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.

Congressional Subcommittees Hear Testimony on Vertical Price Fixing, Railroad Exemption

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter, and John W. Arden.

Subcommittees of the U.S. Senate and House Judiciary Committees held hearings May 19 on bills that would, respectively, reinstate the per se rule for resale price maintenance and repeal the antitrust exemption for railroads.

Restoration of Per Se Rule

The Senate Judiciary Committee's Subcommittee on Antitrust, Competition Policy and Consumer Rights held a hearing entitled "The Discount Pricing Consumer Protection Act: Do We Need to Restore the Ban on Vertical Price Fixing?"

The hearing considered the impact of the U.S. Supreme Court decision in Leegin Creative Leather Products, Inc, v. PSKS, Inc. (2007-1 Trade Cases ¶75,753), which requires that resale price maintenance be scrutinized under a rule of reason standard rather than declared per se illegal under federal antitrust.

Senator Herb Kohl (D-Wis.) said in a prepared statement that manufacturers have begun to set minimum retail prices resulting in higher prices for consumers, as a result of Leegin. Kohl introduced the "Discount Pricing Consumer Protection Act" (S. 148) in January 2009 to overturn the decision.

Among the witnesses was FTC Commissioner Pamela Jones Harbour, who reiterated earlier testimony before a House subcommittee on the same issue. Harbour said that Leegin had the effect of legitimizing minimum resale price fixing, which was "contrary to good economic and legal policy" because it subordinated consumer preferences to the interests of manufacturers and merchants of branded consumer goods.

Jim Wilson, the current Chair of the Section of Antitrust Law of the American Bar Association (ABA), also testified. Wilson said that the "[b]ecause the intention and likely impact of the Discount Pricing Consumer Protection Act would be to effectively overturn the Leegin decision and reestablish a rule of per se illegality, the ABA respectful urges Congress not to enact this legislation."

The rule of reason is the proper standard because minimum resale price maintenance “can stimulate interbrand competition and is not so inevitably pernicious as to warrant per se illegality,” he noted.

Todd Cohen, vice president and deputy counsel, government relations, for eBay, observed that the Leegin decision “is beginning to undermine many of the consumer benefits delivered by innovators using the openness of the Internet. Leegin empowers those who want to curtail the ability of small and mid-size online retailers to communicate and offer lower prices to consumers.” Since the decision was issued, there appears to have been an increase in RPM programs that restrict intrabrand price competition, he said.

“For example, a recent report in the Wall Street Journal details how some businesses limit price competition through continually scanning the eBay platform to identify sellers offering their prices at a lower price,” according to Cohen. “They then use a plethora of tools to identify the seller and enforce their minimum prices.”

Stacy John Haigney, attorney for Burlington Coat Factory, testified that off-price retailers like Burlington would never have gotten off the ground in the 1970s if the Leegin rule had been in effect. During that time, department stores “could not legally coerce their suppliers to impose high-pricing structures through the industry . . . However, post-Leegin, there is no practical way to stop such retailer-imposed price-fixing schemes from being put in place.”

Further details on the hearing—including written testimony and a webcast of proceedings—appear here at the Senate Judiciary Committee website.

Repeal of Railroad Antitrust Exemption

Adversaries and supporters of the proposed "Railroad Antitrust Enforcement Act of 2009" squared off at a Congressional hearing regarding the legislation in Washington D.C. The bill, introduced in both the House of Representatives (H.R. 233) and Senate (S. 146), would repeal railroads' antitrust exemption and provide for numerous means to halt "anticompetitive rail conduct."

Speaking to the House Judiciary Committee's Subcommittee on Courts and Competition Policy, Association of American Railroads officials said that the measure would have harmful impacts on railroad customers—and American consumers in general—by severely distorting the relationship between regulation and antitrust laws.

Union Pacific executive J. Michael Hemmer observed that the bill's potential granting of regulatory authority to the FTC created a glaring conflict with the Surface Transportation Board and that the bill’s proposed retroactive effect could lead to antitrust attacks on the continuing operation of every federally approved transaction in rail history. Hemmer added that the legislation should not be considered in isolation.

"If Congress wants to address rail transportation policies," he said, "it should work with colleagues in other committees of jurisdiction to craft a coherent, national rail policy that integrates regulation with antitrust jurisprudence."

In response, the Consumer Federation of America asserted that the legislation was sorely needed because "rampant consolidation" and a lack of regulatory oversight have "allowed railroads to abuse their monopoly pricing power and overcharge consumers and shippers $3 billion per year."

Shippers without rail-competitive options pay 75 percent to 100 percent more for rail shipments compared with similar movements in competitive markets, the CFA reported. Captive shippers' costs have been rising substantially over the past five years.

Speaking on behalf of the ABA Section of Antitrust Law, M. Howard Morse referred to the group’s frequent opposition to industry-specific exemptions from the antitrust laws. This opposition is based on the belief that “antitrust laws are sufficiently flexible to account for particular market circumstances.”

Accordingly, the Antitrust Section encourages Congress to dismantle the exemption for the railroad industry and to consider additional legislation to eliminate antitrust exemptions in other industries.

Written testimony and a webcast of the hearing appear here on the House Judiciary Committee’s website.

House Subcommittee Holds Hearing on Antitrust Exemption for Newspapers

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

The House Judiciary Committee's Subcommittee on Courts and Competition Policy held a hearing on "A New Age for Newspapers: Diversity of Voices, Competition and the Internet" on April 21.

The subcommittee heard from newspaper industry executives and journalists, as well as from Carl Shapiro, Deputy Assistant Attorney General for Economics at the Department of Justice Antitrust Division.

There were calls for and against antitrust exemptions for newspapers. Brian Tierney, Chief Executive Officer of Philadelphia Media Holdings—the publisher of the Philadelphia Inquirer and Philadelphia Daily News—advocated expedited merger review for newspaper combinations and limited antitrust relief to enable publishers to discuss innovative business models.

Shapiro spoke of the need for continued antitrust enforcement in the newspaper industry to ensure that "American consumers obtain more innovative and high-quality goods and services at lower prices." He said that "vigorous antitrust enforcement will guarantee that this important industry will be as competitive as possible, and that American consumers will have available to them more, rather than fewer, options for getting news and information."

Merger review under the Clayton Act and the Newspaper Preservation Act of 1970 (NPA) was explained. The NPA exempts from antitrust liability certain types of joint newspaper operations for two or more newspapers with separate staffs and independent editorial policies.

Shapiro noted that NPA does not grant an unlimited antitrust exemption and that "there is nothing in the text or the legislative history of the NPA suggesting that Congress intended to immunize the acquisition by one [joint operating agreement] partner of the other partner's newspaper."

Written statements of witnesses appear here on the website of the House Committee on the Judiciary.