Motley Moose – Archive

Since 2008 – Progress Through Politics

Big Insurance's Competition Immunity

The Sunday morning political talk programs were filled to the brim with health care reform discussions, and central to these discussions is the idea that the insurance industry needs competition.  Competition, in the form of a public option or in health care cooperatives, is supposed to level the playing field and bring down premiums for all Americans while providing as close to universal coverage as we can do right now.

There’s just one itty bitty, teeny weeny problem.  The insurance industry has federal IMMUNITY from competition!


The federal government has not been able to attack the insurance companies through federal anti-trust laws for over 60 years.  Under the McCarran-Ferguson Act passed in 1945, insurance companies (and Major League Baseball!) are specifically excluded from federal anti-trust laws as long as the state regulates in that area, and federal anti-trust laws will apply ONLY in cases of boycott, coercion, and intimidation.  

Under the McCarran-Ferguson Act, Big Insurance is allowed to collect and SHARE data with each other about claims.  With this information, Big Insurance can fix prices, set coverage requirements, outline conditions for coverage denials (like pre-existing conditions), and many, many more.  

That’s right, folks!  Big Insurance can plot together to bring us all down!


This problem is one of the biggest when it comes to creating insurance industry competition, and not one single major news outlet, pundit or other talking head has covered it as of my publishing.  In fact, the only time where I saw anti-trust regulation brought up was a minor squawking by Big Insurance.  They claimed that they actually would be in trouble under the anti-trust laws if they were forced to work together to reduce costs to consumers.  But the laws don’t apply, so what’s the problem, Big Insurance??

Back in 2007 in the wake of Hurricanes Katrina and Rita, a bipartisan group went after Big Insurance for the way that it was screwing over homeowners who lost everything in those terrifying storms.  Sen. Patrick Leahy (D-VT) introduced the Insurance Industry Competition Act, along with the judiciary panel’s ranking member, Senator Arlen Specter (then R-PA), Senate Majority Leader Harry Reid, (D-NV), and Senate Republican Whip Trent Lott, (R-MS).  Companion bipartisan legislation was also introduced in the House by Reps. Peter DeFazio (D-OR), Gene Taylor (D-MS), Bobby Jindal (R-LA), Charlie Melancon (D-LA), Rodney Alexander (R-LA), and Walter Jones (R-NC).  This bill intended to repeal the McCarran-Ferguson Act.  These legislators noted the blatant collusion among Big Insurance and the drought of competition in the insurance industry.  

Sen. Patrick Leahy stated in his press release the purpose of the bill:

For the last six decades, insurance companies have enjoyed immunity from federal anti-trust investigation and prosecution.  The bipartisan bill introduced today would give the Department of Justice and the Federal Trade Commission the authority to apply antitrust laws to anti-competitive behavior by insurance companies.

Sen. Patrick Leahy explained at the time (emphasis mine):

Federal oversight would provide confidence that the industry is not engaging in the most egregious forms of anticompetitive conduct – price fixing, agreements not to pay, and market allocations.  Insurers may object to being subject to the same antitrust laws as everyone else, but if they are operating in an honest and appropriate way, they should have nothing to fear.  American consumers and American businesses rely on insurance – it is a vital part of our economy – and they have the right to be confident that the cost of their insurance, and the decisions by their insurance carriers about which claims will be paid, reflect competitive market conditions, not collusive behavior.

Sen. Arlen Spector, who is now a Democrat, said at the time (emphasis mine):

It is my hope that this legislation will bring the benefits of competition to the insurance industry and to consumers.  Too many consumers are paying too much for insurance due to the collusive atmosphere that exists in the insurance industry.  This has become a particular problem along the Gulf Coast, where insurers have shared hurricane loss projections, which may result in double-digit premium increases for Gulf Coast homeowners.  I strongly urge members who are concerned about industry exemption from the antitrust laws and collusive insurance industry practices to support this important piece of legislation.

Sen. Harry Reid said at the time (emphasis mine):

American consumers should be confident that the cost of their insurance reflects competitive market conditions, not collusive behavior, and they should benefit through lower prices, more choices, and better services.  If insurers around the country are operating in an honest and appropriate way, they should not object to being answerable under the same federal antitrust laws as virtually all other businesses.

Big Insurance went nuts (surprise, surprise) when this bill came out, and Insurance Journal published an article about it, with Big Insurance citing all the usual doom and gloom scenarios without providing any foundation for the apocalyptic tales.  Incredulously, Big Insurance claimed that taking away their immunity would stifle competition!! Competition makes them SICK!  Interesting theory: preventing collusion DECREASES competition.

Unsurprisingly, the bill was not passed (and New Orleans is still a disaster).  However, the same bill has been reintroduced this year again by Rep. Peter DeFazio (D-OR).  No significant movement has taken place on this bill.

There is a whiff of the health insurance cooperative option replacing the public option.  I can guarantee you that Big Insurance is ahead of the game on this one.  Big Insurance will continue to argue for immunity from our anti-trust laws so that these wee cooperatives can effectively compete.  Let’s get real.  In no way, shape, or form is a cooperative, even with federal funding, going to compete with multi-billion dollar Big Insurance.

Obama and the vast majority of Democrats say that they want COMPETITION in the insurance industry.  Mr. President and Congress, here’s one giant leap in that direction.  Repeal the McCarran-Ferguson Act.  Push forward the Insurance Industry Competition Act of 2009.  Include it in HEALTH CARE REFORM.  Make Big Insurance subject to anti-trust laws.  Gi
ve them the REAL free market they claim to have.

Keeping Big Insurance immune from the “sickness” of competition is unhealthy for all Americans.


crossposted at Navy Blue Wife


  1. fogiv

    This is a brilliant idea, NBW.  I knew nothing about the McCarran-Ferguson Act.  Is there some reason this isn’t doable, politically or procedurally?


    It will be at the end of the month.  We’re going to try to double the number of attendees and get the TV station to cover it.  Damn, guess I’ll have to clean up the joint.

    I’m working on a letter to the local newspaper but it’s not done yet.  Democrats have a hard time getting things published in the paper here.

    P.S. Great diary NBW.  I always love your stuff.

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