Repeal of Antitrust Exemption for Health Insurance Industry Considered on Capitol Hill

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

Senate Judiciary Committee Chairman Patrick J. Leahy kicked off a congressional hearing on a proposal to repeal the antitrust exemption for the health insurance industry by saying that “the exemption, since it was enacted in 1945, has served the financial interests of the insurance industry,” but not the interests of consumers.

“There is no reason why health insurers should be accorded immunity to engage in what would be illegal if being done by any other company,” Leahy said. The senator from Vermont called for a level playing field where the health insurance industry plays by the same rules of competition as do other industries.

In September, Leahy introduced the proposed "Health Insurance Industry Antitrust Enforcement Act of 2009" (S. 1681) to repeal the McCarran-Ferguson Act exemption to the extent it shields health and medical malpractice insurance providers from antitrust liability for price fixing, bid rigging, and market allocations.

At the October 14 hearing, the committee heard from Christine A. Varney, Assistant Attorney General in charge of the Department of Justice Antitrust Division, and Senate Majority Leader Harry Reid of Nevada, among others.

Justice Department Testimony

“The Department of Justice generally supports the idea of repealing antitrust exemptions,” Assistant Attorney General Varney said in delivering the Justice Department’s views on the McCarran-Ferguson exemption. She noted however that the Justice Department took no position as to how and when Congress should address the issue.

Varney began the testimony explaining that “the McCarran-Ferguson Act was designed to . . . delegate[e] to the states the authority to continue to regulate and tax the business of insurance.” The antitrust exemption for the business of insurance was based on state regulation.

The testimony cited Antitrust Law, the Phillip E. Areeda and Herbert Hovenkamp antitrust treatise, for the proposition that the exemption, which applies in the presence of “even minimal state regulation,” has protected the industry from the “most egregiously anticompetitive claims, such as naked agreements fixing price or reducing coverage . . .”

“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,” according to the Justice Department testimony. The possible justifications for the McCarran-Ferguson Act in 1945 may no longer be valid, it was suggested. The state action immunity defense could still shield insurers’ conduct that is state regulated. Moreover, an exemption for collective activity may not be necessary in light of the increasingly sophisticated antitrust analysis of potentially procompetitive collective activity, the testimony noted.

Senate Majority Leader’s Testimony

In his testimony, Senate Majority Leader Harry Reid urged passage of the legislation to repeal the antitrust exemption for the health insurance industry. He said that the industry should be subject to the same federal oversight as every other industry.”

Reid called assertions by insurance companies that they are subject to state antitrust laws “laughable.”

Senator Hatch’s Views

Senator Orrin Hatch (Utah), ranking member of the Judiciary Committee’s subcommittee on antitrust, competition policy, and consumer rights, suggested that, rather than “demonize” the health insurance industry, Congress should analyze the exemption’s impact on the health insurance industry. Hatch said that he remained “open to considering any measures that promote competition in the insurance sector,” including changes to the McCarran-Ferguson Act. However he said that he had “seen little evidence to justify a complete repeal of the antitrust exemption for the insurance industry.” Hatch suggested that a ban on collaboration in the health insurance industry could result in higher prices for consumers.