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Insurance companies should not be exempt from anti-trust laws
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share thisLost in the hysteria over the proposed "public option" included in several versions of the federal health care reform bill is its fundamental purpose.
The idea is to create competition for health insurance, thus driving down its price. Federal lawmakers know better than anyone that an effective lack of private-sector competition for health insurance is a key factor in its exorbitant cost. A federal law, the McCarran-Ferguson Act of 1945, empowers the insurance industry to create regional monopolies and to stifle price competition.
The law's unwarranted anti-trust exemption for insurers allows health insurers to act with impunity in ways that most business may not as a matter of federal law. It is fundamental to pricing arrangements that some insurers reach with certain providers, thus freezing out potential competitors.
Perhaps the most obvious impact of the exemption is the market dominance of certain insurers in certain regions. Just two insurers control more than half of the health insurance market in Pennsylvania, for example. And testimony during a U.S. Senate hearing last week produced several examples of overwhelming market dominance, including by one insurer that has 73 percent of the market in Arkansas.
Instead of being subject the same anti-trust policy as other companies, insurers are regulated mostly at the state level. It was intervention by the Pennsylvania Insurance Department, for example, that thwarted a proposed merger of the state's two largest insurers - a combination that not only would have given them more than 70 percent of the market, but spurred a further flurry of combinations among other insurers.
But that consumer-oriented advocacy was a new phenomenon in Pennsylvania, where the department historically had most often done the bidding of the industry.
In some aspects of insurance state regulation makes more sense than federal regulation because insurance often reflects local conditions.
But there is no local condition that warrants shielding the entire insurance industry from anti-trust rules.
Sen. Patrick Leahy of Vermont, chairman of the Senate Judiciary Committee, has introduced a bill that would eliminate the anti-trust exemption for insurers.
It should pass as a means to spur price competition, especially for health insurance, regardless of whether the final health care bill includes a public option.
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