There are “strong indications” that the justifications for the insurance industry’s limited antitrust exemption that existed in 1945, when McCarran-Ferguson was enacted, are no longer valid, an Obama administration official told Congress this week.
However, the Department of Justice official stopped short of backing repeal of the insurance exemption for medical malpractice and health insurers, a move that is under consideration in Washington.
As a result of Supreme Court opinions, the exemption is no longer necessary to enable the states to regulate the business of insurance, Christine A. Varney, assistant attorney general in charge of the department’s Antitrust Division, told a Senate Judiciary Committee hearing on anticompetitive conduct in the health insurance industry.
Additionally, she said, the application of antitrust laws to potentially pro-competitive collective activity “has become more sophisticated in such a way that there is now less concern that overly restrictive antitrust rulings would impair the insurance industry’s efficiency.”
Varney said the Justice Department is generally opposed to exemptions from the antitrust laws in the absence of a strong showing of a compelling need.
“The antitrust laws reflect our society’s belief that competition enhances consumer welfare and promotes our economic and political freedoms,” she said. “Exceptions from that policy should be, and fortunately are, relatively rare.”
However, she said the department, while generally supporting the idea of repealing antitrust exemptions, has taken no position on when and how Congress should address the insurance exemption.
According to Varney the effects of the insurance exemption are especially relevant today given the health insurance reform debate.
“There is a general consensus that health insurance reform should be built on a strong commitment to competition in all health care markets, including those for health and medical malpractice insurance. Repealing the McCarran-Ferguson Act would allow competition to have a greater role in reforming health and medical malpractice insurance markets than would otherwise be the case,” she said.
The legislation, H.R. 3596, the Health Insurance Industry Antitrust Enforcement Act of 2009, would apply federal law expressly outlawing price fixing, bid rigging and market allocations to health and medical malpractice insurers.
However, state regulators and insurers maintain that a federal law is not needed.
The National Association of Insurance Commissioners (NAIC) has said that “no state insurance regulator has seen evidence that suggests medical malpractice insurers have engaged or are engaging in price fixing, bid rigging, or market allocation.”
Property/casualty insurers agree with the state regulators.
“We are not aware of any credible contrary evidence that would justify the amendments proposed in H.R. 3596,” said David A. Sampson, president and CEO of the Property Casualty Insurers Association of America (PCI).
Sampson called H.R. 3596 is a “solution in search of a problem” that would actually “reduce competition by increasing trial-lawyer suits and making it more difficult for insurers to enter into new markets or new insurers to be created.”
Congress enacted the McCarran-Ferguson antitrust exemption in 1945 in response to a Supreme Court decision that preempted state control and governance of insurance. McCarran provides that: “No Act of Congress shall be construed to invalidate, impair or supersede any law enacted by any State for the purpose of regulating the business of insurance.”
McCarran-Ferguson does not give insurers a blanket exemption from antitrust law but it does permit insurers to pool loss data that makes it possible to price insurance products.
Insurers contend that without this limited federal exemption, many small and medium-sized insurers would not be able to afford this costly data and would either have to raise premiums or go out of business. Even large insurers would have difficulty expanding to compete in new regions or lines of business without actuarially credible loss historical loss data, according to PCI.
While the federal government has no role in ratemaking, every state has laws governing insurer information sharing and rates.
Sampson said that the antitrust exemption has been useful in resolving medical liability insurance market problems. In the 1980s, a number of doctor-owned mutual insurance companies were formed to provide medical liability coverage to the doctors who owned the companies. This helped fill the gap that had developed in the medical liability insurance market. But without aggregate loss information, many of the doctor-owned medical malpractice insurers would not have been able to enter the business when they were needed, he said.
“Repealing the limited McCarran antitrust exemption would negatively affect the marketplace by imposing a massive barrier to entry for new competition and smaller insurers, raising costs and further reducing choices for consumers,” Sampson said.
“Not only would this be harmful for consumers and the economy, but it would also be completely unnecessary. Price fixing, bid rigging, and market allocations are already illegal under state laws that cover insurance companies. All states have laws governing rates and insurance conduct, generally prohibiting any rates that are excessive, inadequate, or unfairly discriminatory.”