Insurers’ federal antitrust exemption: A refresher

Sam Baker reports,

House Democrats reintroduced a bill Tuesday that would revoke the health insurance industry’s exemption from antitrust laws — a liberal priority that failed to make the cut for President Obama’s healthcare reform law.

Reps. Peter DeFazio (D-Ore.) and Louise Slaughter (D-N.Y.) introduced the measure, which would subject health insurers to federal antitrust laws. […]

“There is a fundamental lack of understanding of what the McCarran-Ferguson Act does and does not do,” AHIP spokesman Robert Zirkelbach said in a statement. “This Act is extremely limited in scope and has nothing to do with competition within the health insurance industry.”

State insurance regulators have said the 1945 law that gave insurers a partial exemption from antitrust laws does not open the door to price-fixing or rigged markets, and the Congressional Budget Office has said the Democrats’ bill probably would not affect premiums.

In 2009, Ian Crosby explained to TIE readers what McCarran-Ferguson does and doesn’t do.

The McCarran-Ferguson Act exempts from federal antitrust laws most aspects of “the business of insurance” to the extent regulated by the states. The exemption for “the business of insurance” applies to activities like issuing policies, underwriting risk, and setting premiums. But it does not apply to “the business of insurers” – for example, purchasing services from providers or engaging in mergers and acquisitions, in most circumstances. Nor does the exemption protect “boycott, coercion, or intimidation” from federal antitrust scrutiny.

Roughly, the exemption tracks the risk-spreading relationship between insurer and insured that has traditionally been the subject of state regulation, while mostly subjecting insurer-provider relationships and other non-insurance activities to federal scrutiny.

Ian and I were not optimistic that striking the McCarran-Ferguson exemption would have significant effects on premiums. That doesn’t mean that McCarran-Ferguson’s has no effect on competition. We wrote,

There are exempt insurance practices that, at least in theory and under certain conditions, could help insurers defend and expand their market share against competitors. But the exemption simply does not shield the most straightforward kinds of conduct that make companies big.


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