Public Comment

Health Insurance and the Antitrust Laws

By Ralph E. Stone
Thursday February 25, 2010 - 09:08:00 AM

Recently, the media have been reporting regularly about the Anthem Blue Cross plan to raise health insurance rates up to 39 percent in California. Anthem, by the way, is owned by WellPoint, Inc., an Indianapolis company. The main justification for the large rate increases, as much as 10 times greater than national health spending growth, is higher health care costs. But as U.S. Health and Human Services Secretary Kathleen Sibelius remarked, “It remains difficult to to understand how a company [Anthem] that made $2.9 billion in the last quarter of 2009 alone can justify massive increases. . . .” And WellPoint, Inc. reported net income of $4.7 billion in 2009. And a recent report found that the combined profit for the five largest health care providers—WellPoint, Inc., United-Health Group, Aetna, Humana, and Cigna—increased 56 percent in 2009 over 2008. Increased rates mean less coverage for a higher cost or possibly no coverage for those without means.  

One of the main reasons for such high profits is the growing lack of competition in the private health insurance industry, which has led to near monopoly conditions in many markets. In many states, for example, insurance companies are oligopolies, with one or two companies controlling 75 to 95 percent of the market and no price competition. Any comparative analysis of health care systems indicates that the greater the role of private, for-profit health insurance companies in the delivery of health care, the higher the cost. This is why the United States has the most expensive health care system in the world but trails well behind on crucial indicators of public health, such as infant mortality, longevity, and death of women in childbirth.  

Do any of these shocking facts raise antitrust concerns? They should. We have heard from Insurance Commissioner Steve Poizner about Anthem’s proposed rate increases, but we haven’t heard from Attorney General Jerry Brown about whether his Antitrust Law Section has any proposed or pending antitrust investigations against Anthem Blue Cross in particular, or health insurance companies operating in California in general. With Proposition 103’s repeal in 1990 of the insurance industry’s immunity from the Cartwright Act—California’s basic antitrust statute—insurance companies are now fully subject to California’s antitrust laws.  

But what about the federal antitrust laws? The federal antitrust laws include the Sherman Anti-Trust Act of 1890, the Clayton Act of 1914, and the Federal Trade Commission Act of 1914. Unfortunately, the McCarran-Ferguson Act of 1945 gives states the exclusive authority to regulate the “business of insurance” without interference from federal regulation, unless federal law specifically provides otherwise. The business of insurance includes laws aimed at protecting or regulating the performance of an insurance contract, the relationship between insurer and insured, the type of policies issued, and the policies’ reliability, interpretation, and enforcement. Thus, any antitrust enforcement action against insurance companies has been left up to the individual states. 

Last year, there was hope for a change at the federal level. In September, Senator Patrick Leahy, D-Vt., introduced the Health Insurance Industry Antitrust Enforcement Act, which would repeal the McCarran-Ferguson Act antitrust exemption for health insurance companies, and hearings were held in the Senate Judiciary Committee in October. Repeal of the McCarran-Ferguson Act would ensure that health insurance issuers and medical malpractice insurance issuers cannot engage in price fixing, bid rigging, monopoly practices or market allocations to the detriment of competition and consumers. And on October 16, President Obama spoke at Texas A&M University, stating it was time to repeal the McCarran-Ferguson Act. Since then, however, the health insurance industry has worked its magic on the president and Congress and the bill appears to have fallen through the cracks. I suspect the scrapping of the proposed House/Senate healthcare reform bill and the election of Scott Brown in Massachusetts had something to do with its demise.  

For the foreseeable future, antitrust law enforcement will continue to be a state concern. However, bringing an antitrust lawsuit against a billion-dollar health insurance company would be a budget buster for most states—even for California with its current budget shortfalls—and, if the state won, the ruling would not necessarily be applicable to other states where the health insurance company defendant did business.  

While the lack of competition in the health insurance industry may well have other causes, vigorous enforcement of California’s antitrust laws is vital as a first step toward bringing at least some competition to that industry, which in turn will provide the greatest amount of choice possible for consumers. I would like to hear Attorney General Brown publicly address this issue. 


Ralph E. Stone is a retired San Francisco Regional Office Federal Trade Commission attorney.