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Debating insurers’ antitrust exemption

Nancy Marshall-Genzer Feb 9, 2010

Debating insurers’ antitrust exemption

Nancy Marshall-Genzer Feb 9, 2010


Kai Ryssdal: President Obama made an unannounced appearance in the White House press room today. He went back and forth with reporters for, I’d say, a bit less than an hour. Question number one was health care and whether the president, as some Republicans have suggested, would be willing to scrap what’s been done so far and start all over from nothing. Mr. Obama gave a qualified yes.

But sometime in the next few weeks, House Democrats are set to vote on a bill that could alter the fundamentals of the debate by stripping health insurance companies of their exemption from federal antitrust laws. Marketplace’s Nancy Marshall Genzer reports now from Washington that what starts with health insurance may not stop there.

NANCY MARSHALL GENZER: In 1869, yes, 1869, the Supreme Court decided that insurance companies were exempt from federal antitrust laws. Congress passed legislation along the same lines in the 1940s. Why? Insurance wasn’t considered commerce. It isn’t a product you can hold in your hand. Critics say the exemption has made it easier for unscrupulous insurers to fix prices and agree to stay out of each other’s markets.

Congressman Peter DeFazio, an Oregon Democrat, says research shows the exemption hurts consumers.

PETER DEFAZIO: If you could make a case somehow that it benefited consumers and drove down premiums and rates, then maybe you could justify it but, like I say, the consumers union has estimated that it’s an unnecessary and additional $40 billion on our premiums a year.

The exemption allows insurers to do things other businesses can’t, like pool information on, say, losses on claims from 35-year-old drivers. That’s where things can get murky.

Kenneth Abraham teaches law at the University of Virginia. He says insurers could use that information to make predictions, which they would all use to set premiums.

KENNETH ABRAHAM: The losses are projected into the future and that practice might violate the antitrust laws.

Abraham says that could amount to price fixing because predicting future losses is at the heart of setting a premium.

Craig Berrington was a lawyer for the American Insurance Association for almost 20 years, and is now in private practice. He says insurance companies still have to comply with state antitrust laws, and they’re strong enough to prevent price fixing.

CRAIG BERRINGTON: Any effort by two insurers to go out to some bar and grill somewhere and sit down and agree on prices would be a violation of state law and would be prosecuted by the states.

Berrington says the states can also prevent insurers from carving up markets.

But Senator Patrick Leahy, a Vermont Democrat, says state antitrust laws are very difficult to enforce.

SEN. PATRICK LEAHY: Most states have a small attorney generals office, and they don’t have the ability to do that. Whereas the Department of Justice has highly professional people, and they have the ability to look into these things.

These arguments have ping-ponged across Capitol Hill for years. Congress has tried to repeal insurer’s antitrust exemption several times since the 1980s. This latest effort in the House would only apply to health insurers. They don’t compete like, say, car insurers do. They’ve consolidated. The thinking is, there would be more competition if the federal antitrust exemption were lifted.

Congressman DeFazio says that would make it easier to subject all insurers to federal antitrust law.

DEFAZIO: But if we can succeed in health insurance, then I think that would open up the floodgates for the other kinds of insurance that are out there and blow away their arguments that somehow this is going to be detrimental to consumers.

But the House bill on health insurers faces long odds in the Senate. History will probably repeat itself.

In Washington, I’m Nancy Marshall Genzer for Marketplace.

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