Physicians can expect to see more requests for medical records by companies offering viatical settlements to terminally ill or chronically ill patients who meet certain criteria as certified by their physicians. The viatical industry, which has been marketing its services primarily to AIDS patients through gay publications and networks, is maturing as a result of new federal legislation granting tax-free status to the proceeds and as viatical companies expand their marketing efforts to the population at large.
Physicians can expect to see more requests for medical records by companiesoffering viatical settlements to terminally ill or chronically ill patientswho meet certain criteria as certified by their physicians. The viaticalindustry, which has been marketing its services primarily to AIDS patientsthrough gay publications and networks, is maturing as a result of new federallegislation granting tax-free status to the proceeds and as viatical companiesexpand their marketing efforts to the population at large.
In these settlements, a viatical company or licensed individual paysa discount of 60% to 80% of the face value of a life insurance policy tothe owner during his lifetime, takes over the premiums, and then collectsthe full face value from the insurance company when the person dies. Brokersoften help people who qualify find funding sources, with more funding goingto those with shorter life expectancies. Some people with a life expectancyof less than 6 months have collected as much as 96% of the face value oftheir policies.
John Banks, CEO of Viaticus, Inc, a subsidiary of CNA Financial Corporation,calls viatical settlements "a new idea that can put huge sums of moneyinto people's pockets at a time when they most need it to pay bills andmaintain some quality of life. Without a job, most people are only oneor two paychecks away from disaster," he said. "When they cashout the policies, they often have more money than they've ever had in theirlives."
Beneficiaries are usually the ones to contact his company, Mr. Bankssaid, because they are the ones living with the stress of trying to makemortgage payments, pay bills, and keep up with tuition under the most tryingof conditions. "The goal of buying a life insurance policy is notto set up beneficiaries for life after the wage earner dies. It's to provideyou with money when you can no longer provide for your needs."
To qualify for tax-free status under the Health Insurance Portabilityand Accountability Act of 1996, recently signed into law by President Clinton,terminally ill patients must have a life expectancy of less than 2 yearsand may use the proceeds with no restrictions. The individual need notbe a hardship case, and the proceeds may be distributed, gifted, or spentin any manner.
More restricted "chronically ill" patients, who may have suchlife-threatening diseases as cancer, heart disease, Alzheimer's disease,and Parkinson's disease, are defined in the tax-free Advanced Death Benefits/Viaticalsettlement provision, the same as they are under new long-term care rulesof H.R. 3103. "The person has to be certified within the previous12 months by a licensed health care practitioner as either unable to perform(without substantial assistance) at least two activities of daily livingfor at least 90 days due to a loss of functional capacity; or require substantialsupervision to protect such individual from threats to health and safetydue to severe cognitive impairment."
The viatical settlement must either (1) provide a reimbursement (indemnity)arrangement for costs incurred by the payee (not compensated by insuranceor otherwise) for "qualified long-term care services" or (2)be subject to the long-term care rules with respect to payments made ona per diem or other periodic basis. In general, the arrangement must notbe reimbursement of expenses reimbursable under Medicare. The per diem/periodicpayment rules apply without regard to the amount of expenses for qualifiedlong-term care, which is limited to $175 per day or $63,875 per year.
Viatical companies anticipate widespread use of settlements once theidea catches on.
Like the other large viatical companies, "we do not rely on physicians'estimates of life expectancy, " said Mr. Banks of Viaticus. The initialapplication gives the company permission to access the patient's insuranceinformation and their medical records, which are then reviewed by the company'sin-house underwriting staff. The company may contact the patient's physicianfor clarification of treatment modalities, but the final decision on whetherto offer a settlement "has nothing to do with the patient's physician."
The life expectancy of AIDS patients was fairly predictable until recentadvances and treatments have made it less clear than that of patients withcertain cancers, said Mr. Banks, citing breast, prostate, and lung cancer.
Have physicians been willing participants to date? Most view it as anyother request for medical records and charge an administrative fee.
"Some attending physicians may want to help a needy patient outand might be inclined to certify a shorter life expectancy, said Mike Posey,president of Life Partners, Inc. of Waco, Texas, a viatical company thatpurchases policies and sells them in their entirety or in shares, to investors."Most won't fudge too much because they have standards of ethics andpractice. Others will give the patient maximum potential life expectancybecause they refuse to play God and others won't respond to our requestbecause they're just not comfortable with it."
In an unusual case, the physician for one cancer patient, whose brokerwas shopping around for the best discount on his policy, received 14 requestsfor his medical records, Mr. Posey said. Most apply to a maximum of fiveviatical companies, but with 50 or 60 companies now offering settlements,the field has become more competitive. (The rate of return for purchasers--ifthe policyholder's life expectancy has been predicted correctly--has beenaveraging 22%, apr).
Since the business is based on the time value of money, the companyis careful to screen applicants who apply for a settlement. "Onceyou get beyond 5 years, the time value of money becomes too expensive,"Mr. Banks said.
To get referrals, the companies are forming networks with providersof group benefits, social services at hospitals, and hospices and throughcharitable contributions to organizations, said Mark Leeds, spokespersonfor the National Viatical Association, which lobbied for the new legislation.
To avoid having a treatment center become aware of the fact that a patienthas entered into a viatical settlement or to have the names of potentialviators sold to commercial interests, the NVA has proposed legislationencouraging the same level of confidentiality now granted to AIDS patients,said Leeds. The organization offers a booklet and list of referrals toanyone calling 1-800-741-9465.
About 80% of American households have some kind of life insurance, Mr.Banks said, with a large percentage of it provided by employers. Of the2 million people who die every year, 24% die from cancer, 42% from heartdisease, and 2% from AIDS. "I'm sure 25% to 30% of those people couldqualify for a viatical settlement," he said.
Faced with a choice of buying medicine or food or paying a premium,many people let their policies lapse after years of paying in, and beneficiariesare left with nothing. The insurance industry realizes about $2 billiona year in lapsed policies, according to Mr. Leeds. Viaticals transformthe policy into an asset.
In 1995, 5,000 Americas sold $400 million worth of insurance policiesto viatical funding sources--up $300 million from the year before,"according to the NVA.