Should Health Insurers be Subject to Federal Anti-Trust and Competition Laws? (S. 350)

What is S. 350?

(Updated December 31, 2019)

This bill — the Competitive Health Insurance Reform Act of 2019 — would amend the McCarran-Ferguson Act, which exempted insurance companies from federal anti-trust laws, in order to ensure that health insurance companies are held accountable for drug pricing. It would restore the application of federal anti-trust and competition laws under the Commerce Clause and Sherman Act to the health insurance business.

Argument in favor

Health insurance companies are currently getting away with overcharging customers because there isn’t enough competition in their industry to keep prices low. Making insurers subject to anti-trust laws would allow the federal government to punish insurers who engage in these unfair, anti-competitive practices.

Argument opposed

Some in the insurance industry believe the partial repeal of this very narrow antitrust exemption wouldn’t achieve the outcome of increased competition in health insurance markets. In fact, it may serve to limit future entrants to the market.

Impact

Health insurers; federal anti-trust laws; federal competition laws; Commerce Clause; Sherman Act; and the McCarran-Ferguson Act.

Cost of S. 350

In the 115th Congress, the CBO estimated that enacting this bill would cost less than $500,000 for the FTC or the Dept. of Justice to enforce the expanded anti-trust laws.

Additional Info

In-Depth: Sen. Steve Daines (R-MT) introduced this bill to ensure that health insurance companies are held accountable for pricing drugs:

“For far too long, health insurance companies have gotten away with taking advantage of consumers and charging them outrageous prices for their health care. It’s time we look into these companies practices by demanding transparency in order to hold them accountable.”

Sen. Patrick Leahy (D-VT), an original cosponsor of this bill, adds:

“There’s simply no justification for exempting health insurance companies from laws prohibiting price fixing. Applying our federal antitrust laws to health insurance providers will let Americans feel more confident that the prices they are being charged are the product of a fair marketplace – not by the whims of a few dominant corporations. This bill will curtail the most egregious anticompetitive practices, like price fixing, bid rigging and market allocations, which hurt consumers and drive up health care costs.”

The American Dental Association (ADA) supports this bill, as it believes it’d help level the playing field between health insurers, providers, and consumers to make health insurance more affordable. Its president, Jeffrey M. Cole, says:

“If health insurance companies had to observe the antitrust laws when setting rates and designing coverage, they would have to compete more aggressively with each other for both individual customers and purchasers of large group policies. Currently, when health insurers overcharge or take advantage of customers, the consumers’ only course of action is to file a complaint with their state’s insurance commissioner, who often have very limited resources and rarely act.”

The ADA believes that this bill’s effect would be to remove the Federal Trade Commission’s (FTC) and Dept. of Justice’s apparent hesitancy with regards to enforcing federal anti-trust laws against health insurance companies engaged in anti-competitive conduct.

This bill has gotten bipartisan support from the White House in recent years, as former President Barack Obama and President Donald Trump have supported this legislation. House Democrats have supported the full repeal of the McCarran-Ferguson Act since 1988.

Jennifer Webb, federal government affairs counsel at the Independent Insurance Agents & Brokers of America (IIABA, or the Big “I”), argues that the limited anti-trust exemption currently in place is vital to state property and casualty insurance markets’ competitiveness:

“The [IIABA] strongly supports state insurance regulation and the limited antitrust exemption for the [property and casualty] and life insurance markets via the McCarran-Ferguson Act. In particular, the association believes the exemption is vital to the competitiveness of state [property and casualty] insurance markets. Furthermore, while the [IIABA] appreciates the intent of the authors of this legislation to help reform the country’s health insurance markets, the [IIABA] believes the repeal of the exemption is highly unlikely to result in increased competition and might actually lead to the opposite.”

In Congressional testimony in front of the  House Judiciary Committee in February 2017, the IIABA expounded upon its position:

“The [IIABA] understands and appreciates the intent of [the Competitive Health Insurance Reform Act]  to help foster a more competitive environment for health insurance. IIABA believes that competitive insurance markets, across all lines of insurance, are vital for consumers. However, as explained in our testimony, IIABA is not convinced that the partial repeal of this very narrow antitrust exemption would achieve the outcome of increased competition in health insurance markets. In fact, it may serve to limit future entrants to the market. That said, the association greatly appreciates that [Competitive Health Insurance Reform Act] has been drafted to specifically exclude all forms of insurance outside of health insurance. IIABA believes that the McCarran-Ferguson limited antitrust exemption is vital in order to maintain competitive state property and casualty insurance markets.”

There’s one cosponsor of this bill, Sen. Patrick Leahy (D-VT). A House version, sponsored by Rep. Peter DeFazio (D-OR) with the support of 12 bipartisan cosponsors, including seven Republicans and five Democrats, has also been introduced in the 116th Congress.

Last Congress, the House version of this bill, sponsored by Rep. Paul Gosar, passed the House by a 416-7 vote in March 2017 with 20 House Republican cosponsors’ support. Versions of this bill have passed the House in the 111th, 112th, and 115th Congresses; but they haven’t become law. This bill was included in the Republican Study Committee’s Health Care Reform bill in the 112th, 113th, and 114th Congresses.

This bill has the support of the Montana Dental Association, Southern Montana Optometric Center, American Dental Association (ADA), American Association of Orthopaedic Surgeons (AAOS), American Hospital Association (AHA), American Chiropractic Association, American Community Pharmacy Association, American Optometric Association, and others.

Of Note: In the 1944 case , the Supreme Court ruled that insurance is an “interstate commerce” business. This made insurers subject to Congressional oversight under the Commerce Clause and federal anti-trust laws under the Sherman Act. To circumvent the Supreme Court’s decision, insurance companies lobbied Congress to create a special-interest loophole exempting them from federal anti-trust laws, resulting in the McCarran Ferguson Act of 1945.

Sen. Daines’ office notes that “the consolidation of insurance brokers over the past 70 years, especially since the passage of the ACA, has made the [insurance] market ripe for abuse.” It adds, “The application of federal anti-trust laws is more relevant now than ever. Popular cost-reducing reform priorities – such as selling insurance across state lines – are predicated on the robust competitive markets this bill will ensure.”

The Congressional Budget Office analyzed related legislation in 2009, and found that any effect on health care premiums would be small. Meanwhile, the likelihood of an increase or decrease in premiums was difficult to determine.