Let’s put this into perspective. There are extraordinarily few antitrust exemptions and for good reason. Antitrust exemptions mean that competitors do not have to compete. They can live the cozy life where they work cooperatively to have a stable and profitable market. And consumers pay the price in higher prices, less choice and less innovation.
The McCarran-Ferguson exemption was passed in 1945 to protect small insurance companies incorporating at that time who had a great need for data from existing insurers in order to set premiums effectively. Because such information sharing was illegal under the antitrust standards of the era, Congress provided an antitrust free pass.
It doesn’t take an historian or an antitrust scholar to recognize that market conditions are vastly different today than they were 68 years ago. Almost all health insurance markets are highly concentrated and many are dominated by one or two insurers. Congress hoped that state regulation would suffice, but the states bring few if any meaningful cases against health insurers. In addition, there is no need for an exemption since the practices that led to the Act are now considered legal under standards of antitrust law.
If there was one thing clear from the Congressional debate over health care, it is that health insurance markets are unhealthy. Over the past few decades, profits have increased dramatically, and the market has become one of the least transparent and most anticompetitive markets in the nation; indeed, few markets are as concentrated, opaque and complex, and subject to rampant anticompetitive and deceptive conduct. There is simply an immense need for antitrust and consumer protection enforcement to reign in the constant abuses of the industry.
Unfortunately for consumers, McCarran-Ferguson often creates obstacles to effective enforcement. The Federal Trade Commission has a stellar record for policing consumer protection violations and preventing unfair trade practices in almost every market, but McCarran appears to rob it of health insurance jurisdiction. And McCarran may dampen the ability of private parties to bring antitrust and consumer protection actions.
Because oversight authority of the industry has essentially been left to the states, it is subject to virtually no consumer protection enforcement, except in the few states like California, New York, and Florida that have very active insurance regulators and antitrust enforcers. A study by the Center for American Progress found that the vast majority of enforcement actions against health insurers were taken by only five states. In far too many states, a few insurers dominate the market, and authorities lack the resources or expertise to conduct substantive competition or consumer protection oversight; tellingly, in four states, the insurance commissioner is also the fire marshal. Repealing McCarran-Ferguson would return oversight to the federal government where it belongs, and allow for robust consumer protection enforcement that is sorely lacking.
Four different bills to repeal the exemption have already been introduced this Congress: H.R. 99, 344, 743, and 911, by Representatives Conyers, Lynch, DeFazio and Slaughter, and Gosar, respectively. The need to act on these bills is urgent. Federal antitrust and consumer protection enforcement is essential for the health insurance exchanges to work effectively.
Antitrust enforcement is critical to prevent practices by insurers that will dampen competition, allocate markets, reduce options, or attempt to raise prices. (This is no idle threat in these highly concentrated markets in which health insurers traditionally act in lock step). Federal consumer protection enforcement is necessary to make sure there is adequate transparency and information. Yet the McCarran exemption appears to preempt our federal consumer protection enforcer – the Federal Trade Commission – from bringing antitrust or consumer protection cases against health insurers. And it may prevent policing of the anticompetitive conduct that may rob consumers of the benefits of the new exchanges.
This is no time to have the federal government attempt to police this critical market with one hand tied behind its back. Congress should repeal the McCarran-Ferguson Act.
Balto is an antitrust attorney, consumer advocate, and former Federal Trade Commission policy director. He is a program fellow in the Health Policy Program at the New America Foundation and a former senior fellow at the Center for American Progress. The views expressed herein represent only those of Mr. Balto and not of the New America Foundation.