What we really need is insurance anti-trust reform to restore competition to the market

Posted by AzBlueMeanie:

The Republican plan for health care reform has nothing at all to do with health care per se. The GOP proposal du jour is to allow health insurance companies to engage in interstate sales of health insurance plans. This would require a "federal government takeover" of insurance regulation (interstate commerce). Insurance by tradition and by law is regulated by the states. This appears completely at odds with the Tenther Party's "states rights" manifesto.

This GOP proposal would only lead to further market concentration and monopoly control by the handful of large health care insurers who market insurance under a number of affiliated insurance company names. The GOP always does the bidding of its special interest campaign contributors.

What we really need is insurance anti-trust reform to restore competition to the market. Rep. John Conyers and Sen. Patrick Leahy have proposed to end the anti-trust exemption for insurers. Dday at crooksandliars.com writes Conyers, Leahy Introduce Bill To End Health Insurers' Anti-Trust Exemption:

Many people don't know that the insurance industry, under the McCarran-Ferguson Act of 1945, has a broad anti-trust exemption that facilitates regional monopolies. The Act allows states to regulate the insurance business instead of the federal government, but also allows that, as long as the state regulates the industry, federal anti-trust laws would not apply.

As a result of this exemption, states have seen markets for health insurance where one or two companies predominate. In the state of Maine, Wellpoint controls 71% of the market. In North Dakota, Blue Cross controls 90%. Using the Herfindahl/Hirschman Index, a metric for market concentration, a 2007 study by the AMA found almost every health insurance market in the United States is highly concentrated.

This edition of the study analyzed 313 MSAs. This compares with 292 metropolitan areas in the 2005 study, 84 in the 2003 study, 70 in the 2002 study, and 40 in the 2001 study.

In terms of market concentration (HHI), the study found the following:

In the combined HMO/PPO product market, 96 percent (299) of the MSAs are highly concentrated (HHI>1,800), applying the 1997 Merger Guidelines.
In the HMO product market, 99 percent (309) of the MSAs are highly concentrated (HHI>1,800), applying the 1997 Merger Guidelines.
In the PPO product market, 100 percent (313) of the MSAs are highly concentrated (HHI>1,800), applying the 1997 Merger Guidelines.

Here's the AMA study. Paul Rosenberg has a lot more on this.

The point is that the concentration of the health insurance market among regional monopolies leads to higher costs for consumers, almost by definition. What the legislation by Conyers (D-MI), Hank Johnson (D-GA) and Diana DeGette (D-CO) would do is end that anti-trust exemption for health insurers, allowing for enforcement in all of these highly concentrated markets. The Senate has companion legislation:

“This legislation would specifically prohibit price fixing, bid rigging, and market allocation in the health insurance industry,” said Conyers. “These pernicious practices are detrimental to competition and result in higher prices for consumers. Conduct that is unlawful throughout the country should not be allowed for insurance companies under antitrust exemption. The House Judiciary Committee held extensive hearings on the effects of the insurance industry’s antitrust exemption throughout the 1980s and early 1990s. It became clear then that policyholders and the economy in general would benefit from eliminating this exemption.

“The legislation we introduced today is intended to root out unlawful activity in an industry grown complacent by decades of protection from antitrust oversight. In doing so, we aim to make health insurance more affordable to more Americans. I want to thank my friend Senator Leahy for his leadership on the bill and for working with the House on this joint introduction.”

Many of the actions taken by the insurance industry over the years simply violate federal law. Repealing their anti-trust exemption would force the industry to end their criminal ways or face punishment. As a companion to insurance regulations designed to lower prices for consumers, but perhaps without the kind of enforcement necessary to maintain it, I couldn't think of anything better. And if nothing else, this legislation is a powerful whip to keep the industry in line as they try to extract more perks from the health care bill. Combine this with the multiple investigationsinto industry practices from Dennis Kucinich, Henry Waxman and others, and you have real pressure on the industry for the first time in a while.