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Time to Repeal the Health Insurance Industry's Antitrust Exemption

By       Message Ralph Stone     Permalink
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What happened to the "Health Insurance Industry Antitrust Enforcement Act of 2009" (S.1681)? It passed the House in February with a bipartisan vote of 406 to 19. Now it is up to the Senate.

When referring to health insurance companies, politicians and commentators have used terms such as"cartel," "secret pricing and consolidation," "exorbitant price increases." and "confidential agreements among hospitals, physician groups, insurers and device makers" when referring to the health care industry All these allegations raise antitrust concerns. Yet, antitrust violations are now beyond the reach of the federal antitrust laws because of the McCarran-Ferguson Act exemption.

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What is the McCarran-Ferguson Act? The McCarran-Ferguson Act of 1945 gives states the authority to regulate the "business of insurance" without interference from federal regulation, unless federal law specifically provides otherwise. The Act provides that the "business of insurance, and every person engaged therein, shall be subject to the laws of the several States which relate to the regulation or taxation of such business."

Congress passed the McCarran- Ferguson Act primarily in response to the Supreme Court case of U.S. v. South-Eastern Underwriters Ass'n.Before the South- Eastern Underwriters case, the issuance of an insurance policy was not thought to be a transaction in commerce, which would subject the insurance industry to federal regulation under the Commerce Clause of the U.S. Constitution. In South-Eastern Underwriters, the Court held that an insurance company that conducted substantial business across state lines was engaged in interstate commerce and thus was subject to federal antitrust regulations.
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Within a year of South-Eastern Underwriters, Congress enacted the McCarran-Ferguson Act in response to states' concerns that they no longer had broad authority to regulate the insurance industry in their individual states. Thus, the McCarran-Ferguson Act provides that the Sherman Anti-Trust Act of 1890, the Clayton Act of 1914, and the Federal Trade Commission Act of 1914, apply to the business of insurance only to the extent that such business is not regulated by state law.

The Act does not define the "business of insurance." In the 1982 decision of Union Labor Life Insurance Co. v. Pireno, the Supreme Court set forth three factors when determining whether a particular commercial practice constitutes the business of insurance: whether the practice has the effect of transferring or spreading a policy-holder's risk, whether the practice is an integral part of the policy relationship between the insurer and the insured, and whether the practice is limited to entities within the insurance industry. The business of insurance include laws aimed at protecting or regulating the performance of an insurance contract, the relationship between insurer and insured, the type of policies issued, and the policies' reliability, interpretation, and enforcement.

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The health insurance industry enjoys obscene profits while consumers pay more for less coverage. Profits at ten of the country's largest publicly traded health insurance companies rose 428 percent from 2000 to 2007. One of the main reasons for such high profits is the growing lack of competition in the private health insurance industry, which has led to near monopoly conditions in many markets.

Recently, the media reported regularly about the Anthem Blue Cross -- a subsidiary of Wellpoint, Inc. --plan to raise health insurance rates up to 39 percent in California and raise rates significantly in other parts of the country. The main justification for the large rate increases, as much as 10 times greater than national health spending growth, is higher health care costs. But as U.S. Health and Human Services Secretary Kathleen Sibelius remarked, "It remains difficult to to understand how a company [Anthem] that made $2.9 billion in the last quarter of 2009 alone can justify massive increases. . . ." And WellPoint, Inc. reported net income of $4.7 billion in 2009. And a recent report found that the combined profit for the five largest health care providers -- WellPoint, Inc., United-Health Group, Aetna, Humana, and Cigna -- increased 56 percent in 2009 over 2008. Increased rates mean less coverage for a higher cost or possibly no coverage for those without means.

Aetna, Blue Shield, Anthem Blue Cross, and Health Net control 90 percent of California's market of 2.5 million individual health policies. Anthem has attempted to raise rates by 50 percent; Blue Shield by an average of 18 percent for its 240,000 individual policyholders; and Aetna by an average of 19 percent for its 65,000 individual customers. Rate hikes do not require the prior approval of the California Department of Insurance.

These facts should raise antitrust concerns. While the lack of competition in the health insurance industry may well have other causes, which may or may not be cured through a repeal of the McCarran-Ferguson Act, the insurance exemption from the federal antitrust laws has not helped.
Any comparative analysis of health care systems indicates that the greater the role of private, for-profit health insurance companies in the delivery of health care, the higher the cost. This is why the United States has the most expensive health care system in the world but trails well behind on crucial indicators of public health, such as infant mortality, longevity, and death of women in childbirth. These facts provide compelling evidence for repeal of the McCarran-Ferguson Act to provide some healthy competition, which in turn will provide the greatest amount of choice possible for consumers.

Repealing theMcCarran-FergusonAct coupled with increased antitrust enforcement is a relatively simple first step if the ultimate goals are to rein in health care costs and provide health care to the largest number of consumers.

 

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I was born in Massachusetts; graduated from Middlebury College and Suffolk Law School; served as an officer in the Vietnam war; retired from the Federal Trade Commission (consumer and antitrust law); travel extensively with my wife Judi; and since (more...)
 

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