Health care reform efforts may spell end of antitrust exemption for health insurers - but potential impact of change is unclear
By: Michael R. Scott and Brooke Santeramo
This month Senator Patrick Leahy, (D-VT) and eighteen other senators urged President Obama and Congressional leaders to repeal the health insurance industry’s exemption from federal antitrust laws as part of the final version of the health care reform legislation.
Since 1945, insurance companies, including health and medical malpractice insurers, have been largely exempt from the reach of federal antitrust laws under a law known as the McCarran-Ferguson Act.[1] The Act gives state governments broad regulatory authority over the insurance industry and, in most cases, prevents the federal government from enforcing federal antitrust laws against insurer activities that are part of “the business of insurance” to the extent that business is subject to state government regulation.[2] The Act does, however, permit the enforcement of federal laws against insurers in areas that do not constitute “the business of insurance,” such as civil rights or securities law. Additionally, the Act limits the scope of the exemption further by specifically permitting the federal government to enforce the Sherman Antitrust Act in cases of boycott, coercion or intimidation involving insurers.[3]
The intent of the Act was to preclude federal interference with state regulation and taxation of the insurance industry, and to permit insurers to exchange risk and loss information in an effort to promote market participation, coverage availability, and accurate premium rates. Senator Leahy, however, alleges that the Act allows the “competitive activities of health insurers and medical malpractice insurers [to] remain effectively unchecked.”[4]
In September, Senator Leahy introduced legislation which would effectively eliminate the federal antitrust exemption for health insurers. Under this proposal, health and medical malpractice insurers would be prohibited from engaging in activities which violate federal antitrust law, such as price fixing, bid rigging, and market allocation.[5] An identical bill was introduced in the House by Representative John Conyers (D-Mich.).[6] A similar proposal is included in the House health care bill, but was removed from the Senate version of the bill in an effort to secure the vote of Senator Ben Nelson (D-NE). The letter being circulated by Senator Leahy’s group is part of an effort to address this difference between the House and Senate bills.
Although the proposed repeal of the antitrust exemption has the support of several consumer advocacy and medical associations, including the Consumer Federation of America, the American Hospital Association, the American Academy of Pediatrics, and the American Dental Association,[7] insurance industry groups generally oppose the idea. Karen Ignagni, CEO of the health insurance industry trade group America's Health Insurance Plans, stated that health insurers “have not been engaging in anticompetitive conduct and . . . McCarran-Ferguson does not provide a shield for such conduct.” According to Ms. Ignagni, the proposed repeal is an “attempt to remedy a problem that does not exist.”[8]
Other critics of the repeal efforts note that “collusion among insurers, as with any other industry, is already illegal,”[9] and the limited antitrust exemption McCarran-Ferguson provides permits insurers to share data in order to more accurately analyze risks and set prices – a practice that is especially important for smaller insurers, which may not have access to a sufficiently extensive underwriting experience of their own to develop credible insurance rates. The exemption also permits insurers to develop and use common forms, which enhances consumers’ ability to accurately compare policies from multiple insurers.[10] Restricting these information sharing activities could actually reduce competition, and increase the cost of insurance to consumers, they argue.[11]
In the wake of the loss last week of their filibuster-proof majority in the Senate, it is unclear whether, when or how congressional Democrats will move forward with their comprehensive healthcare reform proposals. However, the efforts to repeal the antitrust exemption may not be completely dependent on the ultimate fate of comprehensive healthcare reform. Some analysts believe that the most likely option for the Obama Administration and the supporters of healthcare reform will involve an effort to formulate and pass some sort of scaled-back version of healthcare reform, incorporating a subset of the features of the current bills that are considered more popular and easier to pass. Repeal of the antitrust exemption is widely seen as a popular proposal, which has been publicly supported in the past by the Antitrust Division of the Obama Justice Department[12] and President Obama himself,[13] and it is currently included in the list of compromise alternatives being publicly considered by the Democratic leadership in Congress.[14] One of the standalone repeal measures that were introduced in both houses of Congress last year could thus be passed regardless of the fate of more comprehensive reform.
Meanwhile, a report published by the Congressional Research Service on January 14, 2010[15] suggests that repeal of the McCarran-Ferguson antitrust exemption, without more, will make little difference in the way insurers conduct “the business of insurance.” In the first place, the CRS report notes that two of the pending measures already include an express exception for information sharing. This exception should permit insurers to continue to exchange loss development and ratemaking information as they have in the past, provided they do so in a way that does not amount to a “restraint of trade.”[16]
Additionally, since the insurance industry has long been comprehensively regulated by the states, the CRS report concludes that many of the industry’s activities may be covered by the “state action” doctrine that protects private actions that are legislatively mandated and “extensively regulated” by the states. The safe harbor of the state action doctrine has been found to apply where the private action is of a sort that is “clearly articulated and affirmatively expressed as state policy,” and “actively supervised” subject to enforcement by the state itself.[17] Since all of the states have created and enacted extensive regulatory and enforcement frameworks governing the insurance industry, permitting, and in many instances requiring, substantial cooperation and information sharing between and among insurers, it is possible that even collective industry activity that was found to be in restraint of trade might be determined by a court to be legally permissible under the state action doctrine.
The report predicts that extensive litigation would follow any repeal of the exemption, and would ultimately define the precise contours of post-McCarran-Ferguson federal antitrust regulation of the insurance industry through the courts.
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