Health insurers: eliminate antitrust exemption

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Unlocking Competition: The Need to Eliminate the Antitrust Exemption for Health Insurers

By David Balt , Stephanie Gross

(The Center for American Progress is a nonpartisan research and educational institute dedicated to promoting a strong, just and free America that ensures opportunity for all.)

View the full memo (pdf)

Competition is the lodestar of the marketplace. Where competition thrives, consumers benefit from numerous choices, low prices, superior service, and innovation. But where competition is absent, consumers pay more for less, have fewer choices, and are at the mercy of market participants with unbridled power. Bringing competition to health insurance markets is essential to achieve meaningful health care reform, and as a first step Congress should eliminate the antitrust exemption that prevents effective federal enforcement against health insurers.

It is becoming clear in the health care debate that health insurance markets are broken. A tsunami of health insurance mergers has led to high levels of concentration in practically every market to the point where there are only one or two dominant insurers in many states. New companies face substantial entry barriers, and so these local monopolies go unchallenged.

Lack of competition has led to supracompetitive profits, an escalating number of uninsured, an epidemic of deceptive and fraudulent conduct, and rapidly escalating costs. Over 47 million Americans are now uninsured, and premiums have risen over 120 percent in the past decade for those who do have coverage. Health insurers engage in an endless list of deceptive, fraudulent, and unfair practices that deny millions of consumers adequate coverage. And meanwhile, 10 of the largest health insurers saw their profits balloon from $2.4 billion in 2000 to $13 billion in 2007.

Eliminating the McCarran-Ferguson Act is an important first step toward bringing market discipline to health insurance markets. But the Obama administration needs to go farther. The Department of Justice and Federal Trade Commission will not start taking action against health insurers’ egregious practices without a change in priorities. The Bush administration took no federal enforcement actions against anticompetitive conduct by health insurers, and the FTC has not brought a single case against deceptive or fraudulent conduct by health insurers. The Bush administration reviewed numerous mergers, but approved all of them, requiring some modest restructuring in two mergers. Establishing a proactive antitrust and consumer protection enforcement agenda is necessary for effective health care reform. Here are five suggestions:

1. Marshal competition and consumer protection enforcement resources to focus on insurers’ anticompetitive, egregious, and deceptive conduct.

2. Create a vigorous health insurance consumer protection enforcement program.

3. Reinvigorate enforcement against anticompetitive conduct.

4. Strengthen health insurance merger enforcement and conduct a retrospective study on consummated health insurance mergers.

5. Conduct a retrospective study of health insurer mergers.

Health insurance markets need a tremendous infusion of competition and transparency to help eliminate deceptive, fraudulent, and egregious practices. The antiquated McCarran-Ferguson Act leaves antitrust and consumer protection enforcement to the states, which frequently lack sufficient resources to reign in powerful national insurers. Consumers are consequently left to the mercy of dominant insurers. Restoring competition and consumer protection enforcement is essential to meaningful reform. Eliminating the McCarran-Ferguson exemption is an important first step to allowing the lodestar of competition provide guidance in health insurance markets.

View the full memo(pdf)

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The Center for American Progress is a nonpartisan research and educational institute dedicated to promoting a strong, just and free America that ensures opportunity for all. We believe that Americans are bound together by a common commitment to these values and we aspire to ensure that our national policies reflect these values. We work to find progressive and pragmatic solutions to significant domestic and international problems and develop policy proposals that foster a government that is "of the people, by the people, and for the people."

Comments

In 1945, Congress passed the McCarran-Ferguson Act, which exempted insurance companies doing business across state lines from the Commerce Clause. Congress passed this act after the Supreme Court ruled in the United States v. South-Eastern Underwriters Association that the federal government could regulate insurance companies under the authority of the Commerce Clause in the U.S. Constitution.

The 1945 McCarran-Ferguson Act allowed states to regulate the insurance companies. Without Commerce Clause oversight, the insurance business became characterized by a concentration of power and anti-competitive practices.

So much for capitalism and free markets. The McCarran-Ferguson Act effectively eliminated regulation that would have helped to increase competition. Without regulation the insurance markets have become characterized by price fixing, bid rigging, and the allocation of markets. All these practices lead to higher prices, less competition and less options for the consumer. In 15 states, one insurance company controls over 50% of the health care market. In Alabama, one company controls 80% of the market

If only we real competition in the U.S. Instead, health insurance company profits have soared for the the 10 largest health insurance companies: profits rose from $2.4 billion in 2000 to $13 billion in 2007. It seems like socialism for the rich and powerful, capitalism for the poor.

The first step to real health care reform is to repeal the McCarran-Ferguson Act. It may be coincidental, but the introduction of a bill to repeal the McCarran-Ferguson Act in Congress coincided with the Senate Democratic inclusion of the a weak Public Option. Did the insurance lobby decide that a weak public option was better than true competition in the insurance industry?
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David Rubenstein, Ph.D.

Posted by David Rubenstein, Ph.D. on Oct. 29, 2009 @ 3:15 am