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Debate Over Healthcare Now Endangers McCarran-Ferguson

An Obama administration official has told Congress that there are "strong indications" that the reasons for insurance companies' limited antitrust exemption that existed when...
October 21, 2009

The debate over healthcare reform is endangering the insurance industry's limited antitrust exemption that has been in effect since 1945.

An Obama administration official has told Congress that there are "strong indications" that the reasons for insurance companies' limited antitrust exemption that existed when McCarran-Ferguson was passed in 1945 are no longer valid. H.R. 3596/S. 1681, the Health Insurance Industry Antitrust Enforcement Act of 2009, would prohibit price fixing, bid rigging, and market allocations to health and medical malpractice insurers. However, state regulators claim a federal mandate is not necessary. The National Association of Insurance Commissioners (NAIC) has stated that "no state insurance regulator has seen evidence that suggests medical malpractice insurers have engaged or are engaging in price fixing, bid rigging, or market allocation."

Christine A. Varney, assistant attorney general in charge of the department's Antitrust Division, told a Senate Judiciary Committee hearing on anticompetitive conduct in the health insurance industry last week that the department, while generally supporting the idea of repealing antitrust exemptions, has taken no position on when and how Congress should address the insurance exemption. But then she added that "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."

PIA National had joined together with eight other insurance industry organizations to strongly oppose the bill. H.R. 3596/S. 1681 would apply federal law expressly outlawing price fixing, bid rigging and market allocations to health and medical malpractice insurers. The limited antitrust exemptions afforded under McCarran-Ferguson do not permit these activities, which are already illegal. Unfortunately, the repeal of McCarran-Ferguson would endanger other important antitrust exemptions which are critical to the proper functioning of the insurance industry, such as the sharing of information about losses so that small insurance companies can develop actuarially sound rates.

With Senate Judiciary Chairman Patrick Leahy (D-Vt.) and Senate Majority Leader Harry Reid (D-Nev.) leading the charge, it is now more likely that this amendment will get added to the final Senate health reform bill. Also, a few House members said it is possible that they will add it on the floor to the House bill.

President Obama added fuel to the fire during his weekly radio address on October 17. Obama said health insurers are "rolling out the big guns" in a "last-ditch effort to stop reform." He also said insurers are "earning [these] profits and bonuses while enjoying a privileged exception from our antitrust laws - a matter that Congress is rightfully reviewing."

What It Means to Agents:  The release of a study by the group America's Health Insurance Plans (AHIP) on the eve of a vote by the Senate Finance Committee may have been a tactical miscalculation. While the study exposed some critical weaknesses in the Finance Committee's bill, it was widely perceived as a bare-knuckle threat by health insurers to raise premiums if legislation passes that is not to their liking. The resulting firestorm from that action now threatens to consume the industry's limited antitrust exemption -- in effect since 1945 -- as collateral damage in the healthcare debate.

PIA Joins Trades In Urging Congress Against Ending Antitrust Immunity for Health

Med-Mal Insurers Plan Fight to Keep Antitrust Exemption (National Underwriter 10/19/09)

Insurers Back in a Circular Firing Squad (National Underwriter blog 10/16/09)