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Harry Reid: Break Up the Big Health Care Monopolies

October 15, 2009 - by Donny Shaw

Last month I wrote about a bill introduced by Sen. Patrick Leahy [D, VT] in the midst of the congressional deliberations on health care that would take away health insurance companies’ exemption from federal anti-trust laws. Yesterday, the bill — the Health Insurance Industry Antitrust Enforcement Act — got a big boost from the most influential member of the Senate – Senate Majority Leader Sen. Harry Reid [D, NV].

Since 1945, the McCarran-Ferguson Act has given the states the authority to regulate insurance companies rather than the federal government. The law also stipulates that if the companies are regulated by the states, they won’t be susceptible to federal anti-trust laws that ban anti-competitive, monopolistic practices like price fixing, bid rigging and dividing up markets amongst themselves.

In a rare appearance as a witness in a Senate Judiciary Committee hearing on the issue, Reid said that repealing the companies’ anti-trust exemptions is “something that should have been done a long time ago”:

As for insurance companies, “There isn’t anything we could do to satisfy them in this health care bill. Nothing,” Reid said. “They are so anti-competitive. Why? Because they make more money than any other business in America today… What a sweet deal they have.”

Increasing competition is one of the main goals of the Democrats’ whole health care reform effort. It’s what the public option and the insurance exchanges are all about. It’s also what the federal anti-trust laws are designed to do. The laws are meant to keep companies from occupying such a large portion of a market that they are no longer susceptible to market forces. When companies get too big, they become anti-competitive and inflate prices artificially.

Studies show that health insurance companies have in fact become monopolies in certain markets. A 2007 American Medical Association report, for example, found that Blue Cross Blue Shield controls 83 percent of the market in Alabama. In Maine, Wellpoint controls 78 percent of the market. A more recent report from the Government Accountability Office found that the five biggest insurance companies control more than 90 percent of the market in at least 23 of the states.

Bust despite the numbers and the despite the endorsement from Harry Reid, there’s no guarantee that Leahy’s health care anti-trust bill will be included in the Democrats’ health care reform bill.

In its current forms, the health care bill does a lot of things, but nothing it does would ultimately be bad for the insurance companies. One of the main features of the bill, the mandate that all individual get insurance insurance or pay a fine, would deliver 30 million or so new customers to the companies, for example. Ending the companies’ anti-trust exemption, however, would be a bad thing for the companies. In states where they dominate markets, the companies would almost certainly be forced to downsize.

On the other hand, ending the exemption would be benefit consumers. On Daily Kos, Jason Rosenbaum has posted an example of how consumers get shafted by health care monopolies:

Health Care for America Now’s report [pdf] on insurance industry absuses documents how Blue Cross Blue Shield in Massachusetts and a big hospital made a deal to increase payments to providers, and providers made a deal to not allow any other insurer to pay them less. Thus, Blue Cross raised their rates, leading to a period of skyrocketing premium increases in Massachusetts, the hospital got rich off their locked in payments, and other hospitals and insurers in the state had to scramble to keep up. In all, people had to pay more, and those increased premiums were passed along to the hospitals in on the deal.

Benefits for consumers aren’t necessarily enough to guarantee inclusion for a provision in the health care bill, even when they are recognized by Reid – the health care bill’s gatekeeper. For example, the public option as included in the House’s health care bill has been scored (pdf) by the Congressional Budget Office to be able to offer insurance at a premium of 10 percent cheaper than its competitors and attract about 10 million customers once fully implemented. That’s exactly how the Democrats want it to work – increase, but not crowd-out competition – but the public option is still the Senate’s prime target for something to cut out in order to strike a deal that can actually pass.

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Comments

  • ecm 10/16/2009 4:13am

    If this is how they create portability, great do it. If this is how they determine how many policy holders can belong to each company, NO. Let the people decide who they want to have insurance with.
    In addition, while anti-trust laws are being looked at can you please look at the union’s exemption from anti-trust laws?

  • Anonymous 10/16/2009 5:19am

    I don’t think you even remotely understood this post because of the Republican rose-colored glasses you’re looking through. Most industries are subject to anti-trust regulation becomes it promotes the efficient capitalism that Republicans tout. If market forces aren’t allowed to act correctly then companies get too big and drive out the competition, stifling innovation and raising prices. This is why Microsoft is watched so closely. Would you want Microsoft to have a monopoly? No, because the very thing you said about letting, ‘people decide’ disappears. How are people ‘deciding’ in a state where 83% of the state is covered by one insurance company? People who receive contributions from these insurance companies are paid to convince people like you that competition is bad. From what I can tell, this is money well-spent because it seems to be working.

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