Why Do Health Insurance Companies Still Have An Antitrust Exemption?

qnl92b.jpgThe historic healthcare reform legislation seeks to clamp down on what many consider to be the most egregious offenses of the insurance industry. It gives the federal government–as well as individual states–more power to regulated rates, and refuse premium increases if they see fit. They will also be required to spend a higher percentage of premiums collected on providing health care, as opposed to administrative expenses or profits.

Despite those improvements for consumers, one of the primary issues is still present. The law does not take any steps to repeal the antitrust exemption for health insurance companies. Such an exemption is only enjoyed by a limited number of industries, including Major League Baseball. Basic economic theory states that the potential of monopolies and collusion decreases competition in the marketplace. Less competition means higher prices.

In many areas, a single health insurer dominates. Therefore, consumers have not been able to shop around for better rates. The regulated exchange markets created by the law are a start towards injecting more competition, but it is strange that Congress and the Obama administration did not take a further step towards those ends. Repealing the anti-trust exemption would also help lower premiums.

Technically, health insurance plan providers are not completely exempt from antitrust laws. Rather, they are subject to state (instead of federal) regulations–including those relating to antitrust law–as a result of 1945’s McCarran-Ferguson Act. Historically, states have rarely used this power to prosecute companies. Some experts believe that Congress will leave the issue alone if the states step up enforcement of their own antitrust laws.

There was an attempt to include antitrust reform in the legislation: the original House of Representatives bill included it. However, it was not in the Senate bill that passed last month. The reconciliation process did not allow the House to include such a provision in the final product. Now, several representatives have introduced and passed a separate bill that reaches that same objective. Getting the repeal of McCarran-Ferguson through the Senate will be difficult, as the Democrats now lack a filibuster-proof majority. The aims of the bill itself, though, could gain some moderate Republican support–it encourages affordable health insurance through more competition in the free market, which is a stated goal of theirs. Still, the GOP could decide to band together and block the bill simply because it was proposed by Democrats in advance of the 2010 midterm elections.