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Why Are Insurers Exempt From Antitrust Laws?

Just had a quick chat with Sen. Chuck Schumer, which didn't offer up enough for an interview transcript, but did yield an interesting nugget on the effort to strip insurers of their antitrust protection. I asked Schumer what would actually happen if the amendment passed. "At the hearing today," he replied, "Christine Varney indicated there could be real enforcement of the antitrust laws in states where one insurer dominates the market." Varney is the government's top antitrust lawyer, and her testimony is here (pdf). This is the crucial bit:

The McCarran-Ferguson Act antitrust exemption is very expansive with regard to anything that can be said to fall within “the business of insurance,” including premium pricing and market allocations. As a result, “the most egregiously anticompetitive claims, such as naked agreements fixing price or reducing coverage, are virtually always found immune.”

Concerns over the exemption’s effects are especially relevant given the importance of health insurance reform to our nation. 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.

The history here is that prior to the 1940s, insurance regulation was considered the sole province of the states. A Supreme Court case by the name of United States v. South-Eastern Underwriters appeared to call that into question, in part on grounds of antitrust. As Varney explains in her testimony, "the McCarran-Ferguson Act was designed to return the legal climate to that which existed prior to South-Eastern Underwriters by specifically delegating to the states the authority to continue to regulate and tax the business of insurance."

Insurance, however, is much more national now than it was then. The companies, for one thing, operate across many different states. They offer plans in competition with the national Medicare program. The House health-care reform bills contemplates quasi-national exchanges, the Senate Finance bill contemplates national health insurance plans, and all the bills contemplate interstate compacts that would allow insurers to sell a single product across an array of states. These moves are all likely to increase competition and make it less likely that antitrust enforcement is necessary, but they also make the presence of the exemption more dangerous.

McCarran-Ferguson, in other words, is obsolete, and potentially damaging. Tyler Cowen, however, is upset by the timing of Democratic threats to repeal the provision: "Everyone who cares about American democracy and rule of law should be complaining about Harry Reid, Patrick Leahy and their allies in this move," he writes. I'm not convinced.

For one thing, Leahy has been trying to repeal this provision for years. He's been consistent on this. But more broadly, this is a case where a particular industry got its friends in Congress to do it a favor, convinced its friends in Congress to protect that favor, and now that it's losing its friends, that favor looks unlikely to survive. When an industry gains by spending countless millions effectively lobbying Congress, it opens itself to losing by spending countless millions ineffectively lobbying Congress.

By Ezra Klein  |  October 14, 2009; 5:47 PM ET
Categories:  Health Reform  
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When would Tyler prefer to discuss whether or not the insurance companies should have this exemption other than during a robust national debate on health care reform? Should not all relevant laws be discussed?

His insistence that this is some catastrophic attack on democracy itself seems so strange considering he can't even come to a decision about whether or not the exemption is proper or not.

That post read to me like his mind had some sort of short-circuit as it ran head first into the internal contradictions of Libertarianism itself. It was just one Nazi reference shy of being Beck/Malkin-esque.

Posted by: nylund | October 14, 2009 6:26 PM | Report abuse

It will be really important that Congress debates this issue and thrashes out. As things stand, very few industries can be only regulated at State level. The market is the whole country. With exchanges and IT infrastructure, it becomes all the more important that such exemptions are removed and the industry can be regulated at national level in consistent manner, same as like most of the industries.

Not exactly of the same type, but this is equivalent to AT&T break-up and telecommunication market reforms in Clinton times or earlier Airline Industry reforms in Regan times.

My fear is this is a big topic and in itself may not be hitched to the health care reform issues. How will then these things progress separately? Let us say Health Care Reforms, as complex as they are, go ahead with some assumption about market & regulations of Insurance Industry and those change subsequently. Will it not affect intended consequences of Health Bill? The bill being so fragile in terms of arrangement, disturbing that, will it have big impact?

Lots of questions and not much clarity here.

It is one thing to 'cheer' dings to Insurance Industry and another to ensure that the hair ball attempted is not all over the place.

Posted by: umesh409 | October 14, 2009 6:39 PM | Report abuse

--"When an industry gains by spending countless millions effectively lobbying Congress, it opens itself to losing by spending countless millions ineffectively lobbying Congress."--

Which is *the* basic argument against government involvement in the health care industry, too. Or Education. Or Agriculture. Etc. One's business immediately becomes subject to the whims of political incompetents, and fodder for the air-headed punditocracy.

Posted by: msoja | October 14, 2009 6:45 PM | Report abuse

I think Cowen is onto something. Repealing antitrust exemptions, or refusing to grant them in the first place, is horribly undemocratic. As soon as the auto industry gets back on its feet, let's give them an exemption, so that car companies can negotiate exclusive territories where you can only buy from GM or Ford or Nissan. Same thing with airlines, which would be much more profitable if they didn't have to worry about being undersold by other lines flying from the same airport. And Coke could take all the territory south of the Mason-Dixon line, Pepsi north. Long live democracy!

Posted by: paul314 | October 14, 2009 8:04 PM | Report abuse

The insurance antitrust exemption is not as big as you might think. The insurance companies are not exempt from civil racketeering claims under RICO. See Humana v. Forsyth. A lot of antitrust claims can be shoehorned into a RICO claim, and many have done so successfully. Some things are harder to prove, particularly for insurance companies, which typically have a byzantine net of proprieters/subsidiaries within each group, but it is certainly a viable suit.

Posted by: zathraszathras | October 14, 2009 9:44 PM | Report abuse

Criticism Is Mounting Over Flood Premiums
Published: September 29, 2009

When politicians return favors to corporations for campaign donations, special exemptions are granted to special industries. Health insurance is one example. GOP is chanting free market, while they keep quiet about McCarran-Ferguson Act's anti-trust exempt for health insurers.

Public utilities are monopolized but each state's utility commission sets price and guarantee delivery to keep utilities affordable. What do we get in return from health insurers in a make-believe free market and from this anti-trust exempt? What kind of fools actually believe we have choices if our government does not manage our health care?

It's time for us to get rid of these private health and malpractice insurers and stop them from bankrupting our country. Yes, it would be very painful for these greedy souls to lose existing profits, but we have to clean house now.

A very strong public option or universal health care is the only solution to affordability. Letting any private hands into the cookie jar, we will see the same abuse and greed in health insurance, national flood insurance, malpractice insurance and college student loan.

Posted by: dummy4peace | October 14, 2009 9:56 PM | Report abuse

well, let's also remember that one of the less thought-out arguments from the right was that, in lieu of health reform, the government should allow insurance to be sold across state lines.

Repealing McCarran-Ferguson would make that possible.

Posted by: ThomasEN | October 14, 2009 10:14 PM | Report abuse

sure go ahead and repeal it. but then that means you're taking the power out of states' hands no? Think Secretary Sebelius (former Kansas Insurance commissioner) is OK with that? Fence sitting Senator Nelson (former Nebraska Insurance Commissioner) is OK with that? This is a bridge Democrats shouldn't cross but go ahead and do it.

Oh and when the legislation isn't as strong as many individual states (re mandates) who will those that beneifts go to complain to??

I don't remember seeing for example anything in any healthcare bill about Autism coverage. Will that be mandated as it is now in my state of NJ?

I've got a feeling Autism Speaks is going to want to speak on the issue. How about the states like mine (and a good many others) that mandate infertility be covered. Anything in the bills there? I doubt it.

Remember the unintended consequences before you do something stupid.

Oh and Ezra I hope you get my suggestion I just sent you on an individual mandate trigger. I hadn't seen it anywhere and I think it could absolutely work.

Posted by: visionbrkr | October 14, 2009 10:38 PM | Report abuse

--"A very strong public option or universal health care is the only solution to affordability."--

With government involved, health care prices *will* fall, but only when there isn't any health care to be had.

Anyone who thinks health care is going to get cheaper under any sort of government driven reform is a nutter.

Posted by: msoja | October 14, 2009 11:52 PM | Report abuse

msoja wrote:
"Anyone who thinks health care is going to get cheaper under any sort of government driven reform is a nutter."
Perhaps you haven't been to Canada or Europe lately, but they do quite well.

Single Payer would shift the $300-450 billion a year we are currently paying as vigorish to private insurers. That's money that provides not a penny for doctors. Viewed differently, that same money could provide universal coverage, increase medical reimbursement rates and still reduce the federal deficit,

Posted by: boscobobb | October 15, 2009 1:44 AM | Report abuse

It's going to be really hard to do this while keeping the liberal healthcare reform coalition together. Over the last fifty years the STATES have been the leaders in insurance regulation, and we just don't have the federal capacity to enact that kind of regulation. Moreover, the health needs of different communities differ a LOT -- Nebraska's insurance needs are different from New York's. At best, a purely national insurance regulation regime will be a huge new area for interest group rent-seeking; at worst it will lead to a generally lower quality of coverage.

A better solution would be to regulate finances on a national level while carving out an exception for mandated benefits law.

Posted by: NS12345 | October 15, 2009 11:11 AM | Report abuse


did you know that Canada doesn't cover prescriptions for those under the age of 65 and over the age of 18. Not at all. You have to buy that seperately yourself from an insurer. Dental too. Its funny I've got a client in Canada that pays more for their insurance in Canada than the group in the US does.

Note that the group in Canada is much smaller than the group in the US but don't go acting like its all roses and candy in Canada because its not.

Posted by: visionbrkr | October 15, 2009 3:00 PM | Report abuse


I'm doing follow up with my Canadian contacts on your assertions as I don't know prescriptions, I deal with devices and procedures.

I was recently in Canada at a global medical research conference as well as chatted with unrelated doctors at my hotel for an college reunion. I would put their healthcare concerns at 2% relative to my 25-30%.

Since I'm an entrepreneur whose med devices will need to demonstrate efficacy, could you kindly address my earlier question,
"What value is added by US private health insurance firms?" Can you quantify that?

Posted by: boscobobb | October 15, 2009 6:47 PM | Report abuse

--"Perhaps you haven't been to Canada or Europe lately, but they do quite well."--

Even stipulating to that nonsense, so what? The U.S. is not suddenly going to become Canada or Europe. Our citizens do not conduct themselves as citizens in other countries do. Their lifestyles are different. Their expectations are different. Their stupid sense of entitlement to things out of their neighbor's pockets is different. The politicians can try from now until doomsday to copy some other cheaper, socialist, health care system and when the dust settles prices will still be higher, and going higher in the good ol' U.S.A.

Unless, you know, if maybe we can get a bipartisan death panel agreement.

Anyway, how many trillion dollars did Harry Reid mention today?

Posted by: msoja | October 15, 2009 6:52 PM | Report abuse


let me answer your question first.

Insurers bring everything government brings except insurers investigate fraud, waste and abuse. Government is just starting to do that in Medicare. Back in 2006 medicare fraud, waste and abuse equated to anywhere between 40-60 Billion a year. Insurers profits were 15+ billion.

Once insurers profits outgrow waste and abuse (or preferably waste and abuse is decreased) then I'll gladly say government does it as good or better. But the fact is they don't and I don't ever expect that to happen.

as far as getting the details on canada, i appreciate you willing to even look or even admit you don't know. Most on here when I bring that up don't bother to answer once they find the answer.

Here's the answer to help you along but please feel free to contact those you know too. I could always be wrong but i doubt insurers could write this up OR it would show in the provincial documents as not covered.

now from what i can tell some drugs may be covered but many are not. See for yourself and judge.

Should we have better rates on drugs we make here in the US, ABSOLUTELY. The problem is the drug makers won't let us. It would eat too much into their profits. The fattest country in the world is the biggest gold mine for the makers of statins. They wouldn't give that up without a fight. That's why Billy Tauzin made his deal first with the government and why Obama was dumb to make it.

Posted by: visionbrkr | October 15, 2009 8:36 PM | Report abuse

This bill has nothing to do with retaliation. It is a slightly amended version of one that Sen. Patrick Leahy, D-Vt attempt to get passed last year. I believe that it failed because some thought that it would limit the state's rights.

This version of the bill would not affect the ability of a state to regulate the business of insurance...but would take away the insurance industry exemption for violations, such as price fixing, bid rigging and market allocation.

There are currently only 7 major health insurance carriers...In many states one controls the bulk of the market. A little fair competition might shake up the pot. In my opinion that bill is important enough to stand alone and not be sandwiched in the health reform package.

Posted by: skericheri | October 16, 2009 3:09 AM | Report abuse

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