Repealing the Health-Insurance Antitrust Exemption: a Catchy But Useless Idea

(MoneyWatch)  The House bill to repeal the insurance industry's exemption from federal antitrust law passed so overwhelmingly last week that a bipartisan majority might well pass it in the Senate, as well. But the effect of the popular legislation on health insurance prices will be next to nothing, antitrust experts say. Similarly, the Congressional Budget Office has estimated that the price effects will be small.

To most people, this might seem counterintuitive. After all, if large insurance companies dominate the majority of markets, as the AMA says they do, bringing them under antitrust regulation should certainly lead to more competition that would lower prices, right? Well, no.

For starters, mergers and acquisitions of insurers are already regulated by federal and state laws. Amending the McCarran-Ferguson Act of 1945 so that federal antitrust regulations would apply to health insurers only means that the carriers could no longer engage in collusive behavior in states where that is not prohibited. In theory, that could prevent a pair of dominant insurers from rigging prices or doing something else to prevent other plans from entering the market, Steven Kaufmann, an antitrust attorney based in Denver, told me. But he can't think of any cases in which that has happened.

Of course, the Justice Department could prevent future mergers of insurance companies, even if the antitrust exemption wasn't rescinded. But over the past decade, it has allowed several very large mergers involving insurance giants like WellPoint and UnitedHealth Group. There is no indication that DOJ is about to change its stance.

Similarly, the government has not made a strong effort to block the growth of big hospital systems, and some of the cases it has brought have failed to stop hospital mergers. As a result of this consolidation, healthcare systems across the country have more bargaining power than they did in the 1990s. A new Health Affairs study blames this shift for much of the rise in insurance costs in California. There's also evidence that where there are fewer insurance companies, costs are lower because the insurers can drive harder bargains with hospitals and physician groups.

It's also important to understand that in many regions, local Blues plans dominate simply because they've been around for a long time. Because of these insurers' entrenchment in their markets, other plans have decided it wouldn't be cost-effective to compete against them.

The problem that Congress has in coming to grips with healthcare issues is that the politically popular answers aren't necessarily reality-based. But because healthcare is such an emotional issue for everyone, that calculus isn't likely to change.

Image supplied courtesy of Sam Ware Law.