Health insurance companies, for decades exempt from federal anti-trust laws, are exploiting that privilege to churn profits at the expense of patients, a number of Senate Democrats charged Wednesday. The lawmakers — including Senate Majority Leader Harry Reid (D-Nev.) — want to repeal the exemption as part of broader efforts this year to overhaul the nation’s dysfunctional health care system.
“There is no reason why insurance companies should be allowed to form monopolies and dictate health choices,” Reid told the Senate Judiciary Committee.
Illustration by: Matt Mahurin
The comments arrive during a week when the insurance industry and Democrats have been at each other’s throats over health reform — a quarrel that threatens to endure through the debate. The flames were ignited late Sunday after the health insurance lobby issued a controversial report charging that legislation passed this week by the Senate Finance Committee would hike Americans’ insurance premiums by thousands of dollars each year. PricewaterhouseCoopers, the consulting firm that conducted the study, later conceded that it had considered only a small portion of the Democrats’ strategy, ignoring, among other things, the hundreds of billions of dollars in federal subsidies designed to keep premium costs affordable.
Democrats have pounced on the report as an indication that the insurance industry, despite claims of support for the general concept of health reform, never intended to cooperate with efforts to make coverage affordable to millions of uninsured Americans. The report is further evidence, many lawmakers maintain, that Congress should create a public insurance option to compete with private companies. Repeal of the anti-trust exemption, those same voices are arguing, would be another step toward keeping the industry honest and coverage costs affordable.
“While the insurance industry hides behind its exemption, patients and doctors have continued paying artificially inflated prices, as costs continue to rise at an alarming rate,” said Sen. Patrick Leahy (D-Vt.), chairman of the Judiciary Committee. “The cost spiral is just fine for insurance companies, but it punishes patients, American businesses large and small, and taxpayers.”
Under current law, most businesses are subject to federal anti-trust rules designed to foster competition, keep costs low and preclude the rise of monopolies. But a 1945 law, called the McCarran-Ferguson Act, carves out an exception for health and medical malpractice insurers, which instead are regulated by states.
The industry argues that the exclusion bolsters competition by allowing smaller companies to obtain otherwise unknowable pricing data as they seek to enter new markets. But a growing number of Democrats and consumer groups maintain that the exception simply allows companies to feign competition while they’re really at work colluding on profit-enhancing schemes.
Separate from the broader reform legislation, Leahy has sponsored a bill that would eliminate the exemption for the most egregious anti-trust practices – those involving price fixing, bid rigging and market allocations, where “competitors” divide geographic markets among themselves in order to avoid competition. In all other cases, under Leahy’s proposal, the McCarran-Ferguson Act exemptions would remain in place.
The insurance industry argues that, not only is the Leahy bill unnecessary, but it would lead to increased costs by stifling competition. Lawrence Powell, a finance professor at the University of Arkansas who testified Wednesday on behalf of the Physician Insurers Association of America, maintained that he’s “never observed” any price-setting collusions between competing companies, “because it’s illegal.”
“All of the behaviors this bill seeks to curtail,” Powell said,” are neither apparent in the market, nor permitted by current law.”
But consumer advocates aren’t convinced. J. Robert Hunter, director of insurance at the Consumer Federation of America, told lawmakers that the exemptions simply shield the industry from the types of practices that ultimately limit competition at the expense of patients.
“They get together on claims. They get together on pricing,” Hunter said. “They do many, many things that would violate the anti-trust laws if those laws applied to them.”
Hunter urged the creation of a public option “to test the market” in order to learn the extent of the private-insurer manipulations. Today, Hunter said, there’s no indication to what extent companies are passing on to consumers the costs of, for example, advertisements opposing health care reform.
“We’ll be paying the bill,” Hunter said.
Reid agreed, testifying that the insurers’ exemption “has been anticompetitive and damaging to the American economy.”
“Insurance companies have become so large they dominate entire regions of the country,” Reid said. “What a sweet deal they have.”
Reid is responsible for weaving together the Finance proposal and another sweeping health reform bill passed in July by the Senate Health, Education, Labor and Pensions Committee. That the Senate majority leader came out so vocally in support of the Leahy bill has left supporters optimistic that the proposal could work its way into the final package.
A 2007 study lends credence to the Democrats’ concerns about the consolidation of the insurance industry. Conducted by the American Medical Association, the nation’s largest physician lobby, the survey found that, in most states, the top two carriers consume an overwhelming majority of the private insurance marketplace. In Maine, for example, the top two companies control 88 percent of the insurance market. In both Montana and Wyoming, the number is 85 percent. The lowest market concentration, AMA found, was in Florida, where the top two insurers still represent 45 percent of the market.
More recently, the non-partisan Government Accountability Office found that the top five insurers represent more than 90 percent of the market in no fewer than 23 states.
Numbers like those provide some evidence of what’s at stake for the insurance industry, which is among the most powerful lobbies on Capitol Hill year after year. Indeed, the insurance industry has contributed more than $8.4 million to lawmakers this year alone, according to the Center for Responsive Politics.
But preserving the status quo would come at a cost, according to some Justice Department officials. Christine Varney, assistant attorney general in DOJ’s antitrust division, told lawmakers Wednesday that she’s “very skeptical” that such high market concentrations don’t lead to both a reduction in competition and an increase in consumer costs.
“There is real cause for concern, when you’re reducing competition in those markets,” Varney said. “When you don’t have to compete, you can get pretty big profit margins.”
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