10.21.09

Whitehouse Supports Measure to Repeal Antitrust Exemption for Health Insurers

Mr. President, I come to the floor to speak in strong support of the Health Insurance Industry Antitrust Enforcement Act, introduced by the senior Senator from Vermont, Chairman of the Judiciary Committee, Senator Patrick Leahy. I believe this bill is an important part of health reform, and I am hopeful that it can be included in the final reform bill as it makes its way through this body.

Our antitrust laws embody the proud American idea that democracy shapes capitalism, and not vice-versa; that vigorous economic competition is not an amoral, Hobbesian contest but disciplined by a strong rule of law tradition; and that ours is not a society in which might makes right and only the powerful write the rulebook.

The great Supreme Court jurist and antitrust crusader William O. Douglas wrote: "Industrial power should be decentralized. It should be scattered into many hands so that the fortunes of the people will not be dependent on the whim or caprice, the political prejudices, the emotional stability of a few self-appointed men...That is the philosophy and the command of the Sherman [Antitrust] Act."

The passage of the Sherman Antitrust Act and Clayton Act, and the creation of the Federal Trade Commission and the Antitrust Division at the Department of Justice, demonstrated a federal commitment to a level economic playing field. Small business and entrepreneurs, shouldering the enormous task of starting up and sustaining a new enterprise, would know that powerful competitors could not collude to keep them out of the market. Consumers could rest assured that prices weren't being fixed artificially high by scheming monopolists.

Every industry, every sector of American business, was made subject to these rules of road - except for one: the insurance industry.

In 1944, insurance companies challenged the federal government's very ability to enforce antitrust laws against them, and the Supreme Court ruled that the insurance business was subject to antitrust laws just like everybody else. In response, insurance companies came to Congress where they launched a massive lobbying campaign, pressuring Congress to invalidate the Supreme Court's decision - not unlike the current lobbying barrage they're aiming at killing health care reform. That campaign back in 1944 was successful. And in March 1945, the McCarran Ferguson Act exempted insurance companies entirely from the reach of America's antitrust laws.

If that exemption ever made sense, it no longer does, especially when it comes to health insurance coverage.

Today, Americans pay ever-higher premiums for less care because a small group of wealthy, powerful companies control the health insurance market. Just consider these numbers:

A study by the American Medical Association shows that 94 percent of metropolitan areas - virtually every one - have a health insurance market that is "highly concentrated," as measured by Department of Justice standards. This means that, if DOJ's antitrust division had enforcement authority over the health insurance industry, it would be carefully scrutinizing this market for signs of anti-competitive conduct that hurts consumers. But due to the antitrust exemption, DOJ can't do that job.

That same study shows that, in 39 states, two health insurers control at least half of the health insurance market, and in 9 states a single insurer controls at least 70 percent of the market. Back in 1945, the insurance industry argued that it should be exempted from the antitrust laws because the market was heavily localized and not concentrated. Well, if that were true then, it is not true now.

Overhead for private insurers is an astounding 20-27 percent -- charges that consumers pay for in higher premiums. A Commonwealth Fund report indicates that private insurer administrative costs increased 109 percent from 2000 to 2006 - 109 percent in those six years. And the McKinsey Global Institute estimates that Americans spend roughly $150 billion annually on what the report calls "excess administrative overhead" in the private health insurance market. $150 billion a year in excess administrative overhead. Clearly, this is not a competitive market. If it were, companies would be driven to cut these costs in order to compete effectively in the marketplace.

Without competition and without economic incentive to avoid massive administrative costs, health insurance premiums have increased 120 percent - more than doubled - in one decade, while insurance industry profits increased 428 percent in the same period - 428 percent!

Doctors and other health care providers have been hurt as well. For many years, United Health Care, a massive health insurance company, owned and operated a computerized pricing system that was used by almost every other health insurer. The New York Attorney General recently found that that system was designed to systematically underpay doctors for their services - and that this had been going on for years. United Health paid $400 million to settle lawsuits by the state - but if the Federal Trade Commission or U.S. Department of Justice had tried to bring suit under the federal antitrust laws, they would have been blocked by McCarran Ferguson.

Finally, ironically, health insurers threaten and sue doctors all the time under these same anti-trust laws, while protecting their own exemption from the laws that they seek to impose on the providers and the doctors whom they torment.

One might ask how this exemption has survived so long. A certain school of political thought holds that the only proper relationship of government to the market is hands off - that any government involvement in the marketplace is unnatural and unwelcome. But with respect to antitrust enforcement, we have crossed that Rubicon long ago, and every industry in the country is required to play by rules that support the market by increasing competition - again, except insurance. Experience in those other areas has shown that the government referee on the field of play creates a better environment for competition, and the public wins.

Think of the benefits of a competitive health insurance market. Insurers would have to compete on price, lowering premiums for individuals and small businesses purchasing insurance and working hard to lower those unnecessary administrative costs. New competitors would be able to enter more easily and offer better consumer service, quicker claims processing, and streamlined enrollment - competition that's desperately needed in a market where 36 percent of physician overhead is consumed by fighting with the insurance industry over inappropriate denial and delay of health insurance claims.

Senator Leahy's Health Insurance Industry Antitrust Enforcement Act would repeal the unique and peculiar exemption for health insurance and medical malpractice insurance companies. The bill ensures that these companies are no longer permitted to engage in the most egregious forms of antitrust violations - price fixing, bid rigging, and market allocations - while it preserves insurers' ability to share statistical information with each other in a pro-competitive manner, with appropriate approvals.

Mr. President, let me conclude with the words of a distinguished Senator and one of the greatest advocates for the elderly, ill, and disabled this Chamber has seen, Senator Claude Pepper. Senator Pepper at the time strongly opposed the McCarran-Ferguson antitrust exemption for the insurance industry, and he warned of the "carte blanche authority ... which has been contained in no previous legislation, ... [and] which for the first time gives the States carte blanche to legitimize the very vices against which the Clayton Act and the Sherman Act were directed."

It appears to me that the exemption for the insurance industry was a mistake then, and it is assuredly unwise now. Let us repeal this unfair law and give health insurance consumers the same benefits of free, open, and fair competition that all Americans enjoy.

Let me finally add that the state of the health insurance market reinforces the need to which I've spoken and so many of my colleagues have spoken before for an efficient, nonprofit public health insurance option. This industry - the health insurance industry - has been artificially sheltered by government for decades, building huge profit margins, massive market share, and colossal overhead and administrative costs. Now these same companies argue vehemently against the public option on the grounds that it would amount to government interference - government interference with their government protection from competition - that irony just doesn't pass the laugh test.

According to the AMA study that I quoted in the beginning, Rhode Island is the second most concentrated health insurance market in the country; just two insurers control 95 percent of the market. My constituents desperately would like the chance to choose a public option, and would benefit from a more competitive health insurance market - one in which vigorous competition brings down cost and improves the quality of care, and encourages health insurers to treat you decently.