The McCarran-Ferguson Act of 1945 exempts insurance companies from the Sherman Antitrust Act. It would seem that a pivotal key for creating competition in the market for health insurance would be to repeal the antitrust exemption for health insurance companies, so that insurance carriers could not enter into agreements to fix prices or divide up the market amongst themselves. But according to Alexander Bolton of The Hill, the elimination of the antitrust exemption may have to wait.
In this article published yesterday, Bolton describes one reason for the high cost of health care in the United States – insurance companies are exempt from antitrust laws, thus allowing them to conspire instead of compete on prices and policy terms; the exemption even allows companies to assign geographic markets to specific companies. This has led to almost unimaginable market concentration. According to a report by Health Care for America Now (an advocacy group), in thirty states there are metropolitan areas where a single company issues more than 42% of the policies (the level at which the Justice Department would consider the market to be "highly concentrated"); in nine states, over 80% of the health insurance policies are sold by just two companies; in Alabama, 89% of the market belongs to one company. And the market is becoming more concentrated. In 2002, about 33% of the policies purchased by small employers were issued by a single company in any particular market. By 2008 this figure rose to 47%. A comprehensive report on market concentration of health insurers prepared in 2007 by the AMA may be found here. The AMA concludes:
The AMA believes it is time to re-examine the legal landscape that has resulted in unfettered consolidation of health insurance markets. If not corrected, the imbalances in the marketplace will have serious negative long-term consequences for the health care system.
Representative John Conyers (D-MI) and Senator Patrick Leahy (D-VT) have sponsored legislation that would repeal this exemption and would bring the insurance companies within the scope of the antitrust laws. Congressman Conyers' press release regarding his proposed bill is here, and Senator Leahy's is here.)
But the proposal to end the antitrust exemption for health insurance companies is not a part of the Baucus bill under consideration by the Senate Finance Committee, and according to Bolton this omission is intentional. Bolton explains that Majority Leader Harry Reid (D-NV) is holding the antitrust bill in reserve – essentially telling the insurance companies, "Play nice, or you lose your exemption." Bolton believes that this strategy has kept the insurance companies on the sidelines in opposing the health care bill, at least relatively speaking. He reports that the health insurance companies employed 1795 lobbyists and spent $126 million on lobbying expenses and political campaign contributions in the first half of 2009.
I have a couple of questions – Even if we did nothing else, how much would health care costs be cut if we eliminated the antitrust exemption, thus improving competion in the market? And what would the political landscape be like if the health insurance companies really took off the gloves?
{ 3 comments… read them below or add one }
Very good questions. I also have to wonder how Bolton can argue the insurance companies are on the sidelines yet throw statistics like that out there. And how could this be a chip for Reid in a debate that supposedly revolves in large part around creating competition?–it tells me its not about creating competition at all.
RE:"Even if we did nothing else, how much would health care costs be cut if we eliminated the antitrust exemption, thus improving competion in the market?"
A probable answer to this question can be found in the 'Barriers to Entry' section of the AMA study at http://www.ama-assn.org/ama1/pub/upload/mm/368/compstudy_52006.pdf. The short answer is: don't expect savings anytime soon.
We can't know how much we're going to lose or save in this right now. The numbers out there have been spun around many times and now we have Congress – almost blinded by the all the interests involved – swinging at the health care pinata with a big stick that's magically connected to my great-great grandchildren's wallets. Losing the anti-trust exemption makes too much sense – it's another step towards leveling the playing field, increasing transparency in what may become a health care market, and possibly a more equitable allocation of health care risk that should lead to better options and pricing. Historically, there have been benefits to us when Congress attacks harmful concentrations of market power. For example, how much has the price of long-distance telecommunications dropped since Congress broke up Ma Bell? Did the Standard Oil break-up do anything for us? Also, although largely carried out by the States themselves, the banking regulation reforms of the 1970s modernized the banking system, which now permits you – for instance – to efficiently bank with an insitution in California even though you live in Ohio, or immediately access your account in Akron when you need money in Las Vegas. Did the cost savings or the benefits to society immediately appear after government tackled the concentrations of market power in these cases? No, but we do enjoy the benefits of those actions now. Harry Reid should ultimately throw the anti-trust exemption on the fire if he's sincere about sustainably reforming health care to the benefit of Americans. Reading about the 1795 lobbyists and $126 million spent on lobbying expenses and political campaign contributions and remembering the $1.5B United Health Care stock options scandal from earlier this decade makes me want to turn up the heat on the insurance companies by taking away their anti-trust exemption, notwithstanding the fact that I've noticed that my health care expense increases have far outpaced my tax increases lately.