A Matter of Trust

The rhetoric surrounding the insurance industry’s limited exemption from federal antitrust laws that has been in place for 64 years under the McCarran-Ferguson Act is reaching fever pitch. Today an announcement is expected from Senate Majority Leader Harry Reid (D-NV) and Senator Patrick Leahy (D-VT), chairman of the Senate Judiciary Committee re the antitrust exemption as it applies to health insurers. It comes as the House and Senate continue to debate healthcare reform legislation. An Op-Ed in today’s Wall Street Journal by Scott Harrington, a professor of healthcare management and insurance and risk management at the University of Pennsylvania’s Wharton School explains why repealing the insurance industry’s antitrust exemption won’t lower the cost of health insurance or medical malpractice insurance or prevent future malpractice insurance crises. Instead, a repeal would tend to reduce rate accuracy and undermine competition in already fragile malpractice markets, Harrington says. Over the years the property/casualty insurance industry has faced numerous attempts to repeal its limited antitrust exemption. Most recently, Senator Leahy introduced the Health Insurance Industry Antitrust Enforcement Act seeking a tailored repeal of the exemption for health insurers and medical malpractice insurers. Just two years ago in the wake of Hurricane Katrina, Sen. Leahy, along with then Sen. Trent Lott sought a much broader repeal of the McCarran Ferguson Act. In March this year, Rep. Gene Taylor (D-MS) and Peter DeFazio (D-OR) also introduced the Insurance Industry Competition Act of 2009 which would remove the federal antitrust exemption from the entire insurance industry. As we’ve noted before McCarran-Ferguson does not include a blanket exemption from antitrust laws, but a targeted exemption for certain limited insurance activities. This narrow antitrust exemption allows insurers to pool historic loss information so that they are better able to project future losses and charge an actuarially based price for their products. The act also does not exempt insurers from state antitrust laws, which explicitly prohibit insurers (and all businesses), from conspiring to fix prices or otherwise restrict competition. Check out further I.I.I. information on the McCarran Ferguson Act and medical malpractice insurance.

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