Experts Say Antitrust Repeal Unlikely to Spur Health Insurance Competition

By | October 26, 2009

Democratic lawmakers are seeking to stir up competition by stripping health insurers of their protection from certain federal antitrust laws, although experts shrug off the effort as largely symbolic.

Speaker Nancy Pelosi said last Thursday she plans to include a measure that would remove the health insurance sector’s exemption from the federal antitrust laws in larger health reform legislation moving through the House. A day earlier, Democrats in the Senate announced similar plans, claiming the move would put an end to “price-fixing, bid-rigging,” and other practices they say drive up health insurance premiums.

While legal scholars and industry analysts agree there is a dire lack of competition in the insurance marketplace, they don’t expect the repeal of the federal exemption to address the problem. Wake Forest University professor Mark Hall said the most egregious tactics are already addressed at the state level.

“I’m not sure what Congress thinks this will do,” said Hall, who has authored more than a dozen books on health care law and ethics. “There are state antitrust laws and state insurance regulators who carefully scrutinize insurance practices, and while they don’t do a perfect job, they are on the job.”

Some observers suggest the move by Democrats is mainly a reprisal against the insurance industry group, America’s Health Insurance Plans, which recently launched an unexpected attack against the health care legislation drafted by the Senate Finance Committee, saying it would drive up premiums for consumers.

“I see this mainly as a symbolic gesture of ‘we’re mad at the insurers for screwing around’ and this is one way to get back at them,” said law professor Tim Jost of Washington and Lee University.

The McCarran-Ferguson Act of 1945 gives states authority to regulate competitive issues within the insurance industry, and it exempts companies from federal jurisdiction.

But industry analysts say courts have long limited the scope of the exemption to allow federal regulators to intervene in instances where competition could be jeopardized. They note the law has never stopped regulators at the Department of Justice and the Federal Trade Commission from intervening in a merger or acquisition.

In practice, the exemption from federal antitrust laws mainly allows insurers to share data on payments and risk ratings _ a useful collaboration among life and casualty insurers. But Wall Street analysts point out that giant health insurance companies like Humana, Wellpoint Inc. and UnitedHealth Group have little need to share data, thanks to their national size and scope.

“While the threat to repeal the exemption makes for good headlines, we can’t really see how it alters the business for the established publicly traded players,” wrote JPMorgan analyst John Rex in a note to investors.

With 94 percent of U.S. health insurance markets meeting the Justice Department standards for “highly concentrated” — meaning dominant insurers face little competition — most academics agree reform is needed. But they point out that federal regulators could have prevented much of that concentration under existing law.

Since 1996, the federal government has cleared 400 mergers in the health insurance field, according to the American Medical Association.

“Some of the consolidation that took place was not challenged by the Justice Department, maybe because of a lack of will, rather than a lack of legal authority,” said Tom Greaney, a law professor at St. Louis University.

Greaney and other experts say a public health plan, favored by many Democrats, would help break up market concentration by providing competition to entrenched private insurers.

While the so-called “public option” is widely favored in the House, it’s unclear whether the measure will be adopted by the Senate, where Democratic moderates are wary of the idea, even though public polling consistently shows its popularity.

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