Columns

The Patient Protection Act and the Affordable Care Act (ObamaCare) seems to be working. Admittedly, this is not a universal view. But as of the March 31st deadline, it appears that the goal of 7 million signees may have been reached. This is quite an achievement considering the computer glitches encountered by consumers along the way. One problem, however, is that private, for-profit insurers are not under enough competitive pressure to keep premiums low. 

What is needed is a repeal of the McCarran-Ferguson Act exemption for the health insurance industry. An amendment to the financial services regulatory reform bill would have repealed the exemption but was never voted on in the 111th Congress. The bill passed the U.S. House of Representatives, but the bill was never voted on in the U.S. Senate. 

Why do we need a repeal of the McCarran-Ferguson Act exemption to the antitrust laws? According to Forbes since the passage of ObamaCare in 2010, the public health insurance companies have dramatically raised their premiums, especially on small business, multiplied their profits and sent the value of their common stocks up by 200-300 percent. One of the 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. 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.  

The The McCarran-Ferguson Act gives states the authority to regulate the "business of insurance" without interference from federal regulation, unless federal law specifically provides otherwise. The Act provides that the "business of insurance, and every person engaged therein, shall be subject to the laws of the several States which relate to the regulation or taxation of such business." 

Congress passed the McCarran-Ferguson Act primarily in response to the Supreme Court case of U.S. v. South-Eastern Underwriters Ass'n. Before the South-Eastern Underwriters case, the issuance of an insurance policy was not thought to be a transaction in commerce, which would subject the insurance industry to federal regulation under the Commerce Clause of the U.S. Constitution. In South-Eastern Underwriters, the Court held that an insurance company that conducted substantial business across state lines was engaged in interstate commerce and thus was subject to federal antitrust regulations. 

Within a year of South-Eastern Underwriters, Congress enacted the McCarran-Ferguson Act in response to states' concerns that they no longer had broad authority to regulate the insurance industry in their individual states. Thus, the McCarran-Ferguson Act provides that the Sherman Anti-Trust Act of 1890, the Clayton Antitrust Act of 1914, and the Federal Trade Commission Act of 1914, apply to the business of insurance only to the extent that such business is not regulated by state law. 

The Act does not define the "business of insurance." However, in the decision of Union Labor Life Insurance Co. v. Pireno, the Supreme Court set forth three factors when determining whether a particular commercial practice constitutes the business of insurance: whether the practice has the effect of transferring or spreading a policy-holder's risk, whether the practice is an integral part of the policy relationship between the insurer and the insured, and whether the practice is limited to entities within the insurance industry. 

The business of insurance include 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. 

While the lack of competition in the health insurance industry may well have other causes, which may or may not be cured through a repeal of the McCarran-Ferguson Act, the insurance exemption from federal antitrust laws has not helped. Repealing the Act coupled with increased antitrust enforcement is a relatively simple first step if the ultimate goals are reining in health care costs and providing affordable health care to the largest number of consumers. 

Hopefully, now that the dust has settled a bit on ObamaCare, a repeal of the McCarran-Ferguson Act for the health insurance industry will be forthcoming. However, the long term prospects are uncertain.