A Call For a Bipartisan National Campaign to Overturn Insurance Companies' Exemption From Anti-Trust Laws

Mar 18, 2010 | Updated May 25, 2011

Whatever their differences on comprehensive health care reform or regulation of Wall Street, here's something that progressives, liberals, centrists, and even free-market conservatives and some tea-baggers should be able to agree on: The insurance industry should not be virtually the only business in America -- other than professional baseball -- to be exempt from federal anti-trust laws that prohibit monopolies, price-fixing, market manipulation and other anti-competitive practices which are anathema to a free market.

I'm hereby urging the formation of broadest possible national coalition of people and organizations of all political persuasions to support the following proposition:

WE, THE UNDERSIGNED ORGANIZATIONS AND INDIVIDUALS, urge Congress to enact, and President Obama to sign, legislation to immediately repeal the insurance industry's exemption from complying with Federal anti-trust laws, while preserving the existing rights of the states to regulate insurance.

We need organizations as diverse as MoveOn, HCAN, Healthcare Now, the AFL-CIO, the National Association of Manufacturers, and even the Club for Growth, and tea bagger organizations to endorse this simple proposition. (Organizations as varied as the American Bar Association and the Automotive Service Association -- the trade organization for auto repair shops -- already support such legislation.)

We need the widest possible coalition of organizations to use their email lists to generate a million or more signatures in support. We need a national media campaign. We need massive lobbying of Congress.

This should be stand-alone legislation, not a piece of comprehensive health reform legislation. Senators and Congress people, Democrats and Republicans, liberals, centrists and conservatives -- whatever their position on comprehensive health care reform -- should be able to vote to make the insurance industry subject to the same anti-monopoly laws as every other American business and bar them from price fixing and market manipulation.

About the only people who could disagree are members of the insurance industry and their paid apologists.

As a result of the insurance industry's anti-trust exemption, 94% of insurance markets in the country are "highly concentrated" according to a study by the AMA. Only two health insurance companies control 98% of the market in Hawaii and 95% in Rhode Island; in 8 other states they control 80%-90% of the market; in 11 other states they control 70%-80% of the market; and in the states with the lowest concentration, they control 47% in New York and 44% in California, which still constitutes an anti-competitive oligopoly.

In part because of monopoly pricing, average health insurance premiums grew 120% between 1999-2007, while average wages grew only 29%. Between 2000-2007, the average profits of the 10 largest publically-traded health insurance companies increased 428%. In 2007, the average CEO salary of those companies was $11.9 million, 468 times the $25,434 wage of the average American worker.

Using their anti-trust exemption, insurance companies collude with health care providers to fix prices to the detriment of consumers. For example, a December, 2008 investigative report in the Boston Globe revealed that the state's largest insurer, Blue Cross Blue Shield, made a secret deal with the state's largest health care provider to fix prices and prevent lower prices being charged to other health insurance companies.

The basic principle of free market capitalism is competition. This is a principle upon which both liberals and conservatives agree, or should agree. Basic free market economic theory holds in order to survive and make a profit in a competitive market, businesses have to innovate, find ways to create a better product than their competitors, operate more productively and efficiently, and lower their prices or be undersold by their competitors. When instead of competition, there are monopolies and oligopolies, the free market fails to function properly, innovation is stifled, and monopolistic companies impose higher prices on their customers, whether individual consumers or other businesses.

In addition, to being anti-competitive, monopolies are anti-democratic; monopolies and oligopolies use some of their super-sized profits to hire armies of lobbyist and make contributions to politicians of all political parties in order to prevent lawmakers and regulators from interfering with their monopoly profits.

That's the reason that a century ago, Congress passed the Sherman Anti-Trust Act and then the Clayton Anti-Trust Act, to break up monopolies and make practices like price-fixing and market manipulation illegal.

However, in an historic anomaly, until 1945 conservative courts held that the insurance business did not constitute "commerce" and thus could not constitutionally be regulated by the federal government or be subject to federal anti-trust law. The Supreme Court overruled this in 1945 and made the insurance industry subject to the same types of federal regulations that applied to other businesses. In response, the insurance industry convinced its friend in Congress to pass the McCarran-Ferguson Act which exempted it from Federal anti-trust laws (while still allowing state regulation, which is generally weaker).

(An historical note: Sen. Pat McCarran (D-Nev.) -- the chief sponsor of the McCarran Ferguson Act, -- was often thought to be the real-life inspiration for the Mafia-owned Senator in The Godfather II).

There have been many attempts since 1945 to repeal McCarran-Ferguson, but until now they have all been defeated by the insurance lobby. At times even conservatives have supported repeal. After Hurricane Katrina destroyed his home and he was unhappy with the treatment by his insurance company, Republican Minority Leader Trent Lott, along with then Congressman Bobby Jindal, and several other Republicans joined with a number of Democrats including Pat Leahy, Harry Reid, Mary Landrieu, to sponsor legislation to repeal McCarran-Ferguson, but the insurance industry and its friends in Congress defeated the legislation.

Now, the insurance industry's double-dealing on health care reform has given new impetus to legislation revoking its Federal anti-trust exemption.

Pat Leahy has reintroduced legislation in the Senate that would partly repeal McCarran Ferguson by outlawing price fixing and bid rigging by health insurance and malpractice insurance companies. Congressmen Gene Taylor of Mississippi and Peter DeFazio of Oregon have introduced the Insurance Industry Competition Act of 2009 which would completely remove the federal anti-trust exemption from the entire insurance industry.

At hearings Wednesday on the Leahy bill, Sen. Chuck Schumer stated, "The health insurance's antitrust exemption is one of the worst accidents of American history. It deserves a lot of the blame for the huge rise in premiums that has made health insurance so unaffordable. It is time to end this special status and bring true competition to the health insurance industry." Majority Leader Harry Reid testified that "there is no reason why the insurance companies should have exemption from antitrust laws." The Obama administration's head of antitrust enforcement, Assistant Attorney General Christine Varney, testified that there are "strong indications" that insurance industry exemption from McCarran-Ferguson are no longer valid, although she did not take an official position backing repeal.

It's not entirely clear whether Democrats are finally serious about repealing McCarran Ferguson or whether this is just a political ploy to threaten the insurance industry to back off from opposing Democratic health reform bills. As best as I can tell, so far this year, Republicans have largely been silent on the issue.

But whatever the outcome of comprehensive health care reform, it's clear that making the insurance industry (not just health insurance but all insurance) subject to the same anti-trust laws as other businesses, and barring them from price-fixing, market manipulation, and other anti-competitive practices, would help increase consumer choice and likely lower insurance costs to American consumers and businesses.

Remember, AIG, whose near-bankruptcy was one of the main catalysts the financial meltdown and great recession, and which has cost the taxpayer over 180 billion dollars (enough to fully fund health care reform for several years) was the world's largest insurance company -- credit default swaps, which was the cause of AIG's collapse, were a form of insurance against investment losses and couldn't legally be regulated as either insurance or gambling.

We need a national coalition crossing the political spectrum from left to right to abolish the insurance industry's exemption from Federal anti-trust laws with all deliberate speed.

*** UPDATE: While we're working to put together a larger national coalition, Sen. Pat Leahy has a web site where you can sign a petition to your Congressional representative supporting his bill to make health and malpractice insurance companies subject to anti-trust laws.