Repealing Insurers’ Antitrust Exemption Under McCarran-Ferguson: Less There Than Meets the Eye?
Tim Greaney, Saint Louis University School of Law
The House Judiciary Committee’s vote (20-9) to send H.R. 3596 , to the floor has been heralded by proponents as providing a significant spur to competition in health insurance. Sorry to rain on this parade, but there is less here than meets the eye.
The bill would repeal, but only in part, the McCarran-Ferguson Act’s limited exemption from antitrust law for health and malpractice insurers. The bill narrows McCarran’s reach, providing that “nothing in that act shall be construed to permit insurers “to engage in any form of price fixing, bid rigging, or market allocations in connection with the conduct of the business of providing health insurance coverage or coverage for medical malpractice claims or actions.” A Senate bill with broader effect was the subject of hearings by the Senate Judiciary Committee last week.
Although, as I’ve argued elsewhere, competition in health insurance markets has been less than robust, the case law reveals only a handful of instances in which the exemption protected anti-competitive conduct in the health care sector. The most prominent example, Ocean State Physicians Health Plan, Inc. v. Blue Cross & Blue Shield of Rhode Island, 883 F.2d 1101 (1st Cir. 1989), involved an HMO’s challenge to the exclusionary effect of the dominant insurer’s pricing policy and its offering a rival HMO product. Ironically, this conduct would not appear to be covered by H.R. 3596 and hence would remain immune from antitrust scrutiny. In addition, the Supreme Court has narrowly interpreted McCarran-Ferguson requirement that only the “business of insurance” is exempt; hence insurers’ actions vis a vis providers is not exempt. Moreover, it appears that health insurers do not engage in the kind of activities that are most clearly protected by McCarran-Ferguson, viz. joint forecasts of future medical costs and cooperative ratemaking.
Despite these reservations, repeal is not altogether a bad idea. Most antitrust authorities agree McCarran-Ferguson is not needed to protect pro-competitive conduct, which already is well-insulated under modern antitrust doctrine. For example, the Antitrust Modernization Commission (a blue ribbon –and very mainstream– panel that examined antitrust policy a few years ago) concluded that McCarran-Ferguson immunity was unnecessary to accomplish the Act’s goal of allowing insurers to collect, aggregate, and review data on losses so that they can better set their rates to cover their likely costs. Insurance companies, it found, “would bear no greater risk than companies in other industries engaged in data sharing and other collaborative undertakings.” When insurers engage in anti-competitive collusion “they appropriately [should] be subject to antitrust liability.” Moreover in insurance lines other than health, such as property/casualty, the exemption may protect collective price fixing with few offsetting benefits for consumers.
It is also noteworthy that the Department of Justice stopped short of endorsing repeal.
Assistant Attorney General Varney testified as follows:
In sum, the Department of Justice generally supports the idea of repealing antitrust exemptions. However, we take no position as to how and when Congress should address this issue. In conjunction with the Administration’s efforts to strengthen insurance regulation and states’ role in setting and enforcing policies, the Department supports efforts to bring more competition to the health insurance marketplace that lower costs, expand choice, and improve quality for families, businesses, and government.
This carefully-worded statement (“in conjunction with …efforts to strengthen insurance regulation and states role in setting and enforcing policies“) seems to signal that the Justice Department is worried about hamstringing state regulatory efforts by allowing parallel antitrust scrutiny of insurance industry practices. But I would have expected the Antitrust Division to take precisely the opposite position. Perhaps the strongest argument for repeal of McCarran-Ferguson (and also redefining the state action doctrine) is that a system that relies on extensive state-based insurance regulation (and perhaps state-run exchanges) risks undermining the consumer benefits of competition should regulators become beholden to insurer or provider interests. If history is a guide, this is a legitimate concern.