Early in 1984 a 29-year-old resident of Paterson, New Jersey learned he had AIDS. As a result of the illness he lost his job, and with it his health insurance. Shocked and depressed, he secluded himself in his apartment for several weeks, emerging to discover he had lost his opportunity to take advantage of the automatic conversion clause that would have changed his group health plan to an individual plan. No private insurance company would sell him a new policy because of his disease. So he threw himself into the government “safety net.” He qualified for Social Security disability insurance, but those benefits were delayed for five months. Meanwhile, he spent all of his savings on utilities, rent, and food. Family and friends helped tide him over. Eventually, the disability checks began coming—$480 a month. That covered most living expenses, but left no money to pay for expensive chemotherapy. So he skipped some of the treatments.

Next, he turned to the government’s special medical assistance programs. Medicare offers a special program for the disabled, but he learned that it also has a rather macabre catch-22: you have to wait two years before becoming eligible. Most AIDS victims don’t survive two years after their diagnosis. Medicaid, designed to help the poor, seemed a better bet. But, he found to his disbelief, his $480 disability payment made him too wealthy to be eligible for Medicaid. In New Jersey, the Medicaid income cutoff is $356. All else having failed, he moved to New York City, where the eligibility laws are more lenient.

This AIDS patient discovered that the disease that battered his body’s natural defense system is also straining the health care system that is supposed to protect the ill. Calling the maze of public and private facilities and programs in this country a health care “system” is actually a bit of a misnomer. Unlike most industrialized countries, the United States has no one coherent health care network but a mix of several disconnected systems that are supposed to meet everyone’s medical needs. We assume that for-profit and nonprofit insurance industries, with the support of employers, will help most Americans pay for medical care by reimbursing health care providers. In certain cases, when people are too poor to afford proper health care, the local and federal governments are supposed to fill the gap by providing financial assistance and inexpensive public facilities, spreading costs throughout society.

But in practice, our health care system works more like a misdesigned jigsaw puzzle in which the pieces don’t fit. About 50 million Americans under age 65, or close to one-fourth of that population, are inadequately covered by private insurance, Medicaid, or Medicare. Many receive no coverage at all. While no one knows how many AIDS patients forgo treatment because they can’t afford it, studies have shown that roughly one million Americans have had at least one family member who was refused treatment for some illness because of prohibitive costs. And as the AIDS crisis demonstrates, when two major components—the federal government and private insurers—flinch at high costs, the burden shifts to local public hospitals that are hindered by woefully inadequate funding and poor municipal planning.

Expensive killers

Fifteen thousand people have contracted AIDS. The U.S. Center for Disease Control (CDC) estimates it costs $147,000 to treat an AIDS patient, or almost $1.5 billion nationwide for the first 10,000 patients. If, starting today, the virus did not attack a single additional person, there would still be approximately 100,000 new patients diagnosed within the next five years. That’s $30 billion in new health care costs. Some estimate several hundred thousand new AIDS victims with costs conceivably reaching $70 billion in that period. Even if the numbers are inflated, there can be no doubt that the impact will be devastating to major cities such as New York, San Francisco, Los Angeles, Miami, and Newark, where half of the victims are concentrated.

For the same reason that AIDS is a cruel killer, it is an especially expensive one. When the immune system is taken out of the battle early on, medicine must pick up where the body’s natural defenses have failed. Complications are the norm, and patients often need constant monitoring. Treatments such as chemotherapy are expensive, and doctors must often use specialized equipment. The average daily cost of treating AIDS patients is about 60 to 70 percent higher than that of other hospitalized patients, according to officials in New York City. High costs are compounded by unusually lengthy hospital stays— an average of 35 to 50 days per year in New York compared to average stays of seven days for other illnesses.

With such a huge financial crisis looming, what has our national government done to prepare? The Reagan administration has sponsored research and public education but has generally avoided the issue of who is going to pay for AIDS treatment. Instead, the administration has casually assumed that the private sector, states, and cities, will come to the rescue.

Unfortunately, the private sector, in this case the insurance industry, will pay only a modest portion of the cost of AIDS treatment. In San Francisco and New York City, private insurance companies currently pay about 40 percent of all hospital costs and only 13 percent of the costs for patients in public hospitals. The role of insurance companies will shrink in the future. It is less a problem of greedy companies than of the very nature of the insurance industry. To protect themselves from crippling losses, the companies try to avoid sudden, unexpected spending on health insurance policies. That’s fine for stockholders and executives, but it’s going to make it much more difficult for society to pay for AIDS.

Insuring retreat

“The companies are freaked out. They’re just now starting to get the figures in, and they’re scared to look at them,” says Brent Nance, an insurance agent who counsels AIDS patients for the AIDS Project of Los Angeles. Lincoln National, for example, had paid out $4.2 million for 102 claims during a 12-month period ending in November 1985. Al Parsons, a spokesman for the company, says it is not panicking yet, but executives are worried. “There’s the potential for a large impact,” Parsons says. “We had not planned it into our actuarial tables. It’s not in our morbidity charts.” The AIDS patients with insurance, after all, are primarily young working people, whose premiums are supposed to help subsidize care for the elderly.

To protect themselves from huge losses, the insurance companies are attempting to weed out high-risk customers. Much attention has been focused on insurance companies’ plans to screen life and health insurance applicants with the HTLVIII antibody blood test, which measures the presence of an antibody found in AIDS virus carriers. About 5 percent to 20 percent of those who test positive actually develop AIDS. TransAmerica/Occidental has already applied for permission to use the test in five “high-risk states,” including New York and California. Early in 1985, Blue Cross, representing a Fresno, California company, filed for permission to avoid paying for treatment of sexually transmitted diseases altogether, whether employees were high risk or not. The request was denied by the state insurance department as discriminatory, unprecedented, and, interestingly, as an unwarranted shift of financial burden to the state.

Blood test or no blood test, the insurance industry is excluding homosexuals. Companies are already doing this by looking for “lifestyle” clues, such as where applicants live, who they list as their beneficiaries, how old they are, and even their appearance and mannerisms. If you are a young male living in an area with a high number of AIDS patients, the companies are likely to take a hard look at you, says Rob Bier, spokesman for the Health Insurance Association of America, an industry lobbying group. “If an insurer is halfway intelligent, [he] will find some way to deny coverage” if he suspects the candidate is in a high risk group, says Peter Groom, chief of policy approval for the California Insurance Department.

AIDS patients who now have coverage are discovering another fundamental flaw in the way private insurance works. Most people who have health insurance are on group plans associated with their jobs. But in some states, when an AIDS victim loses his or her job—and on average patients are unemployed ten months before their death—they also lose their insurance plans. Some plans, including Blue Cross/Blue Shield policies, have conversion clauses, through which you can hold onto individual policies (usually at much higher premiums). But many large companies that create their own insurance plans do not provide for conversion.

But even when you have a conversion clause, it is usually of little help. For example, had the AIDS patient from New Jersey acted within 30 days of losing his job and changed his group policy to an individual plan, he probably would have run into a problem similar to one other Americans have when they lose their jobs. He is unemployed, ailing, struggling to meet rent and put dinner on the table, and now has to pay an extra $1,500 to $6,000 a year for spotty medical insurance. Many simply don’t have money for the premiums. The result: “Most people end up losing their coverage,” says Groom.

Even more alarming, are the indications that those who retain their policies may run into problems cashing them in. Both Nance of the L.A. AIDS Project and Mark Senak, legal counsel to the Gay Men’s Health Crisis of New York City, say they find an increasing number of patients who claim that companies have denied health payments on the grounds that the employee had a “pre-existing illness .” Ultimately, the insurance company must prove that the patients knew they had the disease and withheld the information. But the AIDS patient advocacy groups are so strapped that they don’t have time to litigate each case. Here the problem is not the nature of private insurance, but the sleaziness of certain insurance companies. They are saying: you give us these monthly payments, and we will take care of your medical needs—as long as you do not get too sick.

If there is any doubt about the lengths to which the insurance industry will go to minimize its role in paying for the AIDS crisis, one only need look at Wisconsin. In July, the state legislature, acting quickly and without notifying the insurance companies ahead of time, prohibited the industry from using the HTLVIII blood test. The insurance industry responded by threatening to exclude AIDS coverage from their policies altogether. Within a matter of weeks, the insurance industry, joining with the state’s branch of the American Medical Association, which was concerned about criminal sanctions against doctors who divulge the blood test results, had blitzed the legislature. The lobbying effort endangered not only the prohibition on antibody testing by insurance companies, but also provisions preventing employers from using the test to discriminate against workers. Supporters of the original bill quickly agreed to a compromise under which the insurance companies will eventually be able to use the test, but which preserves the employer anti-discrimination clause. “We were faced with a choice,” says state Rep. David Clarenbach, a leader in pushing both pieces of legislation. “Do we watch these laws get wiped out, or do we cut as good a deal as we can?.. . And it wasn’t the Moral Majority or the state yahoos. It was the insurance industry and the AMA .”

Skimpy safety net

Many people now covered by private insurance will soon find themselves out in the cold. Meanwhile, an increasing number of AIDS victims are being discovered among the indigent intravenous drug addicts of New York, Newark, and Miami. The uninsured and the poor are supposed to be caught by the federal safety net, and the Reagan administration claims that the current array of federal programs is sufficient to handle AIDS. In fact, however, the already overburdened system of federal medical assistance will not be able to protect many AIDS patients.

As the AIDS patient from New Jersey discovered, Congress has imposed a two-year waiting period on Medicare benefits in an effort to cut costs. Most AIDS patients won’t live to file their papers. Medicaid, the federal-state medical program for the poor, has picked up some of the costs for people with AIDS—roughly $50 million from Washington in 1985. But there is a catch for the Medicaid program, too. People with AIDS, in fact anyone in America, must first “spend down” to poverty to become eligible. “If they’re not already on Medicaid, and they get diagnosed as having AIDS, they have to then impoverish themselves,” explains Steven Meskin, chief of Medicaid estimates. “That’s the way the program is set up.” The system prevents the wealthy from using illness as an excuse to chisel the government. But it also may force AIDS victims in the last months of their lives to leave their homes and sell their possessions. Many states, including California and New York, have modest supplementary medical aid programs that may slightly ease such hardship, but 16 states, including New Jersey, Florida, and Ohio, do not.

Even in states where the gaps are plugged, the basic insufficiency of the Medicaid program pushes a huge portion of the costs onto the hospitals. In New York, which has one of the most generous Medicaid programs in the country, the state and federal governments are reimbursing $500 per day for AIDS treatment that costs $800 per day. New York has a municipal hospital system that picks up the rest. Most cities, however, do not have an extensive public hospital system capable of treating AIDS well. Government assistance falls short for much medical care, but because AIDS treatment is even more costly than most, the gap is wider. As a result private physicians avoid poor patients. “I will not accept [Medicaid] patients,” says Peter Seitsman, a private physician in Manhattan who specializes in AIDS treatment. Seitsman says private insurance pays about $60 of his $75-per-visit charge, while Medicaid pays $7, about what it pays for visits to physicians for most illnesses.

And those aren’t the only holes in the net. Medicaid does not pay for many experimental drugs or treatments, a particularly troubling provision since many of the drugs used for AIDS are experimental. In addition, neither Medicaid nor the Social Security disability or insurance programs pay for the treatment of AIDS-Related Complex (ARC), a condition that does not cripple the immune system but partially weakens it. Patients manifest many of the same symptoms as AIDS, such as swollen glands, weight loss, night sweats, and recurrent fevers.

The one concrete action the Reagan administration took to improve this situation was to ease the qualifications for Supplemental Security Income by making AIDS a “presumptive disability.” But a patient still must spend into poverty to qualify. The Health Care Financing Administration has not taken any major steps to widen eligibility or increase reimbursement because it is being held closely in check by the Office of Management and Budget. In fact, OMB has recommended canceling $16 million Congress appropriated for 1986 to set up model treatment programs—the only portion of the AIDS budget targeted at treatment costs.

Perverse federalism

Public hospital systems in urban areas are being forced to assume an increasingly large share of responsibility for AIDS patients who can’t pay for their own treatment. New York’s municipal hospitals are picking up two-thirds of the costs for the AIDS patients they treat. “We can see a situation when AIDS will overwhelm the local health departments,” warns Rep. Ted Weiss, a New Yorker who chairs a subcommittee overseeing the Health and Human Services Department (HHS). Approximately 4,800 New Yorkers have AIDS—one-third of the national total. About 270 of them are in city hospitals at any one time. The New York City hospital system, which has a $1.9 billion budget, spent $55 million on AIDS treatment in 1985. New York State recently estimated that by 1990 the city would be spending $500 million annually on AIDS. If the state estimates are accurate, the city would not have enough beds or money to treat all those patients.

Other forces are working to increase the burden on the public hospitals. Private voluntary hospitals, which have been carrying more than half the AIDS burden, will soon find themselves unable to absorb the huge losses associated with AIDS patients. Already, each of New York City’s private hospitals is losing $1 million per year on AIDS patients. If hospitals refuse to turn away patients, they will instead have to cut corners, trimming the less lucrative outreach services and clinics, which primarily serve the poor. Private New York hospitals will have enough bed capacity through 1986, but Bob Thompson, vice president of the Greater New York Hospitals Association, warns that if the number of new AIDS cases continues to double every year, “I’d be a fool if I said we could absorb that.”

Matters have been severely complicated by an incredible merging of woes. New York must now deal with a group of people who are drug addicts, homeless, and have AIDS. About one-third of New York’s AIDS patients and two-thirds of those treated in city hospitals are intravenous drug users who were infected by sharing contaminated needles. The proportion of AIDS patients that are I V. drug users is expected to rise dramatically, and most of the burden will fall on public hospitals. In addition, about 10 to 20 percent of the city’s hospitalized patients are homeless, according to Omar Hendrix, director of planning for the Health and Hospitals Corporation. The drug addicts are weaker, sicker, harder to treat, almost entirely uninsured, and require long periods of hospitalization.

For all of their troubles, some cities could be doing more to help themselves. There are striking differences in how different cities have dealt with the AIDS cost issue and how much of the burden they have passed on again. Although the CDC estimates include figures from New York and San Francisco, a study by Peter Arno, an economist at the Institute of Health Policy Studies at the University of California at San Francisco, concludes that costs in New York City are at least twice as high as in San Francisco. Part of that results from a difference in the type of patients. AIDS patients in New York are more likely to succumb to a form of pneumonia, which requires close monitoring. San Franciscans are more likely to contract Kaposi’s sarcoma, a form of cancer that is treated with chemotherapy, often on an outpatient basis. (Scientists think the difference may be related to levels of drug use among the AIDS population.) San Francisco has proportionately fewer drug addicts and infants as patients. Another difference is size; it’s simply harder to be efficient when you serve a population ten times as large with more than three times as many AIDS patients. In part as a result of these differences, patients stay in New York hospitals an average of 35 to 50 days, compared to 11 in San Francisco. The length of stay is what drives up the cost; the per day costs are almost the same in the two cities.

Although Arno does not paint the San Francisco health and political community to be more compassionate than New York’s, as some have done, he notes that San Francisco has been more organized in setting up alternatives to in-hospital care. At any given time, 10 percent of San Francisco’s AIDS patients are in the hospital compared to 20 percent of New York’s patients. San Francisco has set up a successful hospice program, funneling money to private groups that have provided 87 housing units and home care for 165 patients. The city provided 62 percent of those groups’ budgets. New York City, on the other hand, left this side of treatment almost exclusively to volunteer groups. In 1984 New York’s volunteer groups provided home care to only 31 patients, and as of November 15, there were only three patients in New York City in long-term care facilities, according to Hendrix. Because of New York’s high percentage of homeless patients, a hospice system is, if anything, even more necessary.

Although New York is now matching San Francisco in dollars spent and is expected to announce a new plan to provide hospice care, as of 1984 it had spent less than $600,000 on hospice facilities; San Francisco had spent $7.4 million. Finally, those other two players in the health care process—the private insurers and the federal government—do not help matters. Many private insurance plans cover in-hospital costs, but not hospice care, and the Medicaid program covers home care but also omits hospice programs.

In New York City, the government’s failure to plan ahead means that patients are now kept in hospitals far longer than they need to be. Hendrix estimates that with an extensive hospice network, the city could cut costs anywhere from 25 to 33 percent. “Urban planning has not taken place because politicians did not want to be associated with a gay disease,” says Senak of the Gay Men’s Health Crisis. “You can’t just leave the planning to volunteer groups. This malign neglect is costing a tremendous amount of money.”

Volunteer groups, the real heroes of the AIDS treatment crisis, have set up limited social service programs. In New York, the Gay Men’s Health Crisis has established an underground network of sympathetic landlords who secretly house about 30 AIDS patients in their apartments. Arno’s study even quantified the volunteer effort for San Francisco at 125,000 volunteer hours, without which the city would have had to spend even more money. There is, of course, no way to quantify the medical and emotional benefits to an AIDS victim who has a stable place to live with a visiting nurse, instead of having to travel from one temporary shelter to another every few weeks. The difference in the cities’ reactions also has a great deal to do with the political stature of the risk groups. Gays in San Francisco are an important part of the power structure, with a member of the board of supervisors and a community of powerful business and social leaders. Politicians were forced to deal with the disease as soon as its nature became evident. In New York, it is still considered politically risky to be closely associated with gays. “Ed Koch didn’t want to be associated with the gay community,” Arno says, noting that the recently reelected mayor has long attempted to play down rumors that he is a homosexual.

When the city tried in 1985 to place AIDS patients in a nursing home in Queens and the Catholic Archdiocese tried opening a hospice on the Upper West Side of Manhattan, the communities erupted in frenzied protests. Unfortunately, the realities of local politics virtually guarantee that every local elected official will be out with a placard and bull horn trying to block such shelters. That is why the federal government ought to consider New York’s problem its own problem. The federal government has a responsibility to help when some citizens are being afflicted disproportionately, particularly when bigotry or political inertia prevent local government from stepping in. We should also remember that New York and San Francisco do not have high numbers of AIDS patients merely because those infamous high-risk group members live there. AIDS patients from all over the nation are flooding to those two cities because they have the best medical care.

Curing the maladies

The AIDS treatment crisis reflects larger flaws in the health care system: disparities in the quality and availability of treatment, gaps between private and public financing, and inadequate support for the poor. To address these problems fully would require dramatic, long-term changes, such as instituting national health care and federal insurance regulation. The nature of the AIDS crisis compels immediate action.

The new HHS secretary, Otis Bowen, should make it his first priority to deal with all aspects of the AIDS problem. It is the federal government that must lead in this area. Many of the problems result from medical federalism: each state has sewn a different piece of our patchwork health care system. Left to its own devices, the system has not distributed the burden of the AIDS crisis evenly. A patient in New York is better off than a patient in New Jersey; one in California, better off than one in Texas. There is no coherence and no equity.

If some states are coping better than others, it’s the federal government’s responsibility to find out why and help improve those in the worst condition. Sen. Lowell Weicker included $16 million in the $237 million AIDS appropriation approved by Congress in November for pilot treatment programs. This pilot program, a drop in the bucket, should be followed up with funds to replicate successful experiments. That will end up reducing costs per patient.

Congress should open the Medicare program to AIDS victims, as it has to patients requiring kidney dialysis. Rep. Ted Weiss, sponsor of a bill to change the Medicare rules, has offered legislation providing a $60 million fund to aid state governments in their battle. Congress should also allow Medicaid to pay for hospice care and experimental treatments. Meanwhile, state governments can help relieve the burden of local health departments by picking up a larger portion of the Medicaid reimbursements themselves.

Finally, Congress should require that states set up high-risk insurance pools, as eight states already have done. True, federal regulation of the insurance industry is almost as frightening to some as AIDS. Nonetheless, these programs work. Wisconsin, for example, has an industry-funded insurance pool, which allows uninsurables to obtain coverage at slightly above market rates. A bill by Rep. Barbara Kennelly would impose a stiff tax on companies if they do not take part in a risk pool.

Government is so often accused of being incapable of planning ahead, of not having the foresight to avert major catastrophes with common sense prevention. Here’s a chance to prove that wrong. Just because it’s an AIDS problem doesn’t mean it is incurable.

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Steven Waldman

Steven Waldman is chair of the Rebuild Local News Coalition, cofounder of Report for America, and a contributing editor at the Washington Monthly.