Do We Need Federal Antitrust Law for Health Insurance?

With the so-called health “reform” on life-support, Speaker Pelosi has suggested she might attempt to declare victory by crafting a bill focused on one narrow objective: eliminating health insurers’ so-called “exemption” from antitrust laws. This is already incorporated in the House’s legislation (H.R. 3962 § 262) and could easily be re-introduced as a small bill.

Although this would be a crowd-pleasing bill, ready for sound bites on the campaign trail, it would achieve nothing to control costs or raise the quality of care. Claiming that health insurers are uniquely “exempt” from antitrust laws is misleading in more than one way. In fact, federal law ensures that state antitrust and other consumer-protection laws dominate the field of insurance regulation. And this goes for all lines of insurance, not just health insurance.

The law that limits the federal government from pre-empting state antitrust laws is known as the McCarran-Ferguson Act (15 U.S.C. § § 1011-1015), which Congress passed soon after a surprising decision by the U.S. Supreme Court in 1944, which overturned precedent and determined that insurance was interstate commerce. McCarran-Ferguson immediately restored insurance to state regulation, as it had always been.

Furthermore, market concentration in health insurance is not significantly different than it is in other lines of insurance. Nor have states failed to regulate insurers’ solvency. States enthusiastically regulate — even over regulate — all aspects of insurance. A federal intrusion into insurance regulation would be redundant, adding another layer of bureaucracy to an already heavily regulated activity. 

Read the full report I wrote on federal antitrust laws for health insurance, published by the Pacific Research Institute.

Comments (7)

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  1. t says:

    I agree with you John. This is all sound and fury signifying nothing.

  2. Larry C. says:

    Good piece, John. This is all a big stunt to try to court favor with voters who do not understand any of this.

  3. Stephen C. says:

    Agree with the above. This isn’t going to make any difference.

  4. Neil H. says:

    You all are probably right that this type of change will have no real impact. But that does not mean the market is competitive. In most states a handful of firms account for more than half the market. In fact, I believe the NCPA published a study a few years back documenting this fact.

  5. John R. Graham says:

    A lawyer who is a friend of mine (trust me, there is only one lawyer who is a friend of mine) told me that he agreed that insurers should be able to use pooled claims data for actuarial purposes, but that they should also have to make the data public. I believe that he’s suggesting a parallel to the SEC making companies that list on a stock exchange publish standard financial statements that are publicly available, and post the trading data publicly. It’s a darn good question.

    With respect to concentration, as I noted in my article, there’s nothing remarkable about concentration in health insurance versus other lines of insurance, but the political class is not jumping up and down about auto or other insurers.

    Who knows what that optimal economic scale of a health insurer is? I think that if we had a free market in health insurance, health plans wouldn’t have “networks” at all, but that there’d be a schedule of allowances, whereby a diagnosis would trigger a determined cash flow to the insured party. In such a case I suppose there’d be a lot more competition.

    However, I may be wrong, and people might value health insurers’ negotiating networks with providers. In that case, there will be a certain level of concentration. Of course, providers are inefficiently organized: General hospitals are incrtasingly concentrated, through a couple of decades or so of mergers.

    If we had a free market in providers, there’d be more specialized providers, but I expect that niches would be dominated by “world beaters” which usually happens in specialized markets. That’s Michael Porter’s Competitive Advantage grade 1, page 1.

    So, I don’t think we should get wrapped up in how concentrated a market is, but whether it is contestible: Can potential new entrants credibly threaten to disrupt the status quo? That goes for both insurers and providers.

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  7. Michael says:

    The french fries instead of the baked potato at Wendy’s blew my mind