Senator Chuck Schumer (D, NY) and Patrick Leahey (D, Vermont) seem to be gaining ground in their efforts to pass an amendment to remove insurance companies from the protection of antitrust laws.
The ongoing health care overhaul currently being debated has brought to the fore the privilege the insurance industry has enjoyed for the past 64 years: Insurance companies, like Major League Baseball, have been exempt from federal antitrust laws.
Monopolies stagnate markets by preventing others from engaging in healthy market competition. Is the exemption a dying dinosaur?
Brief history of antitrust laws
Given the fears of monopolies in the late 1800s and to preserve America’s free market economy, Congress passed the Sherman Antitrust Act in 1890; its aim being to combat anticompetitive practices, reduce market domination by individual corporations, and preserve unfettered competition as the rule of trade.
Soon the courts found certain activities to fall outside the scope of the Sherman Antitrust Act. To plug this loophole Congress passed the Clayton Antitrust Act of 1914. The Clayton Act added the following practices to the list of impermissible activities: price discrimination between different purchasers, if such discrimination tends to create a monopoly; exclusive dealing agreements; tying arrangements; and mergers and acquisitions that substantially reduce market competition.
The Robinson-Patman Act of 1936 amended the Clayton Act. The amendment aimed to outlaw certain abuses in manufacturers’ practices.
Brief history of the insurance exemption
Before the 1940s, insurance regulation fell under sole province of the states. A Supreme Court case by the name of United States v. South-Eastern Underwriters challenged that in part on grounds of antitrust. The Supreme Court rules that the federal government could regulate insurance companies under the authority of the Commerce Clause in the U.S. Constitution.
The McCarran-Ferguson Act of 1944 provides that federal anti-trust laws will not apply to the “business of insurance” as long as the state regulates in that area, but federal anti-trust laws will apply in cases of boycott, coercion, and intimidation.
The intention of the McCarran-Ferguson Act was to return the legal climate to that which existed prior to South-Eastern Underwriters by specifying that the states retained the authority to continue to regulate and tax the business of insurance.
According to Senator Patrick Leahey, Judiciary Committee Chairman, the antitrust exemption in the 1944 McCarran-Ferguson Act was meant to be temporary. Senator Trent Lott and others have argued that the exemption has led to collusion by insurance companies on setting rates and denying claims, as witnessed by the experience of hurricane Katrina. McCarran-Ferguson, in other words, is obsolete, and potentially damaging.
Department of Justice position
Christine A. Varney, Assistant Attorney General (Antitrust Division), testified before the Committee on the Judiciary United States Senate hearing on “Prohibiting Price Fixing and Other Anticompetitive Conduct in the Health Insurance Industry.” The following points can be gleaned from her testimony:
Ms. Varney argues,
“Health insurance reform should be built on a strong commitment to competition in all health-care markets, including those for health and medical malpractice insurance. Repealing the McCarran-Ferguson Act would allow competition to have a greater role in reforming health and medical malpractice insurance markets than would otherwise be the case.
“The House health-care reform bills contemplates quasi-national exchanges, the Senate Finance bill contemplates national health insurance plans, and all the bills contemplate interstate compacts that would allow insurers to sell a single product across an array of states. These moves are all likely to increase competition and make it less likely that antitrust enforcement is necessary, but they also make the presence of the exemption more dangerous.”
When the top lawyer of the Justice Department identifies the exemption as “dangerous,” to the functioning of quasi-national exchanges [this is the public option, really], the time might just be ripe for Congress to remove the exemption.
On the other hand, by spending countless millions of dollars lobbying Congress, the insurance industry might still have the upper hand in influencing the health-care reform. Why should they lose this monopoly? In some states, one or two insurance companies control all the insurance business. Is this a ‘free market economy?”Legal notice about the Insurance Companies Are Exempted From Antitrust Laws – Why? rubric : Hukuki Net Legal News is not responsible for the privacy statements or other content from Web sites outside of the Hukuki.net site. Please refer the progenitor link to check the legal entity of this resource hereinabove.
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