Acquired Immune Deficiency Syndrome, commonly referred to as AIDS, is a disease caused by the HIV virus attacking and severely damaging a victim’s cellular immune system by destroying white blood cells known as T-cells. Once the AIDS virus is resident in a person, it attacks his or her ability to resist a variety of diseases induced by other viruses. In turn, this enables normally innocuous organisms to cause life-threatening illnesses. These infections, which characterize AIDS, are referred to as "opportunistic" infections since they seize the opportunity afforded by a weakened immune system to attack and often destroy the human body. The stages of progression from HIV infection to death may take as long as 10 to 15 years although many cases progress much more rapidly. To date, there is neither a cure nor an effective vaccine to prevent AIDS. Most persons infected with the HIV virus will ultimately develop an immune deficiency which will result in death.

AIDS was first diagnosed in this country in 1981. Since then the number of reported cases and death has skyrocketed. The spread and the magnitude of this lethal disease have staggered the awareness of the nation. In addition to the personal tragedies of the victims are the potential adverse impacts on both life and health insurers and their policyholders. The focus here is on life insurance.

In one sense, no risk is uninsurable as long as the insurer can charge enough premium to cover the face amount of the policy, its expenses and an allowance for profit. For example, a person near death theoretically should be able to purchase $10,000 of coverage for a premium of $10,000 plus amounts to cover insurer expenses and profit. But, as a practical matter, such a transaction makes no sense. A person who has contracted AIDS and faces the relative certainty of death in the not too distant future is unlikely to be able to afford or desire to pay a premium commensurate with the mortality risk he or she poses. Thus, as a practical matter, in insurance terms, such a person is uninsurable. Nevertheless, in the absence of an awareness of the existence of AIDS (and/or its significance) prior to the early and mid-1980s, insurers have in fact issued policies to numerous uninsurable persons who had or would contract AIDS.

This so-far incurable disease, resulting in a greatly abbreviated life expectancy, has reached near epidemic proportions in several areas of the country, promising a substantial increase in both the number of cases and the number of deaths in the years ahead. With the increased awareness of AIDS in the early 1980s, life insurers anticipated significantly increased costs, with no compensating increased premium, arising from AIDS-related deaths under existing policies which contained no exclusion for AIDS and were not underwritten and priced for AIDS. Although AIDS was an unknown risk at the time such policies were written, insurers are contractually liable on such policies with little option except to pay when claims come due. An insurer’s situation becomes further aggravated to the extent that it unknowingly and substantially writes new business on AIDS risks, perhaps even to the extent that its financial soundness can be significantly if not fatally impaired. The financial impact on life insurers could become increasingly severe as the epidemic evolves.

Early estimates of the financial impact of AIDS upon life insurers gave rise to widespread and serious concerns. To confront the anticipated financial consequences of AIDS, some insurers sought to strengthen their reserves and establish contingency reserves to meet escalating AIDS-related claims. Another source of funds to offset AIDS claims may be to reduce the level of policyholder dividends which would otherwise go to policyholders. Furthermore, insurers may have to increase premiums for new policies for all policyholders to compensate for the increased claims costs due to AIDS. But most important, to avert serious financial problems, life insurers are confronted with the necessity to carefully underwrite prospective policyholders to avoid, or at least minimize, writing new coverages on persons having or likely to contract AIDS. This is particularly true since AIDS victims have shown a significant propensity for adverse selection. Why wouldn’t a person, knowing that he or she is likely to die in the near future, attempt to obtain as much life insurance as possible if he or she possesses the financial resources to pay the premium for an abbreviated period of time? There is evidence indicating that this has occurred.

The financial success and stability of an insurer depends upon its ability to select which risks it chooses to insure and to accurately price its products. Due to the uncertainty of the ultimate scope of the AIDS epidemic and the viability of treatment, in the absence of insurer ability to utilize appropriate underwriting controls, a growing AIDS population could threaten the insurance industry’s fundamental ability to control the risks associated with illnesses and death. Thus, the AIDS epidemic poses a significant potential threat to the financial wellness of not only individual insurers, but perhaps to the life insurance industry as a whole as well as their policyholders.

Fortunately, however, with the insurers’ hard-won continued ability to underwrite for AIDS (discussed below), the feared dire consequences on life insurer insolvency arising from AIDS have not been borne out. While continuing as a significant concern, AIDS has been said to have become just one more underwriting factor which insurers need to control. While the impact of AIDS may affect the profitability of life insurers, insurance claims resulting from AIDS no longer appear likely to endanger insurance industry solvency, although certain individual insurers could be fundamentally impacted.

To properly assess what risk a particular applicant for life insurance poses, an underwriter must gather all relevant medical and other information including treatment and diagnosis. Traditionally, an insurer may ask an applicant various medical questions and require submission to medical examination as a part of the underwriting process in determining whether or not to issue a policy and at what premium. Unless an insurer has access to pertinent medical information, high-risk individuals can obtain insurance without paying insurance premiums commensurate with the risk they represent. Thus, historically, medical underwriting in general and testing in particular are lawful unless specifically declared otherwise by statute or regulation.

However, in the context of the AIDS disease, complicating the insurer task has been the emergence of AIDS as a social and political issue. Public compassion for such victims and their dependents exerts pressure that life insurance be made available at an affordable cost. Consequently, issues have emerged in the conflict between the needs of and sympathy for victims of AIDS and the adverse financial and economic consequences for insurers and their policyholders in providing coverage to such uninsurable persons. From the perspective of life insurers and their current and future insurable policyholders, insurers must be able to underwrite to prevent adverse selection by a large high-risk group in order to remain financially viable and provide adequate, affordable and reliable life insurance protection to most people.

Although to date there has not been a substantial and successful effort to directly mandate the availability of life insurance coverage in the AIDS situation, there have been significant attempts to restrict an insurer’s ability to underwrite for AIDS. These have arisen with respect to an insurer’s rights to underwrite as to sexual preference, to test insurance applicants for exposure to the AIDS virus, to ask questions in the application for insurance as to whether the applicant has evidenced symptoms of AIDS or has been tested for AIDS, to request test results, and to deny the issuance of insurance coverage based on test results. In turn, issues have arisen pertaining to discrimination and privacy.

Clearly those persons having AIDS or the AIDS virus present substantially greater mortality and health risks than those who do not. In virtually all if not all states, insurers are required by law to base their life insurance premium rates on reasonable assumptions of mortality and may not unfairly discriminate between applicants of equal life expectancy. Thus, under the general insurance unfair discrimination laws, insurers not only are permitted but also it might be argued are even required to treat AIDS victims differently from other classes of insureds. If an insurer is not permitted to underwrite on the basis of AIDS, then the rest of the insured population will be compelled to subsidize those with the AIDS virus. Insurance is risk discriminatory in concept. Premiums are established in accordance with the nature of the risks undertaken. While to do so is discrimination, it is fair discrimination.

However, discrimination can be viewed from another perspective. The earliest concentration of AIDS occurred within a few segments of the population, such as homosexuals, bisexuals and intravenous drug users. (However, the incidence is spreading to nearly every segment of the population.) Far from all persons in these groups contract AIDS. Nevertheless, it was not unknown for insurers in the early 1980s, in their efforts to reduce their exposure to insuring AIDS applicants, to underwrite on the basis of sexual preference or lifestyle. This was argued to be unfair discrimination. Thus, while clearly a major force behind efforts to limit insurer means to screen out likely candidates for AIDS is the desire to enable AIDS victims to obtain coverage, the pressure for such changes has also taken on ideological overtones as homosexual activists and others view the debate over underwriting and testing as insurer discrimination on the basis of sexual preference. In addition, as noted above, the argument is also made that regardless of the insurance sense of what is fair and unfair discrimination, it is inappropriate discrimination when insurance coverage is not made readily available for all those in society who need it.

In addition to maintaining that underwriting for AIDS is discriminatory, some critics asserted that the underwriting process for AIDS violates the applicant’s right to privacy. Privacy is a major concern because of the possible economic, medical and social consequences which could result from improper release of positive AIDS test results. AIDS is different from most other medical conditions due to the stigma attached to it, the fear associated with it, its effect on other persons, and the severity of the disease.

However, those against limitations on insurer ability to underwrite urge that insurers have long maintained confidentiality of medical test results in such sensitive areas as chemical dependency, alcoholism and syphilis. Since insurers need test results only to assess the mortality risk of the applicant, they have no financial interest in publicizing the test results. There have been, at most, only a few reported cases involving insurer abuse of a policyholder’s sensitive medical records. Early on the life insurance industry, through its trade associations, made clear that their member companies’ traditional policies concerning confidentiality would apply to AIDS-related information in the same manner as such policies apply to other types of sensitive medical information. Furthermore, as discussed earlier, protections are afforded under state insurance privacy laws. And, it should be kept in mind, the insurance application process is a voluntary one. Thus, as to privacy, a reasonable balance may have been struck by the state privacy laws and demonstrated ability of insurers to maintain confidentiality as they have done in other medically sensitive areas.

While the legal aspects of AIDS are very broad in general, in the insurance arena, the primary concern focuses upon the insurer’s freedom to underwrite the policies it issues. Underwriting involves evaluation of an applicant for life insurance to determine whether to accept the application, whether to issue the policy for the amount of coverage sought by the applicant, whether to exclude or limit the coverage for certain types of risks and losses, and how much to charge for the coverage. Distinguishing (that is, discriminating) among applicants, in order to decide whether to write the coverage and at what price, is the essence of underwriting.

In conducting its underwriting process, a life insurer relies on both non- medical underwriting and medical underwriting in deciding what risks to accept and at what price. In the context of AIDS, the former has included lifestyle underwriting and the latter embraces blood testing. Both have generated significant controversy. Although at most only a very few states have seriously considered making it illegal to deny coverage to someone with a diagnosed case of AIDS, no such absolute proscription has yet been enacted. Nevertheless, several states sought to impose restrictions on an insurer’s ability to screen out likely AIDS candidates.

Insurers have developed various categories or classes for determining the varying degrees of risk of loss which individuals represent to an insurer. Traditionally, basic categories of underwriting factors have included (1) age, (2) sex, (3) health and health history, and (4) lifestyle which embraces occupations and hobbies (especially those which are risky). By employing these factors when evaluating a prospect seeking to buy a life insurance policy, insurers can allocate such a person to a risk classification, thereby establishing an expected loss.

With the emergence of AIDS, the lifestyle category was expanded to include sexual preference because of the concentration of AIDS in the homosexual and bisexual community. Some of the lifestyle criteria which suggest that an applicant might pose an AIDS risk of loss are (a) history of sexually transmitted diseases, (b) history of intravenous drug use, (c) single marital status, (d) residence in metropolitan areas having a high incidence of AIDS, (e) living with a person of the same sex, and (f) naming a person other than a spouse or child as the beneficiary of the life policy. After ascertaining an indication of a factor deemed suspect, the insurer then could utilize a supplemental health questionnaire or request a blood test.

Lifestyle factors became a significant element in life insurer efforts to screen for AIDS. Insurers have a substantial stake in identifying persons likely to contract AIDS since the latency period between infection with the HIV virus and the appearance of symptoms tends to be longer than the contestable period under the life insurance policy. Furthermore, even a person not having been infected with the virus is deemed undesirable if he or she is considered to be one who is likely to become so infected in the future. Because of the high risk of AIDS among homosexuals, insurers are quite sensitized to sexual preference as a very significant factor in underwriting.

However, such lifestyle—especially sexual preference—underwriting has caused considerable controversy. In the view of some, lifestyle underwriting to detect those more likely to contract AIDS is inappropriate. Efforts to ferret out homosexuals subject an entire group of persons to discrimination even though only a limited percentage of the group will ultimately die as a demonstrable result of AIDS. Furthermore, the opponents of lifestyle/sexual preference underwriting fear that the insurer may disseminate such information resulting in disclosure that will cause employment and housing discrimination, credit restrictions, and so forth. Also, since many insureds consider lifestyle questions to be irrelevant and intrusive, they may be inclined not to answer truthfully. And, from the insurers’ perspective, some of such lifestyle criteria are not easily observable or detectable through the underwriting process. Consequently, not only is such underwriting controversial and objectionable to many, it is less than reliable. As a result the vast majority of life insurers have come to support the use of blood tests rather than lifestyle underwriting to determine AIDS-related risk of loss. But this is a valid alternative only to the extent that testing for AIDS is permitted.

The NAIC sought to address the underwriting for AIDS issue when, in 1986, it adopted the NAIC Medical/Lifestyle Questions and Underwriting Guidelines to be followed in underwriting. Although recognizing the fundamental importance of properly assigning risk classifications in determining coverage and establishing a fair price, the guidelines prohibit, as unfair discrimination, determining insurability on the basis of sexual orientation.

The guidelines also regulate application questions and insurer inquiries. Although questions intended to elicit an applicant’s sexual orientation are prohibited, insurers may continue to seek medical information, including that which enables the underwriter to assess the risk of the applicant having AIDS. The use of objective medical facts is not deemed to be a violation of the NAIC Guidelines as long as such facts are not used to establish sexual preference which, in turn, becomes the basis for denying coverage. Thus, underwriting standards are addressed in that lifestyle and sexual preference should not constitute part of the underwriting decision.

The NAIC Guidelines reflect the negotiations and compromises between various interested parties including regulators, insurance companies and gay rights groups. They reflect an effort to achieve an appropriate balance between the view that lifestyle is irrelevant to underwriting evaluation and the view that medical and lifestyle information are essential in assessing the risk of AIDS. However, the guidelines avoided dealing with issues, such as testing for the HIV virus, on which consensus could not be reached. Thus, when issued, the guidelines were perceived to be a largely uncontroversial statement of certain basic underwriting principles as they apply to AIDS. Nevertheless, a 1988 study calls into question the unanimity reflected in the guidelines when some surveyed insurers reported the use of sexual orientation to some extent in their underwriting and some of those insurers indicated that such use constituted an important part of underwriting.

By 1994, most states were using some requirements or guidelines relating to the underwriting for AIDS. Nearly 20 states now follow the NAIC approach or something similar. Some other states prohibit the use of sexual orientation in underwriting or issuing of policies. Today, in most states, it is illegal to underwrite against AIDS based upon sexual preference. The life insurance industry has generally come to support this policy with few, if any, insurers engaging in such practice today. As discussed immediately below, insurers now have the ability to medically test for AIDS as a more effective alternative.

Following the entry of the HIV virus into a person’s bloodstream, antibodies produced by the body may be detectable through testing after a period of time (for example, 6 weeks or in some unusual cases after more than a year). The most serious efforts to limit an insurer’s ability to underwrite for AIDS were legislative and/or regulatory bans to limit or prohibit the use of certain tests to reveal AIDS or the HIV virus which can lead to AIDS. In particular, California, the District of Columbia, Massachusetts, New Jersey, New York and Wisconsin have moved in this direction.

Some early arguments in support of prohibiting AIDS testing have been found fatally flawed. For example, the supposedly low rate of progression from infection to AIDS was pointed to as a basis to prohibit testing on the theory that only a few of those denied insurance would actually die of AIDS. However, the passage of time has demonstrated that there is a high rate of progression from infection to AIDS to death. Also opponents of AIDS testing asserted that the tests used to ascertain the likelihood of AIDS were unreliable. This alleged unreliability has proven to be wrong. By the late 1980s, the accuracy of such tests had come to be widely accepted (although the tests may not detect some mutant forms of AIDS).

The insurance application process is a voluntary one. The prospective insured seeks to buy a product. The appropriate price of the product depends upon the health of the applicant. To bar testing for and asking questions about AIDS prevents an insurer from establishing an accurate and fair price to the detriment of not only other existing and future policyholders but, in some situations, to the financial health of the insurer itself.

Despite the efforts in the mid- and late 1980s to ban AIDS testing, the trend has been halted and reversed. In part this is attributable to the fact that some of the early arguments upon which such activity was based were shown to be fallacious. Perhaps more important, intense and successful industry efforts were undertaken to educate legislatures, regulators, courts and the public as to the potential adverse financial consequences not only for life (and health) insurers, but also their other policyholders if insurers cannot underwrite for AIDS as any other serious health impairment is underwritten. Other policyholders would not only be called upon to substantially subsidize AIDS policyholders to their own financial detriment, but also in some situations insurers might become less able to fully meet their obligations to the rest of their policyholders because of significantly weakened financial condition. As a consequence, the governmental bans or unduly severe restrictions on the ability of insurers to test for AIDS have been reversed. Even New York and California, both states with large concentrations of persons at high risk of contracting AIDS, although originally barring testing for HIV, have modified their positions, as has Massachusetts. California did so by statute, New York and Massachusetts by case law. As a general rule (absent some legal mandate or limitation by statute, administrative ruling or case law), insurers from whom applicants seek coverage may freely administer AIDS tests to applicants and treat the test results in the same manner as they deal with other physical conditions. When alerted to a potential risk of AIDS, an insurer may, as a general practice, underwrite applicants for the AIDS virus. Thus, testing is lawful unless made unlawful. Furthermore, a few states have expressly stated in regulations or bulletins that testing is permitted. Currently no life insurer is prohibited from testing for HIV infection with respect to an application for individual life insurance. Every state permits insurers to perform some type of blood testing, although several states have imposed restrictions as to the type of tests which can be used and/or other conditions which must be met.

Not only do insurers need to retain the right to require applicants for insurance to submit to HIV tests as part of the underwriting process, insurers also are interested in knowing whether the applicant has previously tested positive for HIV infection and insurers want to be able to ask such question in the application. When this is done through the application, not only is the insurer seeking information for underwriting purposes, it is also preserving the right to contest a claim, if one arises in the contestable period, when the insured misrepresents the presence or absence of the infection. Also test results information may be contained in medical records or attending physician statements which are obtained as part of the underwriting process. Insurers want and need to be able to use such information as they would any other recorded information.

However, several states impose various restrictions with respect to asking for prior test results. For example, a few states prohibit questions in the application or otherwise about prior AIDS-related tests or exposure to the AIDS virus. But specific questions concerning diagnosis or treatment for AIDS or ARC (AIDS-related complex) may be permitted. Another state requires that questions about prior tests and test results be diagnostic and predictive, not vague, subjective and unfairly discriminatory. One state amended its Unfair Trade Practices law to prohibit refusal to insure or limiting coverage based solely on prior test results or on having submitted to the test. Other states pose different variations.

Several states require that the utilization of a test for AIDS detection be disclosed to the applicant for insurance who, in turn, must give informed written consent for the test before the insurer can proceed with the test. The requirement of informed consent arises from the belief that persons are entitled to receive full disclosure concerning medical procedures and the risks associated with them before undergoing such procedures. Frequently informed consent issues have occurred within the context of HIV testing. In recognition that there is a substantial likelihood of progression from infection to AIDS, an HIV result is a very important item of personal health history. If an insurer requires the test and the results are positive, an individual’s life will be profoundly affected. Informed consent is designed to let the person know beforehand what the test is and what the results will mean. Then, before agreeing to undertake such a test, the applicant can evaluate the need for and/or desirability of obtaining the insurance against the consequences of taking the test which might give a positive result.

Numerous states require some form of informed consent although what constitutes the required "informed consent" varies among the states. Some states simply require that the proposed insured be informed that his or her blood will be tested and that the applicant provide his or her consent before such is done. Other states seek to enable the applicant to be more informed, including the provision of information as to the nature of the HIV test, the meaning of the results, the confidentiality accorded to the results, the nature of the disease AIDS, high risk behavior, and/or the role of the Medical Information Bureau. Some states either approve or prescribe the consent form to be used. And in 1988, the NAIC adopted a set of guidelines for a notice and consent form.

When an individual first learns that the HIV test series has come up with a positive test result, that person may need medical, psychiatric and/or financial counseling. If an insurer declines to issue insurance because a person tests positive for HIV infection, this may be the first time the individual becomes aware of his or her infected status. Some have urged that when an insurer is the source of the test result, the insurer should be responsible for suggesting or even providing the counseling thereafter. On the other hand, forcing insurers to provide such counsel would be to compel insurers to undertake the services of a public service organization and to do so with no compensation. Depending upon the nature of a counseling requirement, it could be one of the most onerous requirements imposed on insurers as a condition to their right to cause and use HIV tests. Counseling requirements may involve either pretest and/or posttest activities of varying scope (for example, referral, actual counseling, etc.). Nevertheless, at least three states impose some form of counseling requirement.

As discussed earlier, privacy is a major concern not only in general but also in the particular context of AIDS. An individual has a strong privacy interest in avoiding the dissemination of his or her AIDS medical condition beyond the insurer’s underwriting department.

A prime articulated concern over insurer testing is the perceived social and/or economic personal indignity, as well as discrimination in housing and employment, which may occur if an individual tests positive for AIDS and that information is disseminated to others even though the test was undertaken only for insurance purposes. However, this concern possesses less force than when originally articulated with improved public awareness of the modes of transmission of the disease, which does not include casual contact. Thus, the public’s concern over proximity to AIDS-infected persons in the workplace or housing has receded in recent years.

Furthermore, although privacy and confidentiality are significant values in this country, in several contexts they have not been deemed to be paramount. For example, the public has an interest in identifying those persons who transmit serious ailments such as venereal disease, AIDS, etc. At least 40 states have established reporting requirements when there is a positive AIDS test result. Individuals who are at risk of being infected with AIDS have a compelling interest in knowing that fact. Similarly, as indicated above, insurers and their other policyholders possess a strong interest in being able to underwrite for AIDS. Consequently, it can be argued that while privacy is a substantial legitimate concern, it should not override insurer ability to underwrite through testing, especially when maintaining appropriate confidentiality of HIV test results can be addressed in other ways. Some states have enacted the NAIC Model Privacy Act which deals with confidentiality and access to records and the functioning of the Medical Information Bureau, and several states have enacted legislation and/or promulgated regulations aimed specifically at the confidentiality of information pertaining to AIDS and HIV test results. Disclosure deviating from specified behavioral guidelines has become a violation of state law which subjects insurers to penalty. And possible deterrence and redress may be accomplished through the availability of judicial action for the tortious invasion of privacy.

The Rehabilitation Act of 1973 and the Americans with Disabilities Act of 1990 (ADA) both afford protection to many handicapped persons. The Rehabilitation Act prohibits discrimination against persons with handicaps or handicapping conditions. Sec. 504 states that an otherwise qualified person shall not, solely due to a handicap, be excluded from participation in, denied benefits of or subjected to discrimination, under any program or activity which receives federal financial assistance. Since life insurers rarely, if ever, receive financial assistance from the federal government, for this reason as well as the McCarran Act considerations, this law appears inapplicable to the insurance/AIDS situation.

The ADA seeks to establish a national mandate for the elimination of discrimination against individuals with disabilities. However, the McCarran Act provides that "[n]o Act of Congress shall be construed to invalidate, impair, or supersede any law enacted by a State for purpose of regulating the business of insurance . . . unless such Act specifically relates to the business of insurance." (Emphasis supplied.) Neither the Rehabilitation Act nor the ADA specifically states that it applies to the business of insurance. In the absence of explicit congressional intent, application of these Acts to the underwriting of insurance, in the context of AIDS as well as otherwise, would appear to be inappropriate. And, even more directly, the ADA specifically states that the Act does not prohibit or restrict an insurer from underwriting risks, classifying risks or administering such risks that are based on or not inconsistent with State Law.

In summary, although there has been no successful major movement to mandate insurers to make coverage available to AIDS victims, there is increasing concern as to the social costs of a large and growing population of uninsurable persons. The fundamental question remains as to how society should deal with huge social costs of health care and the financial consequences for dependents of AIDS victims, as well as their concerns for privacy, without threatening the financial viability of life and health insurers and imposing unfair burdens on other policyholders. As to privacy, a reasonable balance may have been struck by the state privacy laws and the demonstrated ability of insurers to maintain confidentiality as they have done in other medically sensitive areas. However, adequately addressing the life insurance and health care needs of the multitude of AIDS victims has proven to be much more elusive. Unless society in general and the insurance industry in particular come up with some workable solution to the problem of uninsurability of a significant, highly organized and vocal segment of the population, the issue of testing and/or other restrictions on underwriting is likely to reemerge in efforts to force some type of solution out of a reluctant insurance industry.