Move To Dump Insurers From Antitrust Exemption Gains

The House Judiciary Committee Wednesday voted 20-9 to remove federal antitrust exemptions the health insurance industry has enjoyed since the 1940s. Majority leader Harry Reid said a companion bill will be voted on soon in the Senate.

Finally the Democrats in Congress have showed some spunk. If the final bill is signed by President Barack Obama, the nation’s insurers would be liable for certain antitrust violations including price fixing.

In the Beltway, the proposed legislation is considered punishing the industry for what many consider a flawed report by the industry that the current health reform bills now offered in Congress would increase premiums.

I consider it leveling the playing field for the consumer by forcing the industry to become more competitive, especially if a public option is not included in the final health reform bill.

Republicans will look silly opposing the antitrust provision. Health insurance and Major League Baseball are the only two industries exempt from the law.

For those of you with an insatiable thirst for Beltway politics, read this posting on the issue by The Hill newspaper.

Another reason Democrats are showing some backbone is a growing sentiment of public support for if not a public option at least some way to force health insurers to be more responsive to consumer demands. Those feelings were suggested in the latest Washington Post/ABC News poll crunching the numbers in the divide between Democrats, Republicans and Independents.

Harold Meyerson, a Washington Post columnist, destroys the myth that the insurance industry is champion of the free market system.

In more than 30 states, five or fewer health insurance companies control three-quarters of the market (in Alabama, one company controls 90 percent). And mergers among health insurers are at an all-time high this year, the Wall Street Journal reported Tuesday. Worse yet, more and more businesses are declining to offer health insurance to employees (60 percent offered benefits this year, down from 69 percent in 2000 and 63 percent last year, according to an annual Kaiser Family Foundation study). Increasingly, individuals will have to shop for insurance in markets that are steadily less competitive.

President Obama and congressional liberals believe that one way to help Americans get the best deal for health coverage is to establish insurance exchanges where consumers can compare plans online. They further believe that merely establishing an exchange in an oligopolistic market isn’t enough; the way to ensure true competition is to create a public option concerned less with preserving an industry-wide profit margin than with offering Americans a better deal.

Concludes Meyerson:

The market champions here are the president, liberals in Congress and the American public. Advocates for socialism? More like advocates for shoppers.

Another cost savings approach is to force all the states to allow its residents to purchase health insurance from out-of-state carriers. As it stands now, each state has its own insurance commission and sets the rules of what carriers must provide. The commissions’ rules reflect each state’s pet projects its legislators demand. Carriers which don’t care to bother meeting any given state’s standards simply stay out of the loop.

The result is lack of competition and promotion of insurance cartel oligarchy.

If the Democrats really are serious about lowering costs, then they must demonstrate they have the cojones to take on the trial lawyers lobby and set a cap on malpractice awards. With tort reform in this area, doctors no longer would order redundant tests on patients simply to cover their asses when a surgical or drug procedure goes haywire.

Author: JERRY K. REMMERS, TMV Columnist

Jerry Remmers worked 26 years in the newspaper business. His last 23 years was with the Evening Tribune in San Diego where assignments included reporter, assistant city editor, county and politics editor.

23 Comments

  1. Given the circumstances (yes, punishing the insurers for saying what at least one union also said about the effects of proposed legislation) and those behind this, yes, it is sinister. But the antitrust exemption itself merits attention.

    Pushing for a “public option” of course is in no way seeking “competition”; only idiots have believed that.

  2. If the public option is about competition, I would favor a trigger. Establish non-profit co-ops and an online market. This should increase competition significantly. If it does not after such-and-such time, then look into the government offering insurance.

    There has been some actual movement recently, I believe, on moving malpractice to arbitration panels instead of trial juries. This could be a good step in tort reform.

  3. The public option has never been about competition (and dishonestly referred to as such). It is rigged “competition” designed to replace and supersede the private sector, and always has been.

    There are plenty of reforms that in no way require any kind of public option (government insurance).

    The antitrust exemption merits attention as a separate subject altogether. That it is being clouded and tainted by who's seeking it and why currently is regrettable. But alteration is possible. I just hope it would not backfire, as it is likely to do with not only the Congressional Dems but with the Obama administration. The same people who brought you the bank bailouts (and much other misconduct and overgrowth of federal interventionism) and a managed consolidation of the banks that remain alive and enjoying tax dollars (with more likely to come) are the same people that would permit the banks to acquire the insurers (with or without antitrust exemption, but following the latter in name of “reform” and “rationalization,” as would no doubt be uttered by a smarmy elitist).

    Tort reform is overdue. Going to a medicine-run malpractice system is great in theory, though critics will call it an insider's clique, and any such change would probably be superficial at this time, preserving jury trials in order to keep the LegaLottO junk lawsuit abuse gravy training running at full speed, still.

  4. I am always curious when the subject of a trigger comes up. `Health care premiums for individuals and small groups have doubled in the last ten years. The profits of the ten largest insurance companies increased by 500% over the last eight years. The average markup on top of costs increased from 5% to 25% over the fifteen years since the last attempt to reform health insurance failed. The ranks of the uninsured has ballooned. The suggestion for a trigger implies we should give them just one more chance to straighten up and fly right. What should we use for a trigger if you don't believe the insurance companies recent performance merits competition from a public option? Premiums increasing by a factor of three to four?

  5. If they have one more chance they hope that we will get the Repubs back in and…again nothing will be done. Not meaning paca but more the trigger meme, it seems to only buy time for the Repubs to kill it just like what little bank reform the Dems did pre 94 was wiped away when the Repubs swept back in. And then they failed to make a peep about the need for any change due to problems until, you guessed it 2006 when the dems were in again. I am happy they can find problems it would be nice if they could just maybe find them while in office with enough power to do something.

  6. There can be no real competition as long as health insurance is tied to employment. People don't shop for health insurance their employers do and what is in the best interest of the employer is not necessarily in the best interest of the employees.

  7. I don't know what the argument against removing the exemption would be. I read a few articles on the subject but still can't answer that question, so I'm interested to know how someone would defend the exemption. If the motivation is to “punish” the insurance companies, that's not appropriate, but the measure itself seems reasonable. A read an article in which an insurance company group argued that the exemption doesn't inhibit competition. That may or may not be true, but it still doesn't answer the question of why the health insurance industry needs the exemption.

    As for the second issue brought up in the post, I'm wary of measures that allow consumers to buy health insurance plans across state lines. States should have the right to regulate insurance companies within their own states. Yes, that means each state will have different rules and a company which wants to sell plans in multiple states will have to accommodate those differences. The car and home insurance industries already do this, and some large health insurance companies do also. I don't see what the problem is with that. If a state has so much regulation that insurers are reluctant to do business in that state, then that's the state's problem that they have the power to correct for themselves.

  8. The point is that there is little or no competition in the health insurance industry, it is a legal cartel. However, there is a much larger point being missed here. The health insurance companies have no incentive to push down the cost of health care. Since they calculate their premiums using a fixed markup on the costs they make more profit the higher the base costs are, extra profits gained each year with no effort of their own and without any additional capital investment. Then their stock price increases to reflect the increased profits. There you have the the true American dream, no muss, no fuss wealth out of thin air.

    All they have to do is guess what the increase in health care costs will be each year. And they are free to guess high since they have no competition.

    I don't know if the health insurance industry can actually compete, between companies or with a government single payer. The last time they tried they were going to show everyone they could deliver Medicare cheaper than the government. That didn't work out so well. They need 14% more than the government. Fortunately for them the anti-free market segment of the Congress has agreed to pay them this amount or more each year. The free market ideal is that you compete on an even basis or get out.

    The question is if the private insurance companies can't compete with a public option are you willing to pay them more to avoid the government? The insurance companies seem to be betting you will not. Please let us know. Will you pay an extra $1000, $1500 or more a year to continue buying from a private company?

    But don't fear, the Heritage Foundation did a study proving that the private companies are more efficient than the government supplying medicare and the extra money goes into extra benefits. I think they are a push type research group, that is they start by writing the conclusions and build their study to support them. However I have noticed the people who accept them as valid tend to be those most opposed to the public option. So this should prove to them that the private companies can compete.

  9. Pacatrue -

    The arbitration panel system, or administrative law judge panels, much like Worker's Comp is handled in many states, is a much better solution than artificial caps which don't really reform the system. Non-jury systems allow expertise to develop within the system and allow precedent to be set over time, unlike the jury system where lay people are expected to understand an entire spectrum of medicine by sitting in a jury box for a few days.

    Before GD comes in and reminds us that malpractice amounts to less than 0.5% of medical costs, I'll throw in my two cents that two recent studies estimate that the cost of defensive medicine and unnecessary diagnostic testing and medical procedures associated with avoiding malpractice claims total between $60 billion and $100 billion a year.

  10. Hey Merkin,

    I have no major beef for or against the public option. In general, I think we should only expand government if nothing else works. My understanding is that the reason a government-provided health insurance is supposed to be better, for lack of a better term, is exactly that it would be non-profit. But the co-ops are to be non-profit as well. So if the problem is in rising insurance profits, the co-ops should provide a counterbalance to this. Thus, if the co-ops can provide a legitimate non-profit alternative, why do we need a second governmental non-profit alternative? The best reason I can come up with is if the “public option” will be so large as to be far more powerful than the co-ops.

    If people know some things the public option brings to competition that the co-ops don't bring, then great.

    I do agree that the main reason politicians want a trigger is to buy time for the Republicans to come back into power and scuttle the whole thing. That doesn't mean there may not be a legit use for the trigger though.

  11. While I'm all for this legislation, I'm going to be a tad picky here:

    “Health insurance and Major League Baseball are the only two industries exempt from the law.”

    That's not entirely true, according to Fact Check:
    http://factcheck.org/2009/10/striking-out-on-an

    That aside, yes almost anyone in Alabama who has insurance (including yours truly) has it through Blue Cross Blue Shield. That's actually happened over the last ten years or so, too– when I had insurance through United and then Aetna before BCBS. I don't know if the number is 90%, but it's darn close.

    But you have to credit the insurers with this one. They practically begged in their own admittedly flawed report that they'd raise their prices without competition, so the natural response was to say, “Okay, so maybe you need more competition.”

    pacatrue, the problem that I have with non-profit co-ops and an online market is that they aren't a new idea. They already exist and provide no real competition, so there's nothing to make us believe that they will in the future. Fact Check has also addressed the tort reform issue. While it might lower costs by a few billion dollars, it wouldn't be significant enough to lower costs. You also have to consider that the rate at which malpractice suits are filed has remained steady while the costs of malpractice insurance has risen dramatically despite that.

    Even after Fact Check revisited the malpractice thing, it still found that it would only cut spending by 0.5%– that's with the $11 billion figure. The separate $60-100 billion figures quoted above comes from the following:

    “In 2004 we accused President Bush of using “dubious statistics” to support his claim that limiting malpractice awards to injured patients could save the economy between $60 billion and $108 billion per year. Ever since, we’ve said most independent research indicated little if any savings from limiting malpractice liability, and just a few weeks ago we quoted the Congressional Budget Office as saying that only negligible savings could be expected.”

    http://www.factcheck.org/2009/10/malpractice-sa

    That, by the way, was in the article where they stated that it would provide SOME relief– the 0.5% figure.

  12. Generally the proposals for co-ops have been for a single one to be no larger than a state and to have multiple ones in larger states. If you have one large nation wide co-op you have the public option.

    Insurance companies certainly prefer the state by state approach. They have years of practice dealing with the state insurance boards and commissioners. In fact they prefer the proposal most recently put forward in John McCain’s presidential platform to allow the sale of any state's policies to any other state. This would allow them to conduct an auction to the bottom between the states to establish the policy terms most advantageous to the insurance companies. This would be very popular among people happy with the way South Dakota and Delaware have handled all of our credit card rates and terms over the last fifteen years.

  13. Which actually needs to be revoked from the credit cards now.

  14. Thanks to Almoderate for indirectly answering my question with your link to factcheck (a. According to the link:

    “Congress gave the insurance industry (health, property, life, etc.) a “limited exemption from federal antitrust law to engage in cooperative activities that allow them to identify and measure risk, including joint collection, sharing, and analysis of loss cost data, and development of standardized policy forms,”

    So, apparently the law gives the insurance industry a limited exemption that allows separate organization to cooperate in data analysis and paperwork. Nothing even close to price-fixing here. In fact, according to another article (http://www.nytimes.com/2009/05/27/health/policy…) separate organizations apparently don't have enough power to fix prices, even when they are fixing them low.

    Something smells fishy here. So, I'll reverse my previous question. I asked what the rational was for keeping the exemption. So now I'll ask those who want to repeal the exemption to show evidence of how the limited exemption results in inhibiting competition.

  15. McCarran-Ferguson is the law in question, and it covers a lot. It allows states an exemption from the interstate trade clause of the constitution for “the business of insurance”. It therefore exempts the insurance companies from federal laws like the Sherman anti-trust act, allows states to prevent interstate purchasing (except for ERISA plans), and allows for state medical licensing. It's a large part of why you pay thousands of dollars an hour for a surgeon, but not for a paramedic doing the exact same thing.

  16. Your last sentence seems very important, Elwood. Can you explain further?

  17. Medical licensing is a tool used by the AMA to drive up prices, and the McCarran-Ferguson act empowers them to do so. They don't set quotas directly, but they have set overly high educational standards for the sole purpose of limiting the number of doctors, and for limiting competition to doctors. For instance, in the US, we have to have a doctor's prescription for drugs, but in many countries, and in our past, you get those same drugs directly from the pharmacist. Because paramedics are licensed at the national level (except for Florida, which has its own similar standards), and lower requirements, they have much more competition. The AMA is a bigger bogeyman is this mess than most people know.

  18. Just want to be clear. I do not rely on old studies from the Bush years.

    This is from the University of Connecticut “Advance”, February 23, 2009 on the costs of defensive medicine to avoid malpractice claims. Note the line that 18 to 28% of tests, referrals, consultations and procedures, and 13% of hospitalizations were for defensive purposes.

    “The cost of ‘defensive’ medicine – tests, procedures, referrals, hospitalizations, or prescriptions ordered by physicians fearful of lawsuits – is huge and widespread, according to a study by the Massachusetts Medical Society and UConn Health Center researcher Robert Aseltine Jr.

    The study is based on a survey – believed to be the first of its kind – that was completed by more than 900 physicians in Massachusetts. It asked about their use of seven tests and procedures: plain film X-rays, CT scans, magnetic resonance imaging, ultrasounds, laboratory testing, specialty referrals and consultations, and hospital admissions.

    About 83 percent reported practicing defensive medicine, with an average of between 18 percent and 28 percent of tests, procedures, referrals, and consultations and 13 percent of hospitalizations ordered for defensive reasons.”

  19. Here’s more on the cost of defensive medicine to avoid malpractice claims. This from an arguably biased source, the American Academy of Orthopedic Surgeons. November 2008.

    “the average American family pays an additional $1,700 to $2,000 per year in healthcare costs simply to cover the costs of defensive medicine.”
    AAOS

    The article estimates total defensive medicine costs at $124 billion/yr. The article relies on the Kessler-McClellan study.

  20. “I am always curious when the subject of a trigger comes up.”

    The childish on the far Left loathe the idea, as it is an obstruction to instant gratification.

    More grown-up, warier people simply view it with contempt, as it will amount to little more than a window covering; any and all excuses to proceed with the public option will be sought, obviously — the “trigger” will be set down to a sub-gram let-off weight.

  21. I don't question your opposition of McCarran-Ferguson. I think this discussion has made clear to me (and hopefully to some others) that the issue is complicated and isn't as black and white as “price fixing” that some are trying to paint this as in order to take advantage of populist anger at health insurance companies. So, I'm not sure if it's a good thing or not that this is happening.

    As far as licensing goes, I don't see a problem with states being able to set their own requirements. If a state sets the requirements too high, then that negatively affects the state because the residents' costs will be too high. But the state has the power to correct that problem (lower the requirements). So I don't see a need for the federal government to come in and save the day. Are you saying that since special interest groups (AMA in this case) have too much power over state government, we should turn to the federal government to straighten things out?

  22. I tend to believe in using the smallest level of government possible, to the point of hating federal, state, and even county regulation of schools. But I also study history. One of the big reasons for going to the Constitution from the Articles of confederation, was to force states to open their borders. The main meat of the constitution is not the bill of rights, but Article I, section 8, which lists the powers of the federal government. If you haven't read it lately, please read it again, because it contains a lot of eye-openers. One of those powers (which has been stretched beyond reason), is “To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes”. People were tired of all the regulations that the states had put on commerce, and were adamant that the constitution include this power to keep the state borders open. It was only because of a supreme court ruling that anyone even thought that the federal government could avoid one of its obligations. The results have not been good either, and just confirm that the lessons of the past still apply today.

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