Oct 28 2009
Repeal McCarran-Ferguson?
As you may recall, on the eve of the approval in concept of the America’s Healthy Future Act by the Senate Finance Committee on October 13, PricewaterhouseCoopers released a study funded by America’s Health Insurance Plans that suggested the net effect of the Senate bill would likely be a dramatic increase in insurance premiums. In what may have been retaliation to what may have been taken as a not-so-veiled threat by the insurance industry, Senate and House committees pointedly drew attention to hearings on proposals to repeal the exemption for health and medical malpractice insurers from federal antitrust laws created in 1945 by the McCarran-Ferguson Act. In point of fact, proposals to withdraw McCarran-Ferguson exemption are not new. The principal sponsor of the Senate’s bill, Patrick Leahy of Vermont, had sponsored a similar bill in 2007 in the aftermath of Katrina, and more than a decade before that Senator Metzenbaum also made the attempt. In connection with the 2007 legislative proposal, the Congressional Research Service (CRS) prepared an analysis entitled, appropriately enough, “Impact of the Abolition of McCarran-Ferguson Antitrust Exemption for the ‘Business of Insurance’”. The CRS’s conclusion, which has clear implications for the current proposals, was generally that any impact of withdrawing antitrust exemption would be uncertain pending litigation of certain key issues (mentioned below).
For their part, insurers argue that certain forms of intercompany cooperation are critical for the efficient pricing and operation of insurance. Indeed, insurers argue such cooperation is actually pro-competitive, and (here comes that sour note again) that premiums would rise without the exemption. The 2007 CRS report gives these arguments their due. As the report acknowledges, the exemption from federal antitrust regulation facilitates efficiency in insurance product pricing by allowing companies to share loss information, jointly develop policy forms and rates, and participate in state guaranty funds. (As a factual matter, the industry has curtailed joint rate making activities anyway, perhaps in response to state laws.) Smaller and newer insurers, the argument goes, lack databases of sufficient scale to predict loss accurately and so depend on shared information to establish their premiums; and the survival of smaller and newer insurers, the argument continues, is critical to ensuring competition.
Opponents of the exemption hasten to observe that the present state of health insurer market concentration is ample evidence that sharing loss information has not had the competitive effect vaunted by insurer apologists. This argument seems to have found favor in the Antitrust Division of Department of Justice, whose spokesperson stated at the Senate Judiciary Committee hearing on October 14 that the DOJ opposed antitrust exemption where a compelling justification was not evident.
If exemption opponents prevail, they may still only be half way to their goal, given the number of threshold issues remaining to be litigated. For one thing, the McCarran-Ferguson Act by its terms applies only to “the business of insurance”, and thus the Act (and its exemption) may not apply to questions of market consolidation in the first place, unless they are deemed by the courts to involve the “business of insurance”. Another question is whether an exemption might survive despite McCarran-Ferguson Act repeal under the “state action” carve-out for antitrust laws.
The 2007 CRS report suggests two ways such litigation could be curtailed, namely, (i) remove economic incentives for private causes of action for antitrust violations by health and malpractice insurers, and (ii) construct “safe harbors” for pro-competitive forms of inter-insurer cooperation (e.g., allow small insurers access to shared loss data). Perhaps current events suggest another way to ensure competition, while avoiding what is otherwise likely to be protracted, expensive, case-by-case and state-by-state litigation over legislative intent and authority: Public option anyone?
Interestingly, whatever the merit of the arguments of exemption opponents, it is hard to see the motive as anything but a retaliatory act against an industry that brought out its report on the eve of the Senate vote on the HC bill. I think the HC reform debate has become ridiculous with the oscillations of its proponents from true HC reform to insurance reform…decide which one!
Having a public option will solve one problem and create another. The problem is more behavioral..the patient with coverage has no incentive to save costs while the provider would rather cover all the bases, all leading to unnecessary tests etc.
There is no real HC reform without tort reform! Why do the proponents of HC reform shy away from that? Plain hypocrisy or politics as usual since the ATLA has to be “taken care of.”