Health Insurance, Competition & the McCarran-Ferguson Act

A post by Jordan Cohen on June 17 raised a very important point:  “what [do] we currently know about the role of competition in the health insurance market [?]” As Mr. Cohen makes the connection between cost and competition and another relating to slowing the rate of growth of health care expenses generally, his caveat raises an important concern that the information supporting conclusions in this regard may be less than optimum. One factor to consider is that competition, or the lack thereof, in the insurance industry is subject to the distortions of a wide, if not dizzying, array of often conflicting state regulation.

The McCarran-Ferguson Act (”the Act”) exempts the “business of insurance” from federal antitrust law. Which is to say that federal antitrust law applies only to the extent that “the business of insurance” is not regulated by state law.  The Act goes so far as to permit price fixing — joint ratemaking — if permissible under state law.  Hovenkamp Antitrust Hornbook, at 732.  In one case, Mackey v. Nationwide Insurance Co., 724 F.2d 419 (4^th Cir. 1984) (Superseded by Regulation as Stated in Home Quest Mort. LLC V. American Family Mut. Ins. Co., 340 F. Supp.2d 1177 (D.Kan. Oct. 12 2004), the Act even protected the practice of redlining on the reasoning that it “related to the particular types of risks [the] company [was] willing to insure against.”  State of Maryland v. Blue Cross and Blue Shield Assn., 620 F. Supp. 907, 916 (D.C. Cir. 1985) (referring to Mackey).

While the lack of competition in the health insurance industry may well have other causes, which may or may not be cured through a public plan, the Act, with its exemption from federal antitrust law has not helped.  Private competition may have more to offer than currently realized in the McCarran-Ferguson environment.  Repealing the Act coupled with increased antitrust enforcement would seem a relatively affordable first step if competition, with the ultimate goal of benefiting the consumers/patients, is the goal.

I believe the repeal of McCarran-Ferguson will happen and that  Professor Greaney is correct that increased antitrust enforcement and better antitrust laws in the health care industry generally should be forthcoming– but I am somewhat more optimistic than he that this will happen sooner rather than later. While in the Senate, then Senator Obama “introduced legislation to repeal the McCarran-Ferguson Act for medical malpractice insurance.”  Furthermore, his picks of Christine Varney as assistant attorney general for the Antitrust Division and Jonathan Leibowitz as chairman of the FTC are said to have members of the insurance industry concerned about greater antitrust enforcement as well as the elimination of the McCarran-Ferguson exemption. I would suggest that AIG’s self-destruction at taxpayer expense does not bode well for the Act either.