Regulation

Legislation to Repeal Health Insurers’ Antitrust Exemption Won’t Increase Competition or Lower Premiums

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This week, in addition to voting on the American Health Care Act, the House of Representatives will also be voting to repeal the insurance industry’s antitrust exemption. The Competitive Health Insurance Reform Act of 2017 seems to have bipartisan support, probably because eliminating collusion between insurance companies sounds like a good thing; or at least it does if you don’t understand the history and purpose of the anti-trust exemption.

What The Antitrust Exemption For Health Insurers Means from NPR and Kaiser Health News (dating back to 2010 when Congress tried to pass similar legislation) provides a primer on the anti-trust exemption and explains why repealing is unlikely to increase insurer competition or lower prices.

But many antitrust experts say that ending the exemption — by repealing the 1945 McCarran-Ferguson Act — wouldn’t significantly increase competition or reduce premiums.

“This is just barking up the wrong tree for health insurance,” said Scott Harrington, a professor of health care management at the Wharton School at the University of Pennsylvania. While many lawmakers are eager to pass some kind of health care bill, they “don’t have a clue how the antitrust exemption works. It might sound good, but I can think of very few things in the bill that would be less consequential for consumers of health insurance.”

Here is a short primer on the issue:

What is the antitrust exemption?

Insurers are among a handful of industries, including Major League Baseball, that have a special exemption from federal antitrust laws.

The McCarran-Ferguson Act gives states the power to regulate the “business of insurance,” granting insurers a limited exemption from federal antitrust scrutiny. Insurers, for example, under the federal antitrust exemption may be able to meet, share information and agree on pricing for premiums, but experts say that most states prohibit that practice.

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Selling Health Insurance Across State Lines

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Did President Trump just call for federal regulation of the health insurance industry?

In his first address to Congress, President Trump enumerated his healthcare reform priorities. These include protecting coverage for those with pre-existing conditions, tax credits, health savings accounts, giving states more flexibility on Medicaid, and bringing down prescription drug prices. Then he said this:

…the time has come to give Americans the freedom to purchase health insurance across state lines…

This last line is the one we should remember. Allowing insurers to sell across state lines will require uniform regulations and will inevitably move us toward a system of federal health insurance regulation. Whether he intended it or not, Trump just succeeded in undermining the state regulation of insurance.

Interstate insurance sales have long been a component of Republican healthcare legislation and part of an ongoing debate about state vs. federal insurance regulation.

The Empowering Patients First Act (H.R. 3400) first introduced in 2009 and sponsored by then Rep. Tom Price (now Secretary of Health and Human Services) contains the following:

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Many of the current plans for repealing the Affordable Care Act contain similar provisions. From a draft proposal circulated in mid February:

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Speaker Paul Ryan is a big supporter of interstate insurance sales. A policy paper he released last summer lists it as a key recommendation.

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But we question whether Ryan really understands the conflicting policy implications of such a recommendation, because the same paper also contains the following:

States have been in the business of regulating health insurance for decades. They should be empowered to make the right tradeoffs between consumer protections and individual choice, not regulators in Washington. The federal role should be minimal and set a few broadly shared goals, while state governments determine how best to implement those goals in their own markets.

Sorry Speaker Ryan (and President Trump), you can’t have it both ways.  Allowing insurance sales across state lines will inevitably lead to federal regulation of the insurance industry.