One of the more under-reported aspects of the healthcare reform efforts currently making their way through the Senate and House of Representatives in Washington is the antitrust exemption conferred upon the insurance industry sixty-four years ago with the enactment of the McCarran-Ferguson Act of 1945. The Act fostered the growth of giant health insurance monopolies whose Wall Street driven for-profit corporate culture has produced a dysfunctional American healthcare system where profit takes precedence over health care.
The irony is that the McCarran-Ferguson Act was never intended to exempt the insurance industry from antitrust law or to protect it from strong regulation and enforcement. In fact it was designed to do exactly the opposite. The Act came about as a result of a Supreme Court decision, United States v South-Eastern Underwriters Assn., which found that insurance companies that sell policies across state lines are engaged in interstate commerce, and are thus subject to federal antitrust law. Up until that decision regulation of the insurance industry was the responsibility of the respective states. Many states were concerned that they no longer had that authority, and McCarran-Ferguson was designed to restore the power to regulate insurance to the states while also empowering the federal government. The Act permitted the federal government to regulate insurance, but it also stipulated that only the states have broad authority to regulate the insurance industry unless the federal government enacts specific legislation intended to regulate insurance and displace state law. In plain English that means that the states have the power to regulate the insurance industry but so does the federal government if it enacts specific laws directed at the industry. McCarran-Ferguson also unambiguously stipulated that the Sherman Anti-Trust Act of 1890 (which prohibits abusive monopolies) and the Clayton Act of 1914 (passed by the U.S. Congress as an amendment to clarify and supplement the Sherman Anti-Trust Act by prohibiting exclusive sales contracts, local price cutting to freeze out competitors, and in general prohibiting abusive monopolies), apply to the business of insurance to the extent that such business is not regulated by state law. In short, McCarran-Ferguson was designed to empower both the federal government and the individual states so that they could act to prevent insurance companies from becoming abusive monopolies. How ironic that it has instead enabled the health insurance industry to achieve exactly the opposite result because the federal government has chosen not to pass legislation targeting insurance monopolies and the states have, for the most part, shirked their regulatory responsibilities. It is time to restore the original intent of McCarran-Ferguson by subjecting the insurance industry to state and/or federal regulation and through vigorous enforcement of federal antitrust law.
House Speaker Nancy Pelosi apparently saw it that way. The House bill specifically subjects the health insurance industry to antitrust law, stripping it of any perceived exemption. Not so with the Senate Finance Committee chaired by Senator Max Baucus and his special interest-friendly gang of three, which produced a bill reportedly written by one Elizabeth Fowler. Fowler, no stranger to Baucus, had worked for him from 2001 to 2005 as Chief Health and Entitlements Counsel for the Democratic Staff of the Senate Finance Committee. She returned to the Senate in February of 2008 as Senior Counsel to Senator Baucus. In between she served as Vice President of Public Policy and External Affairs for insurance giant WellPoint, Inc., a small detail left out of the February 26, 2008 Max Baucus press release announcing her return to his staff where her portfolio would "include the panel's yearlong preparation for broad-based health care reform."
Apparently Baucus, Fowler, and WellPoint saw no need to strip the insurance industry of its antitrust exemption, so they didn't even though it was never intended to actually be an anti-trust exemption.
Senator Patrick Leahy had other ideas. He proposed an amendment to the Baucus Finance Committee Senate bill that would subject health and medical malpractice insurers to federal laws forbidding price-fixing, bid-rigging, or the dividing up of markets, an amendment favored by Senate Majority Leader Harry Reid, who maintained that a repeal of the anti-trust exemption would produce more competition and better prices for consumers. President Obama also implied support for the Leahy amendment when he voiced criticism of the antitrust exemption in his weekly radio address, complaining that the health insurance industry is "earning these profits and bonuses while enjoying a privileged exemption from our antitrust laws."
The final word on the Senate bill belonged not to Max Baucus, but to Harry Reid, so one might have expected the removal of the antitrust exemption to make its way into the Senate bill that was finally passed last week. The media has largely ignored the fact that the final Reid bill never did address the anti-trust issue, thus leaving the perceived exemption intact, and at odds with the House bill. The obvious question is why, and the answer would be Nebraska Senator Ben Nelson. Nelson, a former insurance industry executive (He served as CEO of the Central National Insurance Group, as chief of staff and executive vice president of the National Association of Insurance Commissioners, and as director of the Nebraska Department of Insurance), took issue with the Senate bill depriving his insurance industry friends of the right to legally defy federal anti-trust law. The insurance industry had also lobbied to keep the Leahy anti-trust provision out. Harry Reid, desperate for Ben Nelson's vote which would give him a 60-vote filibuster-proof majority, went along, and out it went.
Does the continuation of the insurance anti-trust exemption really make a difference? In a word, absolutely!
Both the Senate and House bills leave regulation of the insurance industry to the states which have never been known for holding the industry's feet to the fire. A recent study by The Center for American Progress found that State regulatory authorities rarely bring consumer protection suits against insurance companies and that is especially true in the states most dominated by one or two insurance companies that enjoy virtual monopoly status. In fact in the five states with the least competition four of the five had brought no such suits in the past five years. The report suggested that most states are stretched too thin, and lack the resources to enforce antitrust laws, citing Congressional testimony by Georgetown health policy professor Karen Pollitz's pointing out that "In four states, the Insurance Commissioner is also the fire marshal." Senator Leahy cited the study in support of his effort to repeal the antitrust exemption for health and medical malpractice insurers. "If we remove it, they will have to compete," Leahy saidin a conference call with reporters.
Of course we have come to learn that the minority, not the majority, rules, if the minority bears the name of Ben Nelson or Joe Lieberman (sometimes referred to as the Senator from Aetna).
There are some serious reformers who find much to fault in the healthcare reform bill just passed by the Senate, but who think it is time to hold our collective noses and pass this bill. I respect their opinions, but unless this bill undergoes some serious revision during the House/Senate reconciliation process I fear dreadful consequences if this bill becomes law. First and foremost, it is absolutely essential that federal antitrust law be recognized as something that applies to the health insurance industry, and the time is long past due for it to be utilized to strip the industry of the monopolistic power it both enjoys and abuses. I don't see the insurance companies mending their ways, and now, armed with mandates, they will have even more power and more money with which to thwart any attempt to enforce regulations that already exist, or that may be enacted in the future. To the extent the insurance industry has attained its exempt antitrust status; it is because the states and the federal government never exercised the regulatory authority that McCarren-Ferguson explicitly granted them. Any effort to reform health care has to start with reigning in and dismantling the health insurance monopolies. We need no laws empowering the government to do this, just an acknowledgement that present law allows it and always has.
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