Repealing Health Insurance Anti-Trust Exemption: the First of Many Incremental Bills?

The health care reform debate in Washington DC may be quieter than it had been before the Democrats lost their filibuster-proof majority, but it’s far from over. In the old days, pre-Massachusetts, the goal was to pass one big comprehensive reform bill festooned with provisions, compromises, deals and more. Negotiations continue to between Senate Majority Leader Harry Reid and House Speaker Nancy Pelosi to try to fashion a substantial bill that could be passed over a Republican filibuster. But more likely we’re about to enter a period where small, targeted bills become the norm.

Which means it’s not surprising that Speaker Pelosi has announced a vote next week on repealing the antitrust exemption currently enjoyed by health insurance carriers. No one will argue that the world will change if insurers lose this exemption. It will make their life more difficult as new rules, procedures and regulations will apply to their activities. But carriers are already subject to state anti-trust laws and other regulations.

Supporters of the exemption repeal, however, claim the anti-trust exemption is outdated and that “states lack the resources to regulate the insurance industry effectively,” according to Reuters and that “Eliminating this industry giveaway will create more choice for consumers and create more competition for insurance companies.”

Well, not so much. It’s more likely to create more opportunities for demagoguery about pernicious health insurance companies than have any meaningful impact on consumer choice and competition in the marketplace. That’s the conclusion reached by the National Association of Insurance Commissioners. In a letter to Senate Majority Leader Reid and Speaker Pelosi the NAIC stated “it is unlikely that a repeal of the McCarran-Ferguson antitrust exemption for health and medical malpractice insurers will lead to more competition and lower premiums.” The letter goes on to note that “The most likely result of this repeal would therefore not be increased competition, but a series of lawsuits testing the limits of the state action doctrine, with associated litigation costs being passed along to consumers in the form of higher premiums.”

So if applying the McCarran-Ferguson Act to health insurance carriers is at best going to change little and at worse be counter-productive, why move forward on the issue? Part of the motivation is no doubt political pay back. Health plans aggressively opposed Democrats’ health care reform bills. Another impetus is also political: insurers have been demonized in the health care reform debate. Repealing their anti-trust exemption (an exemption they share only with major league baseball) allows supporters to claim they’re taking on those evil carriers. And some lawmakers legitimately believe it’s a good, helpful idea. (Reasonable people can disagree, after all).

And there are two, more subtle benefits that could result from passage of the exemption repeal. First, it might prove the viability of a piecemeal approach to health care reform. Speaker Pelosi’s office has made it clear that considering the anti-trust repeal bill separately signals a move to break the comprehensive bill into bite-size pieces, according to the Reuters article. Yet if the anti-trust exemption issue is dealt with separately it will be evidence that other matters can be as well.

The second benefit of passage of this legislation: one less thing for critics of the industry to complain about. Hey, you get your good news where you can.

12 thoughts on “Repealing Health Insurance Anti-Trust Exemption: the First of Many Incremental Bills?

  1. As a former state regulator I predicted this as early as 1980. Frankly with the current state of insurance affairs I think change is needed.

  2. I have found Alan’s blog to be a fair minded, balanced and “spirited” blog, Karoline.

    That is rarely the case, and Alan is to be congratulated for the manner in which he runs it.

  3. Negotiations continue between Senate Majority Leader Harry Reid and House Speaker Nancy Pelosi to try to fashion a substantial bill that could be passed over a Republican filibuster.

    I’d rather see a substantial bill passed through bipartisan efforts, than have the two headed monster of Pelosi and Reid mangle another insulated attempt at reform.

  4. “Use Senate reconciliation and expand Medicare via the Senate’s buy-in provisions. The CBO has already signed off on this as a means of saving money.

    More importantly, if more Americans can do a buy-in with Medicare, it creates more cost control (because there’s a genuine “public option” competitor).

    It also helps to solve the problems of pre-existing conditions, because Medicare does not deny coverage on this basis.

    Allowing a Medicare buy-in to Americans under 65 would give people a genuine alternative to private insurance and thereby render the pre-existing question moot.

    It would also lower Medicare costs by expanding the risk pool of patients (the great bulk of medical expenses are accounted for by a small number of people, mostly the elderly, requiring very expensive treatment).

    And it would substantially enhance the global competitiveness of American corporations. After all, in what other country in the world is health care a marginal cost of production for business?” – Roosevelt Institute Marshall Auerback

    • We should have no confidence in politicians preventing a buy in of Medicare from becoming a subsidized one.

      The cost of health care in other countries seeps into the cost of production in indirect/hidden means.

    • Two comments
      I’m not convinced that a medicare “buy in” is a good idea as was currently proposed in the Senate. It is very limited and does little to “expand the risk pool” and probably is a good example of adverse selection.

      Secondly, to pick up on your quote, “health care as a marginal cost of production”. Health care may be a “marginal cost of Production” but it is a fixed cost of labor and consequently restricts the flexibility of employers in their employment practices. For me that is the compelling argument for single payer.

      The current system distorts competitiveness because the cost of health care is not distributed equally among competitors, it confines the agility of the employer in employment practices such as part time work, job sharing, vacation and leave policies, phased retirements, etc. Small employers who can’t afford health care may not have access to the best talent, because they can’t provide health insurance. The market may be deprived on entrepreneurial talent that is locked to a current job because it offers health insurance.

      The employer sponsored health insurance model has to go. And I say that as s who makes their living in that business.

  5. I am not clear on this.
    Does repeal of the exemption vest additional power with Congress to regulate insurance companies. Given their lock on Congress right now, I am not sure that is a good idea.
    Does it immediately vest regulatory authority with an administrative agency that would have the authority to impose regulations? If so, which agency? How soon could they act?
    Lastly, is they a total repeal of McCarran Fergusen, or is it just specific to health insurance?

  6. It appears to me that the National Association of Insurance Commissioners is almost completely on-board with the Democratic Senate legislation. However, it also appears that the Commissioners would like the provisions to be stronger.

    The NAIC endorses the Senate proposal to keep regulatory oversight at the State level;

    The NAIC is strongly in favor of mandated coverage and has affixed an 8% premium as the desired goal, particularly as it relates to the young and healthy;

    The NAIC is opposed to the grandfather clause for existing plans and if I understood the original Baucus proposal correctly, the legislation was designed so that the grandfathered plans could not take on new customers and in effect would eventually die through attrition;

    The NAIC opposes repeal of McCarran-Ferguson and on its face, their argument makes sense. There is already extensive litigation over whether Health Insurance plans should be covered by the State regulators or the Federal Government through the Employee Retirement Income Security Act. Again it is my understanding that there does not currently exist a bright line standard for whether a companies health benefit program is subject to State or Federal Regulation (see link):

    Finally, as I had written previously I believed the voucher program would create an incentive to reduce the benefits for company plans and would encourage their employees to obtain coverage through the exchange or public assistance and in addition place oversight under the auspices of the Federal Government.

    Jim Kirk

    http://content.healthaffairs.org/cgi/reprint/16/5/93.pdf

    PS: Information in link is dated (1997) but If there is more current guidelines please advise.

  7. Alan, please correct me if I’m wrong.

    The McCarren-Ferguson anti-trust exemption is only a partial one that allows insurance companies to share loss data. This partial exemption promotes competition as companies should be more eager to enter new regions since reliable loss data is available.

      • “Supporters of the exemption repeal claim etc etc eliminating this industry giveaway will create more choice for consumers and create more competition for the insurance companies”

        That means Speaker Pelosi and the supporters are not telling the truth!

  8. Alan, this is an excellent commentary, and offers several seemingly paradoxical areas for question.

    Your comment that: “It’s more likely to create more opportunities for demagoguery about pernicious health insurance companies than have any meaningful impact on consumer choice and competition in the marketplace.”, quoting the NAIC, seems to fairly simply put this suggest repeal in the “Priorities in order of real need first” category, and clearly this is not a higher need. The reference to “…opportunities for more demagoguery…” are strongly validated by this comment: “However, the Anti-Trust exemption for this despicable industry is more costly than the GOPs hang up with Tort Reform.”…Despicable Industry? First, the fact that the author of that statement, WarOnError, uses a pseudonym rather than his real name is evidence to me that he has no more cajones in expressing his convictions than any other coward hiding under a desk, a hood (as in a hoodlum), or a pseudonym. Secondly, while the insurance industry needs serious reform, it is hardly a “despicable industry”. In the years we ran our Long Term Care insurance practice we paid many millions in claims to seniors who would otherwise have lost everything and ended up on Welfare, Medicaid, having the taxpayer rather than the “despicable insurance industry” pay their claims. This “Vocabulary Challenged” coward lost all credibility the moment he opened his mouth…rather, hit the first key on his keyboard.

    I agree that incremental changes are necessary, however if repeal of repeal of the anti-trust exemption for insurance companies will not accomplish so much, paraphrasing, then I would rather see meaningful Insurance Reform move through the process, such as provisions not allowing insurance companies to cancel coverage based on claims history, than see our government, particularly as poorly run by those such as Nancy Pelosi, waste any more of America’s truly valuable time.

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