Serious Threat to Insurers' Antitrust Exemption Emerges

At the same time that health insurance groups received a backlash of heavy criticism from Democratic lawmakers for releasing reports that health reform efforts could lead to much higher premiums, another legislative effort saw a jolt of interest in Congress. Momentum has been building for Senate and House bills that aim to tear down the antitrust exemption enjoyed by the health and medical liability industries.

The McCarran-Ferguson Act provides an antitrust exemption to the insurance industry. In past years, some lawmakers have tried to take it away. This time, they are focusing only on health-related insurers -- a sector of the industry already busy with the wrestling match over health reform.

The House bill passed through the Judiciary Committee on Oct. 21 with a solid 20-9 vote, moving on to consideration by the overall House. Senate proponents of its version of the bill announced on the same day that they would be re-introducing the bill as an amendment to health reform legislation. And the White House has hinted that it supports this effort. In his Oct. 19 weekly recorded address, President Barack Obama criticized insurer profits, saying, "They're earning these profits and bonuses while enjoying a privileged exception from our antitrust laws ? a matter that Congress is rightfully reviewing."

Insurers have countered that the lawmakers are simply lashing out, fixing a nonexistent problem with these bills. "We don't understand why they're necessary or even why they've been introduced," said Lawrence E. Smarr, president and chief executive officer of the Physician Insurers Association of America. Though he added that the ultimate aim is clear: "The main target here is health insurers, and we're being taken along for the ride."

"We believe that health insurers have not been engaging in anticompetitive conduct and that McCarran-Ferguson does not provide a shield for such conduct," Karen Ignagni, president and CEO of America's Health Insurance Plans, wrote in a letter to the chairman of the House committee that passed the bill. "The bill holds the potential for increasing legal uncertainty," she contended, asking the lawmaker to consider the organization's "strong concerns that such legal uncertainly could chill or limit newly developing activities that will benefit consumers and doctors."

Smarr agrees with Ignagni, saying there is "no evidence" that anticompetitive practices are a problem in his corner of the insurance industry. Also, he said, it's unclear what the bill hopes to accomplish. "The bill is so vague, and that's the major problem we have with it," he said. "We're just concerned with what will be defined as price fixing and bid rigging."

Sen. Patrick Leahy, the chairman of the Senate Judiciary Committee, is the Senate version's sponsor, and his effort is backed by Senate Majority Leader Harry Reid. Leahy argued that the bill will foster more competition in the health insurance sector and bring down consumer costs. He said the industry engages in practices that "would be illegal if done by any other industry." He said: "We all pay the cost for this. Patients pay the cost. Doctors pay the cost."

James Guest, president and CEO of the Consumers Union, which publishes "Consumer Reports," also supports the repeal, saying the industry should be "treated like everyone else," tying the idea to a potential reduction in health costs. "It starts with insurance reform," he said.

Reid predicts the idea will meet with the same Republican resistance that has greeted most Democratic efforts in the ongoing health care debate. "They have tried to stop almost everything we've done." He accused the GOP of opposing things that they actually support, just to go against the majority party.

Most of the public, according to a new telephone survey conducted by Rasmussen Reports, is with those who want to strip the exemption. Of those surveyed, 65% said insurers should have to face the same antitrust laws as other industries, with 12% saying the industry should keep its exemption, and the rest saying they were unsure.

But Smarr has some specific worries about what removing the exemption could do. He said, "We're concerned that this would prohibit the sharing of historical loss data." However Smarr admitted that data sharing isn't as vital for his area of insurance as it is in others. "Unlike other larger lines like auto insurers or homeowners, the sharing of data is not of great advantage to us." Nor does he think it's particularly important for health insurers.

Whether it's important or not, the administration -- specifically its chief antitrust enforcer, Assistant U.S. Attorney General Christine Varney -- has argued that information sharing is not a violation of antitrust laws, as long as its blind data.

Smarr, who hopes to pull the medical liability insurers out of the legislation, subscribes an additional motive to the Democratic lawmakers pushing the effort. He said it's "clearly an attempt to focus attention away from the tort reform movement."

Health and medical liability insurers aren't the only ones worried about this legislation. The property/casualty sector sees this as a potential step toward coming after its exemption, too. "For the rest of the P/C industry, it's the camel's nose under the tent," Smarr said.

The American Insurance Association weighed in after Leahy and Reid announced they would try to push this idea into the health reform legislation. The group issued a statement: "Ironically, statutory uncertainty ... will bring years of litigation and discourage new companies from entering the medical malpractice insurance market -- undercutting the primary purpose of federal antitrust laws, which are designed to promote market competition free from government or private interference." The statement went on to say: "Any legislative effort to modify McCarran-Ferguson would be bad for consumers and for business."