Ill veteran races time to secure finances Life insurance policy can't be sold, law says

March 17, 1996|By Shanon D. Murray | Shanon D. Murray,SUN STAFF

Diagnosed with AIDS and given a year or two to live by his doctors, Donald Baker thought he had worked out an arrangement that would give him financial security for the remainder of his life.

But the 27-year-old Columbia resident and former Army X-ray technician who took a medical retirement in 1994 is squeezed between federal restrictions that could effectively scuttle his plan and a Congress that is slow to remove those restrictions for him and others in similar predicaments.

At issue is whether the federal government will make it easier for veterans and active-duty members of the armed services to enter what is known as a "viatical settlement" the sale of a life insurance policy to a company that cashes it in when the policyholder dies.

Federal employees and other private citizens are free to make such settlements, but a quirk in federal law makes it far more difficult for active members of the military and veterans who belong to government-sponsored insurance groups to do so.

About 99 percent of all active members of the military services have federal insurance, as do many veterans and retirees, including Mr. Baker.

Rep. Bob Stump, an Arizona Republican, has introduced a bill that would speed up the process for those in the military trying to make such arrangements, but Mr. Baker fears he won't live long enough for the bill to become law.

"I could have been unrealistic and thought [Congress] would drop everything and concentrate on my problem," said Mr. Baker of Harper's Choice village who contacts at least five members of Congress a week to push his cause. "I realize I may not be able to benefit from all this."

His situation comes amid a boom in an industry that was virtually unknown a decade ago but now includes about 60 viatical companies.

The idea is to put immediate cash into the hands of terminally ill people who are unable to work and who need money to pay medical bills or living expenses, or just to enjoy the rest of their lives.

Such arrangements first became common among those with acquired immune deficiency syndrome about seven years ago, said Thomas McCormack, a member of the board of Affording Care, a New York-based group that helps the dying make financial decisions.

Since then, the settlements have become popular among people with leukemia, cancer, kidney failure and other terminal illnesses, he said.

Those who make such arrangements sell their life insurance policies for 50 percent to 90 percent of their face value, but "it's worth it to them to get the money in their hands now," Mr. McCormack said.

Slow in coming

Yet, the availability of such arrangements to federal workers has been slow in coming, he said. Until last year, for example, the approximately 2 million federal workers with Federal Employee Group Life Insurance were not allowed to enter into them.

A clause in the group life policies barred individuals from selling their policies under any conditions. The clause enacted long before the viatical industry was born left no room for exceptions in the case of terminally ill policyholders, Mr. McCormack said.

After much lobbying, that restriction was overturned by an act of Congress that took effect in July, he said. Since last year, all federal employees who are insured by the government have had the option of selling their life insurance policies, including sales to viatical companies.

But the restriction remained in the group life insurance plans that cover veterans and active members of the military, Mr. McCormack said.

'No one thought about it'

When Congress was making changes for other federal workers, the military wasn't "on our radar screen," he said. "No one had thought about it."

There is another complication for those in the military insurance plans: If they want to drop out of the government's life insurance program and join a private life insurance plan, they have to wait five years to do so.

Although Mr. Baker wanted to switch to a private life insurance plan that he could sell, he feared he would die before the five-year waiting period was up.

So, late last year, he tried to sell his $200,000 Veterans' Group Life Insurance policy to a Virginia Beach viatical company for $100,000.

The federal Department of Veterans Affairs notified both parties that it would not honor the contract, he said.

'Within my grasp'

"I had within my grasp the opportunity to be totally independent and to have enough money for the rest of my life," Mr. Baker said. "Financial stability was taken away from me, and so was my hope."

Unbeknown to him, veterans affairs officials had prepared a bill since introduced in Congress that would eliminate the five-year wait. It would clear the way for people such as Mr. Baker to switch to a private insurer immediately, so they could sell the policies at their convenience, said Kate Moore, a Veterans Affairs Department insurance specialist.

The bill's supporters say it might not be approved by the House until summer or considered by the Senate until after the general election.

Mr. Baker wants to take advantage of such a change as soon as he can. Between visits to doctors and support group sessions, he makes phone calls and sends faxes to Congress, trying to keep the proposed Veterans' Insurance Reform Act of 1995 on the legislative priority list.

If the bill passes and he can sell his policy, Mr. Baker wants to visit his family on the West Coast, travel to places he has never been and start a trust fund for his 12-year-old niece.

Assuming that everything proceeds according to his plan, he said, "I should be able to spend the rest of my days in comfort."

Pub Date: 3/17/96

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