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Another Perspective on the Antitrust Exemption for the Insurance Industry

Health economist Austin Frakt and antitrust lawyer Ian Crosby argue in favor of the antitrust exemption for the insurance industry. In short, repealing it doesn't simply make insurers weaker. It makes them weaker vis-a-vis providers, and that may not be a good thing:

How to balance the power of insurers and providers is far from simple. Many have pointed to the alleged dominant market position of insurers as a substantial source of high health care costs. However, the health economics literature supports the notion that recent increased market power of insurers does not lead toward monopolistic pricing, but rather it provides a counter-balance to the power held by hospitals and provider groups.

Moreover, insurance companies are partially exempt from federal antitrust law for an important reason: so they can share rate-making data. This function actually benefits small insurers who would not otherwise have sufficient data to properly adjust premiums. Paradoxically, removing the legal cover for data sharing would harm small insurers more than large ones.

All this suggests that repealing the federal antitrust exemption for insurers may be misguided. Though the insurance antitrust exemption is a popular whipping boy for Democratic politicians, it is by no means clear that repealing it is practical or beneficial to consumers. Instead, antitrust law might better aid the cause of health care reform by first focusing on providers. While a few proposed hospital mergers have been blocked recently, it follows a long period of hospital consolidation. ...

All this suggests a confused focus in Washington, though one consistent with populist sentiment. Insurers, rightly or wrongly, are the scapegoat and providers (with the exception of the drug industry) are viewed more favorably. There are clearly insurance reforms worth implementing, but weakening insurers’ market power while strengthening that of providers may not be one of them.

By Ezra Klein  |  October 15, 2009; 10:03 AM ET
Categories:  Health Reform  
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I agree that there should be a monopoly, a government monopoly providing medical care to people based on need controlled democratically and financed through solidarity.

Anyone who thinks this model of competing insurance companies gives us anything but waste doesn't understand the issues or the system.

I'm in favor of anything that undermines the insurance companies.

Posted by: bcbulger | October 15, 2009 10:12 AM | Report abuse

that is a really good point, which isn't to say you couldn't get around that problem with reporting requirements.

and, though I think this is an interesting intellectual exercise, repealing the exemption would require creating a new federal regulatory agency, probably not the best time for that.

Posted by: ThomasEN | October 15, 2009 10:18 AM | Report abuse

Insurers pay money out when their clients make claims. When rising healthcare costs make those claims more expensive insurers have to raise the price of their premiums to avoid paying out more than they take in and going out of business. So, how is the Insurer the problem in this situation?

If you mandate that insurers accept everyone at the same premium rate but don't mandate that everyone enter the insurance pool and you tack on an additional tax on insurers then premiums will have to go up in order for the insurers to stay in business. Higher operating costs will lead to higher premiums. Why is that shocking news? How can anyone that isn't a political hack disagree with that logic?

The Dems are looking really stupid at this point.

Posted by: fallsmeadjc | October 15, 2009 10:41 AM | Report abuse

Look at HR 3596. It maintains the exception but clarifies that it does not apply to some of the most egregious anti-competitive practices.

Posted by: aaxler1 | October 15, 2009 11:03 AM | Report abuse

If insurance companies were willing to share their rate-making data through an open clearinghouse rather than through entirely proprietary channels with major barriers to entry, antitrust wouldn't be an issue. And public-health researchers and investigative reporters would have a wonderful new trove of data.

There. problem solved.

Posted by: paul314 | October 15, 2009 11:37 AM | Report abuse

Ezra: "This function actually benefits small insurers who would not otherwise have sufficient data to properly adjust premiums."

Fixing this for you: This function actually benefits all insurers who would not otherwise have complete data to conduct efficient price fixing, while maintaining very high profit margins, executive salaries and bonuses that reward short-term performance that is high, and ignore short-term performance that is not high. They always win.

Matt Taibbi described Goldman Sachs as "The world's most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money." A related species in the same genus is the entire health insurance 'industry'.

Posted by: JimPortlandOR | October 15, 2009 11:42 AM | Report abuse

Yet another example of what everyone needs to remember: Patients and gov't and providers are allies against the ins cos who take too much for profit and don't insure enough people. But ins cos and the gov't and patients are allies against the providers who charge and treat too much. This is a triangle.

If properly designed insurance doesn't provide enough profit the problem may very well be with the idea that it should be for profit rather than with the regulations. Not everything in this society should be run for profit. It's ok to have high-end insurance for wealthier people, as long as there is basic affordable health care for the majority. Like the post office and Fed Ex/UPS or state universities and private ones. But in deciding everything ought to bring someone a profit (usually the same someones) we have raised the price of everything so that the majority can't afford many necessities any longer. A recipe for social and political instability.

Posted by: Mimikatz | October 15, 2009 12:00 PM | Report abuse

fallsmeadjc, I guess you think the fact that insurance co's profits and CEO salaries have been relentlessly rising for the last 10-20 years through the recession doesn't have any relationship to the fact that premiums have also risen relentlessly over the same period. Just 2 data points that have nothing to do with each other. Irony is dead.

Posted by: srw3 | October 15, 2009 1:26 PM | Report abuse

@JimPortlandOR: "This function actually benefits all insurers who would not otherwise have complete data to conduct efficient price fixing, while maintaining very high profit margins, executive salaries"

This is one of the dumbest things I've ever read anyone say about health insurance, which is saying a lot. If you think there is collusion or "price-fixing" going on in the health insurance market you are absolutely clueless about this industry. And please also explain how 3-5% margins qualify as "very high". Please also show us the percentage of total health costs made up of executive salaries at health insurers and explain how that is anything other than a trivial number that is completely inconsequential compares to growth in utilization and cost growth.

Posted by: ab13 | October 15, 2009 1:31 PM | Report abuse

@srw3: "fallsmeadjc, I guess you think the fact that insurance co's profits and CEO salaries have been relentlessly rising"

Relentlessly rising to the current levels of 3-5%? How about the non-profit insurers that have had the same growth in premiums? You're embarrassing yourself with your ignorance.

Posted by: ab13 | October 15, 2009 1:34 PM | Report abuse

@paul314 - A clearinghouse for rate information could solve that antitrust problem provided it was not set up by the carriers themselves. Wholesale repeal of McCarran-Ferguson without accompanying legislation establishing such a clearinghouse would subject insurers who share rate data to potential antitrust enforcement. Since their conduct would be evaluated after the fact under a rule of reason, the risk of erroneous enforcement would deter carriers from sharing rate information, to the especial detriment of small carriers and new entrants. The American Bar Association has supported the repeal of McCarran-Ferguson, but with the adoption of safe harbors for beneficial forms of collaboration. Such an approach is superior to repeal of McCarran-Ferguson outright.

Posted by: Ian_Crosby | October 15, 2009 1:36 PM | Report abuse

and its amazing that the idiots that propose this idea don't realize one of the OTHER unintended consequences of disrupting the antitrust laws. Then everything's regulated by the Federal government and each region and more closely each state has different requirements of "mandated" benefits. Mississippi likely can't afford an autism coverage mandate while my state of NJ can and absolutely must have it. So either you have the entire country paying for the cost of an autism benefit (and not using the benefit of it) or you don't cover it at all and the coverage people get nationwide is worse not to mention those of us in NJ who just fought to get mandated benefits for Autism covered would lose it immediately. The idiocy of some of these people is astounding.

Posted by: visionbrkr | October 15, 2009 1:56 PM | Report abuse

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