audit roulette," often figuring that "I'm not going to be here by the time they catch up with me anyway," and few if any reported the funds as income even though the law required them to do so. Things are different now, and it is important that you understand why. As a result of Health Insurance Portability and Accountability Act of 1996 ("HIPAA"), effective January 1, 1997, this aspect of the industry has been turned completely upon its head.

Some viatical companies contain language in their advertisements stating that the proceeds are "tax free as of January 1, 1997." Beware: this is a dangerous half-truth. True, under certain circumstances the proceeds are tax free, but making that assumption in every case can be very dangerous. Here's the big problem under the new law: it has become a virtual certainty that purchasers of policies will be required to report payments made to the IRS, retroactive to January 1, 1997, and a 1099 form is even now being designed for that purpose. Thus, in order to ensure that your proceeds will be tax free, you must comply with both of the following requirements. Otherwise, a likelihood exists that you may be hit with a sizable tax, as well as penalties and interest.

Again, don't count on the company to protect your interests. Keep your eyes wide open, and understand the following:

  • Certification of "Terminal Illness": You must obtain letter from an attending physician, after examination, certifying that your reasonable life expectancy is two years or less. The doctor does not need to be yours, but he or she must conduct an examination. Remember: the doctor does not need to certify that you will die within two years, only that that is a reasonable possibility. Nevertheless, in light of the treatment advances that have emerged since the drafting of the law two or three years ago, this requirement can be a substantial hurdle. Don't give up after the first try. You've got to get this certification. Do whatever it takes.

  • Licensing Status of Purchasing Company: In order to understand this aspect of the law, you must understand the distinction between Providers (companies that buy policies) and Brokers (companies that connect you with a buyer for your policy, in return for payment of a commission by the buyer). If you reside in a state requiring licensing, the purchasing company (not broker) must be licensed for the proceeds to be nontaxable under the law. If your state does not require licensing, the company must comply with the business practice standards of the National Association of Insurance Commissioners ("NAIC"). For more information on that point, see Chapter 15 in the writer's book, HIV Law: A Survival Guide to the Legal System for People Living with HIV (Three Rivers Press).

Exercise extreme caution on this point: companies typically lie (or at least "fudge") about the law, their licensing status, etc. Their primary goal is often not to protect your interests, but to close a deal. Don't take their word for it, check with your state insurance department to find out whether or not the proposed purchaser is licensed. Note also: Even though licensing status of broker is irrelevant for federal income tax purposes, that company's licensing status could potentially affect state income tax obligations.

Emerging Concerns About Confidentiality.

Who is going to ultimately own your policy? Many companies buy your policy, then turn around and resell it to private investors. If that is going to be the case, it may be very difficult as a practical matter to keep your identity secret. After all, at some point the investors will be named as beneficiaries under your policy (a position they have paid to get into), and they will probably know your name.

If you think about it, that can be a frightening proposition. Part of the reason the industry is continuing ahead, I believe, is because investors are not being given the whole story about the current status of the epidemic. In the eyes of many, particularly in the American heartland, AIDS remains a terminal disease, one that always kills. These are the people that are eagerly lining up to invest in these policies to make easy money. But do you really want these strangers with a financial stake in your death to know your identity? Who knows what they've been told, or promised. If you remain healthy and enough time passes, might not those disappointed investors be getting a little angry?

Again, paranoia is not necessarily justified, but caution is. As best you can, find out before you sell where your policy is going, and who will be learning your name. Remember: as of now no laws protect you in this respect. If you've sold your policy, no legal recourse may be available to protect your identity. The cat may be out of the bag. Grab it by the tail before you sell. Damage control after the fact may be difficult or impossible.

Playing the Market to Win.

A number of "maverick" companies have become important players in the market, as noted by New York financial adviser Per Larson. These companies bring with them an aggressive desire to purchase, as well as major cash infusions for investment, but are rarely licensed. Historically, they have played an important role in the industry, but as a result of HIPAA their future role is unclear. No matter how high their bids, they are unlikely to stack up against others if federal income taxes will have to be paid from the proceeds.

Here is the most important advice to be offered:

    Never sell on just one bid.
Creating real competition is your goal.. It is best to apply with at least four or five companies. Before taking that step, figure out which companies are brokers and which are providers. Lean toward providers first, but it's often a good idea to add at least one broker to the list in order to make sure you're covering all your bases. If you use that approach, however, be sure to tell the broker which companies you are applying with, and instruct them clearly not to contact those companies. (The broker, after all, receives a commission based on the face value of the policy (ranging from 6 to 15 percent), and that would certainly tend to diminish the funds coming to you.

To get information on some of the companies out there, contact your state insurance department (if licensing required in your state); your local ASO's; the Viatical Association of America, (800) 842-9811, or the National Viatical Association, (800) 741-9465. Please, figure out where you stand.

See financial adviser Per Larson's excellent and up-to-date article in Positively Aware (Sept./Oct. 1997). He is the author of the highly successful Gay Money (Dell).

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This article was provided by Paul Hampton Crockett, Esq.. It is a part of the publication A Snapshot of an Epidemic in Flux: A Survey of Effective Legal Strategies for Survival in Changing Times.