Blame less insurance competition on antitrust regulators, not a law


I suspect I had the same reaction as many other Americans after hearing that Congress was planning to strip the health insurance industry of its antitrust exemption.

My question was: What idiots exempted health insurers from antitrust law in the first place?

The answer, of course, is Congress.

The antitrust exemption supposedly comes from the McCarran-Ferguson Act, which was passed in 1945 to protect state regulation of insurance companies, and also to allow insurers to share loss data with each other without being haled into federal court on antitrust or collusion charges.


It’s tempting to see McCarran-Ferguson as a giveaway to big business. What’s especially grating about it is that antitrust immunity should be grudgingly given. Major League Baseball has it -- but it’s the national pastime, affording Americans months of pleasure every year (unless the Yankees win). Health insurers, by contrast, afford Americans endless frustration, and always seem to win, in the end. One would think the country needs antitrust immunity for health insurers like, well, the New York Yankees need another free-agent slugger.

It’s also tempting to blame the act for the dramatic consolidation we’ve seen over the years in the health insurance industry. In much of the country, a handful of health insurers have a virtual stranglehold on the market.

Health economist James Robinson found in 2003 that three large firms controlled more than 50% of enrollment in almost every state -- and that was before the biggest insurers launched a huge effort to snarf up their chief competitors, a trend exemplified by the 2004 mega-merger of WellPoint Health Networks Inc. and Anthem Inc. By 2008, according to the American Medical Assn., in nearly 90% of the metropolitan areas of the country, a single insurer controlled 30% or more of the market.

Is it merely a coincidence that health premiums have soared over the last decade -- up by 131% for family coverage from 1999 to 2009, according to the Kaiser Family Foundation?

“Competition in the health insurance industry is insufficient,” Leemore S. Dafny, a health economist at Northwestern’s Kellogg School of Management, told me last week. “It’s becoming less competitive over time and it’s causing higher premiums than we otherwise would see.”

Insurance mergers have hurt doctors and hospitals, too. In many communities powerful insurers not only pump up premiums but suppress reimbursements to doctors and hospitals, who have no alternative but to take what’s offered by the dominant healthcare payer in town. The resultant savings aren’t typically passed on to policyholders either -- they go to the insurers’ bottom lines.


There’s no time like the present for injecting more competition into the health insurance market, what with Congress moving to push more Americans into the insurance market through coverage mandates and incentives.

“Do we really want to throw everybody into this unvibrant marketplace, where costs are far outpacing the growth in worker earnings?” Dafny asks.

The lack of competition is the rationale, after all, for the “public option” -- “to install a competitor whose incentive is not to go along with the monopolists,” in the words of Thomas L. Greaney, a health insurance expert at St. Louis University School of Law.

It’s also what underlies the rhetoric from lawmakers favoring repeal of the McCarran-Ferguson exemption. “This fixes a mistake sitting on the federal statutes for over 60 years,” Rep. John Conyers Jr. (D-Mich.), said a few days ago when the Judiciary Committee he chairs approved a repeal bill.

Yet the McCarran-Ferguson Act turns out to be a red herring, like the guy fingered as the murderer in the first act of any “Law & Order.” As fans of the program know, that doesn’t mean no crime has been committed, only that one should look elsewhere for the guilty party.

There’s plenty of guilt to go around. But the McCarran Act has done almost nothing to foster the consolidation of the health insurance industry. For one thing, health insurers don’t typically share data in the manner that the exemption allows. Moreover, the courts have interpreted the law so narrowly that it doesn’t exempt insurance mergers from federal scrutiny.


The real culprits are federal antitrust authorities, whose approach to health insurance mergers can best be described as supine. In other words, the truly effective antitrust immunity the industry has received has come not from lawmakers but from federal regulators.

As David Balto, an antitrust attorney working for the liberal Center for American Progress, told Congress in 2008, over the previous 10 years there had been more than 400 health insurance mergers. Only two drew challenges from antitrust regulators at the Department of Justice.

Federal officials had also failed to bring cases alleging other anti-competitive behavior by health insurers, Balto said.

In some cases, state authorities were far more aggressive even though their jurisdiction was limited. After the Justice Department virtually waved through a 2007 merger between the giant UnitedHealth Group Inc. and Sierra Health Services Inc. -- which would raise UnitedHealth’s market share in Las Vegas to 56% from 14% -- the Nevada attorney general stepped in to extract major concessions. The merger still went through, however.

And it was left up to Pennsylvania officials to scrutinize a proposed 2007 merger that would have combined two Blue Cross companies into a single entity with statewide market share of nearly 60%. The state imposed such onerous conditions on the merger that the partners gave up.

All this suggests that in focusing on the McCarran-Ferguson exemption, Congress is barking up the wrong tree. Repeal of the measure wouldn’t have much effect on health insurers at all, good or bad, though it would permit Congressmen to swank around as though they were courageously lowering the boom on an industry with few fans among the voters.


The industry itself has gone along with the joke, informing Congress a week ago that the repeal would “remedy a problem that does not exist” -- a hint that the lawmakers can score anti-industry points without imposing on the insurers. Why would Congress want to hurt them, anyway -- a group that has funneled more than $3 million into congressional campaign coffers via its biggest political action committees over the last three election cycles?

That may be why you don’t hear much on Capitol Hill about steps that might really affect the insurers -- such as investigating why the Justice Department greenlighted so many anti-competitive mergers in recent years, and putting pressure on the regulators to subject the next big deal to effective scrutiny.

Sure, let Congress repeal McCarran-Ferguson -- antitrust experts say it’s outdated anyway. But just remember that if the repeal distracts the lawmakers from real antitrust reform, as seems likely, the health insurance industry will be laughing all the way to the bank.


Michael Hiltzik’s column appears Mondays and Thursdays. Reach him at, read his previous columns at, and follow @latimeshiltzik on Twitter.