What Repealing the Insurer Anti-Trust Exemption Would Do

Yesterday, Majority Leader Harry Reid testified in support of a bill championed by Senator Leahy to repeal the anti-trust exemption health insurance companies currently enjoy. The bill has received a ton of support:

Leahy's bill would repeal the exemption established in the 1945 McCarran-Ferguson Act for any companies engaged in price fixing or bid rigging -- which are both already illegal. He has introduced similar legislation in other Congresses, including a broader repeal of the underlying law. Reid is a co-sponsor of the current bill.


In the House, where Democratic leaders are exploring the issue further, Judiciary Committee Chairman John Conyers (D-Mich.) has introduced legislation that would essentially end McCarran-Ferguson and give the federal government the right to regulate insurers at the national level.

So, what would this repeal do? In testimony on the bill yesterday, Christine Varney, the government's top anti-trust lawyer, said:

The McCarran-Ferguson Act antitrust exemption is very expansive with regard to anything that can be said to fall within "the business of insurance," including premium pricing and market allocations. As a result, "the most egregiously anticompetitive claims, such as naked agreements fixing price or reducing coverage, are virtually always found immune."

Concerns over the exemption's effects are especially relevant given the importance of health insurance reform to our nation. There is a general consensus that health insurance reform should be built on a strong commitment to competition in all health-care markets, including those for health and medical malpractice insurance. Repealing the McCarran-Ferguson Act would allow competition to have a greater role in reforming health and medical malpractice insurance markets than would otherwise be the case.

There is a ton of evidence that premium price fixing and backroom deals to preserve market share between competitors occur regularly today.

Health Care for America Now's report [pdf] on insurance industry absuses documents how Blue Cross Blue Shield in Massachusetts and a big hospital made a deal to increase payments to providers, and providers made a deal to not allow any other insurer to pay them less. Thus, Blue Cross raised their rates, leading to a period of skyrocketing premium increases in Massachusetts, the hospital got rich off their locked in payments, and other hospitals and insurers in the state had to scramble to keep up. In all, people had to pay more, and those increased premiums were passed along to the hospitals in on the deal.

This kind of price fixing and deal making is absolutely illegal in other businesses, but in the insurance industry, because of their anti-trust exemptions, they're allowed to screw customers without repercussions.

Similarly, Health Care for America Now found that 94% of insurance markets in this country are "highly concentrated," a Department of Justice term that means these markets are at risk for monopoly. For example, in Arkansas [pdf], Blue Cross Blue Shield controls 75% of the market, a level of concentration that would raise anti-trust lawsuits in any other industry.

These kinds of market concentrations were caused by years of mergers, mergers that would never have been allowed under normal anti-trust rules. And this market concentration is a huge driver of skyrocketing costs.

Ending the anti-trust exemption would be a huge start towards ending these abuses.

The insurance industry needs two things: Real competition and an end to their anti-trust exemption.

Price fixing, backroom deals, collusion, and market-concentrating mergers should once again be illegal in health insurance. And we need a public health insurance option to ensure insurance companies follow the rules set out for them.

Anything less and we'll get more of what we have now - skyrocketing prices and anti-competitive dealmaking resulting in more medical bankruptcies for Americans.

(also posted at the NOW! blog)

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Comments

[janiceh]

I appreciate all of the thoughts in the article but disagree with much of the reasoning. As most countries have found out, a health insurance industry (public or private) is most efficient when:

1. The more enrollees, the better (larger is better).
2. A single standardized plan or a very limited number of variations for plans to reduce red tape and consumer confusion.
3. A supervisory body that looks at what works regarding health outcomes and what doesn't and applies spending to the areas that offer the greatest benefit/cost ratio.
4. A focus on prevention and greater, more aggressive spending in the early part of a person's life and taper spending as the person ages.
5. A focus on primary care and prevention of hospitalizations, when possible.

[janiceh]

Continued-----

I agree that there should not be an anti-trust exemption but caution people on spending too much energy in that direction. Repealing anti-trust laws will cause:

1. Many smaller plans to choose from.
2. A large variation in plans, causing lots of confusion among consumers and physicians and a constant comparison of apples to oranges. The variations are a way to prevent consumers from direct comparison and a way to pad profits by all of the hidden loopholes in the fine print.
3. With an increase in number insurers, there is little incentive for prevention. For example, if an insurer prevents someone from having a heart attack in 20 years, the savings will likely get passed on to a different insurer.
4. With many smaller plans, there is little chance that a any supervisory body will have the influence to make insurers spend money in areas that do the most good in the long run.

[Ben Dixon]

If we do away with the anti-trust exemption for health insurance companies it will both allow and force them to compete with other health insurance companies across state lines. Once that happens we will have real competion and there will no longer be a need for a "public opition" to encourage competition.

[spacecreep]

i totally agree..... i think this was the card up the sleeve of obama all along.... but the hand had to be played to see how the insurance companies would respond to health reform...... once they came out and threaten the public with preminum raises if it was passed, they overplayed their hand and now they are in a corner... i forsee that some republicans will back a public option in return for the insurance company's exemptions­......chec­k mate......­..........­......

[Lancer 101]

The health insurance industry's antitrust exemption boggles the mind! I have never seen such a history of human abuse based on elevating profit margins. How they get away with this is astounding, and to think removing the antitrust provision hasn't been at the forefront of this discussion since day one is puzzling as well. As one example of insurance price fixing to support this idea, profits of the 10 largest publicly traded health insurance companies rose 428 percent from 2000 to 2007! Understandably, when the CEO of United Health Group earns over $8M in salary plus another $1.6B in stock options! (Wall Street Journal, 2006.) Why wouldn't they deserve to be heavily regulated?

[clarryr]

The myth of competition in the existing health care industry (insurance, pharma, and care providers) is just that, a myth. To claim what we have is capitalist is just as erroneous as saying a public option is socialist.
In the electronics, consumer products, and pc industry you have true competition demonstrating capitalism. You can go the any number of stores, Best Buy,Costco, shop online, for a huge variety of PC's at different price points, offering a huge variety of features. Each pc manufacturer comes out with a new line every year outperforming what they offered the year before at a better price.
In contrast, there is no store for health insurance where you can go see what's available. There is no online comparison shopping. The insurance industry does not come out with better, cheaper features in their policies every year. The drug industry does not compete to deliver the best drugs at the lowest price. Care providers are not clamoring to provide better care at lower costs to garner customers.
Perhaps health care does not lend itself to true free market forces. I for one don't think it is possible or desireable for it to be. So we should stop pretending that capitalism is the best economic system to apply to health care and decide that like education, the country is best served when health care is socialized. Capitalism works great for some things but not for health care.

[greyhound2]

Excellent point. The US for profit health care system ranks 37th in the world in the quality of health care available to the "average" citizen (Costa Rica is 36th and France #1) but spends the most at 16% Gross Domestic Product (Germany second at 9%, England and France about 8%).

What is wrong with this picture? In all the debates about health care in the last several months, up and running systems which do a better job with some at half the price, have been largely ignored as if they don't exist. The stakeholders and special interests don't want you to know that you currently own a pig in a poke and fixing, tweaking or band-aiding it may only move the US up to the 23rd spot in the UN WHO list. Time for more information and the media is apparently asleep or maybe under the control of their advertiser clients.

[austinro]

There are actually online marketplaces for shopping health insurance. It is very hard to garner competition in the pharma area because the amount of money needed to maintain that type of company takes essentially everyone but a few out of the game. The reason premiums go up is to cover the increasing cost of health care. Insurance paying for routine care has driven up the cost of routine health care much like the relaxed lending standards and govt back loans have driven up the prices of housing and would be similar to car insurance paying to fix a flat tire or put in new brakes. If you are like me once you have met your deductible on your coverage and everything after that is 100% covered you start to consume much more health care. When the doctor asks you if you have good insurance he really means, can I charge you more than i normally would for a procedure or for prescriptions because I know that your insurance will float the bill regardless of price. Until we start paying cash for routine care and let insurance actually serve as insurance against a huge medical expense, we can all expect premiums to skyrocket.

[EBDave]

You might want to take a look at how much your state collects in taxes from insurance premiums before you jump on the 'repeal McCarran-Ferguson' bandwagon.
At a time when states and counties are struggling to keep their own budgets afloat, the last thing they need is another big hit on the revenue side of the balance sheet.
This change would apply to all forms of insurance not just health insurance.

[clarryr]

So you're saying that if we make the health insurance companies compete and offer better prices that our states will suffer? You're saying we should pay exorbatant premiums so our states won't lose revenue? Maybe we should find a better way to fund our state governments.

[sonoffestus]

Do you by any chance work for bcbs? What if you have affordable health insurance, so businesses can be competitive, hire people , grow and increase the state's tax revenue that way?

[goodpyr]

ebdave,why don't you call for an online vote and see how much sympathy you can gather for the po'
insurance co.s The states will figure out how to raise revenues amnd the citizens will still see a saving even if their state should raise taxes.

[SirOtter]

On the other hand, look at how much they stand to save on insurance premiums for their employees. My state employs 40,000 workers. Cutting premiums, including the significant portion the state pays, ought to make up for most, all or more than any revenue losses.

[plumnelly]

It's time to take these insurance company thugs down, EXEMPTIONS FROM ANTI TRUST LAWS!

Look at the % percentage of their hold on states, Alabama 85%, this is not capitalism or the free market. These thugs want a free ride no competition.

Call your representatives and support Harry Reid's push for getting rid of their communistic hold on the insurance market.

THEY HAVE GAMED THE SYSTEM AND STILL DENY AFFORDABLE AND ACCESSIBLE HEALTHCARE FOR AMERICANS. THE GREEDY BASTARDS NEED TO BE TAKEN DOWN!

[Jesster]

Once upon a time, the insurance business may have had good intentions (as good as they can with the glaring built in conflicts of interest...) but those days are long gone, and today the industry is about as honorable and worthy as the tobacco industry.

They deserve no special status and how the word "altruism" or even "service" ever got linked to these vampires defies reason.

[larry278]

Stolen from Kingston Trio & garbled by larry278. We've got an axe to wield. Socialize our country. Stamp out Blue Cross/Blue Shield [& all other health insurance compainies]. Do that when the 111th Congress passes Universal Health Care with a very Strong Public Option.
No, it doesn't scan. Call it free verse or worse.