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Anti-trust and the Health Insurance Industry – what’s this all about?

Last week the Senate Judiciary Committee held an initial hearing aimed at removing some of the health insurance industry’s anti-trust exemptions. The hearing, entitled “Prohibiting Price Fixing and Other Anticompetitive Conduct in the Health Insurance Industry”, may be a reaction – at least in part – to the health insurance industry’s public (and private) assault on health reform legislation.
And over the weekend, President Obama added his considerable weight to the call for a review of the industry’s anti-trust exemptions.
To be sure, AHIP’s public slam of the Senate Finance Committee did nothing to strengthen relations with Democrats, and the hearing, (although put on the Committee’s schedule on October 2, well before the AHIP report was released), was a fine opportunity for Senators outraged by AHIP’s action to up the ante.
Like pretty much everything having to do with health insurance and reform and Washington, this isn’t simple, and I certainly don’t pretend to understand the details. But as near as I can make it out, here’s what is causing heartburn among some.
Here’s Julie Barnes’ synopsis: “There are three sets of laws involved here; 1) the federal antitrust laws; 2) the state laws that regulate the insurance industry; and 3) the federal law passed in 1945 called the McCarran-Ferguson Act. The antitrust laws promote competition, and states have a long tradition of regulating insurance practices for their citizenry. The McCarran-Ferguson Act doesn’t regulate insurance or prohibit certain anticompetitive behavior, but it does allow federal and state governments to regulate insurance and makes clear when antitrust laws do and do not apply to the insurance industry.”
The issue is the industry’s exemption from the McCarran-Ferguson antitrust laws (which is under the Judiciary Committee’s purview). Providers have long contended that it is unfair for the payers to be exempt from these laws when providers are not; this, providers contend, is unfair. I’m not sure I buy that argument, as provider consolidation has been continuing regardless of the regulatory environment, and the negative effects of that consolidation were clearly illustrated in the Boston Mass market.
McCarran-Ferguson exempts insurance industry activities that: (a) constitute the business of insurance; (b) are regulated by State law; and (c) don’t constitute an act of boycott, coercion, or intimidation. According to Barnes, the crux is the ‘business of insurance’ standard – and the Supreme Court has set up a test to determine if an activity is the business of insurance – (1) whether the activity has the effect of transferring or spreading a policyholder’s risk; (2) whether the activity is an integral part of the policy relationship between insurer and insured; and (3) whether the activity is limited to entities within the insurance industry.
Over the years, the exemption has been tightened considerably – in particular mergers and acquisitions and provider contracting activities are generally not exempt, so anti-trust laws and regulation apply.
So what happens if Congress repeals the exemption? Way too early to tell, but undoubtedly even the whisper of this possibility is most unwelcome in health plan executive suites.
If you look at market concentration, there’s no question the health insurance industry is not exactly competitive; 94% of insurance markets are ‘highly concentrated’. Here are a few factoids using 2005 data; if anything there has been more market consolidation, so these percentages are even higher today…
– in 96% of markets, at least one insurer has share higher than 30%
– in almost two-thirds of the markets, one insurer has share greater than 50%
– in a quarter of the markets, one insurer has share at or above 70%
But repealing the industry’s exemption is not likely to significantly increase market competition.
Which leads us back to the original question – Why?
My sense is this is a ‘OK, you want to mess with us?’ statement by the Senate Democrats. It is a very loud, and very close, shot across the bow of the industry intended to let them know in no uncertain terms that intransigence will be very, very costly.
What does this mean for you?
Watch to see how AHIP et al react. If they appear somewhat chastened, don’t be surprised.

2 thoughts on “Anti-trust and the Health Insurance Industry – what’s this all about?”

  1. Joe:
    What are your thoughts and those of other experts closely following this healthcare reform melee on the impact of individual state insurance commissioners and other state regulators? It sure appears that your law of unintended consequences is hard at work here, yet the impact of the commissioners and State DOI’s seem absent from the debate. It further appears that the unintended consequences of many of their state level regulatory decisions have led to the dominant market shares of a very few carriers. Don’t these unintended consequences only serve to discourage new and local entrants and preclude the type of innovation that historically has been fostered at the local level and/or from smaller enterprises?

  2. Joe–
    I suspect that a partial repeal of McCarran-Ferguson along the lines indicated in your post– especially in the absence of any clarifying statute to define the new boundaries– would create financial havoc far beyond what the members of Congress can imagine or that anyone can forsee as the Feds and the states battle over who regulates what. Unintended consequences writ LARGE.

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Joe Paduda is the principal of Health Strategy Associates




A national consulting firm specializing in managed care for workers’ compensation, group health and auto, and health care cost containment. We serve insurers, employers and health care providers.



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