Tuesday, October 20, 2009

News Flash: 1945 Law Allows Concentration of Power in US Health Insurance

Last week, some media reports noted that US Congressional Democrats countered an insurance industry study suggesting health care reform would cost much more than estimated by threatening a repeal of the McCarran-Ferguson Act's anti-trust exemption for health insurance. For example, in the New York Times Prescriptions Blog:

In a rare appearance as a witness at a Senate hearing, the majority leader, Harry Reid of Nevada, told the Judiciary Committee on Wednesday that it should repeal a 1945 law that granted the insurance industry limited exemption to national antitrust laws by allowing states to regulate insurers.

The law, the McCarran-Ferguson Act, is often cited by Mr. Reid and other critics of the health insurance industry as a reason why coverage can be so expensive for many people. They say the law allows insurers to monopolize markets and fix prices in ways that are usually illegal.

'Since 1945, the insurance industry has enjoyed exemption from federal antitrust laws because of the McCarran-Ferguson Act,' Mr. Reid said.

'Providing an exemption for insurance companies to antitrust laws has been anticompetitive and damaging to the American economy,' Mr. Reid continued. 'Health insurance premiums have continued to rise at a rapid rate, forcing businesses to cut back on health insurance coverage and forcing many families to choose between health insurance and basic necessities.'

He added: 'Insurance companies have become so large they dominate entire regions of the country. They have become so powerful they block start-up businesses from entering the market, and they put smaller companies out of business. They have become so dominant that they dictate business practices. They are so influential that they exert tremendous influence over public policy.'

Also, the chief anti-trust enforcement officer in Obama administration weighed in with similar sentiments, as reported by Bloomberg News via the Philadelphia Inquirer:

Christine Varney, the Obama administration's chief antitrust enforcer, told lawmakers yesterday that repealing the insurance industry's antitrust exemption would spur competition and further the drive to control the cost of health insurance.

Varney, head of the Justice Department's antitrust division, told the Senate Judiciary Committee that ending the exemption would 'allow competition to have a greater role in reforming health and medical malpractice insurance markets.'

So why would this discussion be relevant to Health Care Renewal? First of all, the exemption of insurance companies from anti-trust laws (US laws designed to prevent monopolies and other anti-competitive business practices) may have allowed these companies to grow into business behemoths, and for individual companies to dominate local insurance markets. In some locales, businesses and individuals have very few health insurance policies available because only a few companies dominate the market. In fact, every recent year, the US American Medical Association (AMA) has put out a report on insurance market consolidation decrying concentration among power in local markets among few companies.

For example, the AMA news release for the 2009 report said:

The vast majority of health insurance markets in the U.S. are dominated by one or two health insurers, according to a new study by the American Medical Association (AMA) that examined insurer competition in markets across the country. Most alarmingly, in nearly all 314 metropolitan areas studied, there is evidence that patients and physicians have fewer options and are left vulnerable to the demands of the health insurer.

So this does seem to be a case of concentration, if not necessarily abuse of power in health care.

Why this is real news however, is that the 1945 McCarran-Ferguson Act, its baleful influence, and calls for its repeal are not old news. In fact, up to now, they have not been news, or part of health care policy discussions at all.

My first response to the news articles above was "the McCarran what act?" I had never heard of this 64 year old law, and never heard it cited as an enabler of concentration of power in health insurance, and never heard a call for its repeal.

Maybe that means I am no expert in this field. But, the first 10 pages of a Google Scholar search for the terms "McCarran Ferguson health insurance exemption" revealed precisely one article in the health care / services/ policy research literature that discussed this act (from 1998, in Health Affairs,(1) and without clearly relating the act to concentration of power in health insurance.) Similarly, a PubMed search, using the term "McCarran-Ferguson Act" produced nine articles, none in mainstream health care/ services/ policy research journals, much less general medical journals (three were in the Am J Law Med, 2 in AIDS Policy Law, one in Benefits Q, one in J Am Osteopath Assoc, one in J Pediatr Health Care, one in Am J Hosp Pharm, the most recent published in 2004, all the others in 1999 or earlier. There was nothing except the article above in Health Affars, nothing in Medical Care, nothing in Health Services Research, and nothing in any of the big general medical journals.)

Therefore, maybe the 1945 McCarran-Ferguson Act was a major cause of consolidation in the health insurance market, and this consolidation may be an important contributor to high health care costs and poor health care access. But this notion apparently has not appeared in any major medical or health care/ services/ policy research journal in the last 20 years.

If the McCarran-Ferguson Act has been around for 64 years, and is a major cause of rising health care costs and declining health care access, why has no one bothered to discuss it where any physician or health care/ policy researcher might see it?

It seems that the failure to bring the McCarran-Ferguson Act into polite conversation is another example of the anechoic effect. We have noted again and again that for physicians or health care professionals to discuss certain aspects of our dysfunctional health care system, often aspects that relate high costs, declining access, and poor costs to concentration and abuse of power, is "just not done." So it seems like discussing how a federal law from another era barred government action to prevent concentration of power in the health care industry, concentration of power that made some people very rich, was "just not done."

Of course, if there was any discussion of this law and its effects, maybe someone would have called for its repeal before 2009.

Dr Aubrey Blumsohn provided a reminder from the UK to us in the US: ""the desire to maintain decorum and status in medicine seems also to overwhelm all standards of decency. Our profession is inclined to fixate on the irrelevant while ignoring some very bad things."

If we really want to improve health care here in the US, and around the world, a modest beginning would be to begin open discussion of the various skeletons rattling around in the health care closet.


1. Nichols LM, Blumberg LJ. A different kind of ‘New Federalism’? the Health Insurance Portability And Accountability Act of 1996. Health Aff 1998; 17 (3): 25. [Link here.]


MedInformaticsMD said...

This law does not sound like a skeleton; more like a live monster hiding in the closet.

I just hope the solution is not worse than the problem.

-- SS

Anonymous said...

Something forgotten in this is that the INTENT of the act was to cement STATE REGULATION of insurance and prohibit Federal intervention or repeal of that regulatory authority.

Roy M. Poses MD said...

Anonymous, since I confess that I know little about this law (since, as I noted, no one seemed to think discussion of it was relevant to health care policy up to now), you may be right.

But regardless of the intent, was not the effect to prohibit federal anti-trust action to prevent concentration of power by health insurance companies? And were not the states reluctant to individually act against such concentration?

Anonymous said...

No, that's generally not thought to be the impact of the act.

In fact it very likely had the opposite effect. The law has generally made sure that insurance remains a state level business, inhibiting national consolidations that would have much greater market power.

Its provisions also require the sharing of data that allow smaller insurers to better price their contracts using large insurer data, thus insuring the survival of small insurers who might otherwise not be able to predict risk.

It's important to note that the exemption is a limited exemption and does not exempt anticompetitive actions by insurers directed at providers.

Some relevant blogs that can help explain:



Anonymous said...

No, that's not the effect. In fact, the effect is likely to have been just the opposite, to reduce concentration of power.

The exemption is a limited exemption that allows sharing of data to enable a common understanding of risks. It does not exempt antitrust actions with regard to insurer relationships with providers. The two main effects have been that it keeps insurance at the state level--thus inhibiting the development of national insurers with substantially greater market clout--and enabling smaller insurers to free-ride on large insurers data, thus remaining in the market when they would otherwise disappear.

Two recent blogs are good reading



Not sure what search terms you used but "Mccarran Ferguson and health insurance" turned up 2500 articles for me, including 5 from Health Affairs on the first 2 pages.

Roy M. Poses MD said...

Anonymous -

Sorry that the original post did not have the search terms used for Google Scholar. I have edited the post to add them, which were "McCarran Ferguson health insurance exemption."

Using just "McCarran Ferguson health insurance" does yield more articles. I briefly looked at the additional Health Affairs articles found in the search, but did not find more than brief mentions of the act, mostly to the effect that the act made the states, rather than the US government the major regulator of health care insurance. None discussed it in any detail, and none discussed it as a possible or potential cause of concentration of power in health insurance.

Your point that the act might somehow reduce concentration of power is interesting, but do you have any particular evidence to justify it? There already are a number of very big and powerful national health insurance/ managed care corporations (e.g., UnitedHealth, WellPoint, Aetna). The federal government has almost never taken any action to reduce concentration of power by any specific insurance company or in any particular insurance market.

Finally, anonymous, why are you anonymous? Your arguments appear to be in favor of the status quo and the powers that be. You do not appear to be a whistle blower. If you do not fear retaliation for expressing such views, why not put your name on your comments? (You don't have to register with Google to simply write it in the comment.)

Anonymous said...

First, your comment about the federal government is wrong. The federal government did intervene in the Aetna/Prudential merger. Similarly, they intervened in the proposed Humana-United merger. Any lack of intervention in recent years has much more to do with administration philosophy than McCarran-Ferguson.

More importantly, the federal government often does not intervene because it allows the states, who have the primary claim on insurance regulation, to make the call. And states often do intervene. The recent proposed merger in Pennsylvania between Highmark and Independence was stopped by state intervention.

Even more importantly, antitrust requires a close examination of the relevant market definitions, both geographic and product, as well as the behavior of the actors. The problem for someone trying to prove health insurance concentration at the national level is that it's simply not a very concentrated industry. The largest health insurer insures less than 20 percent of all privately insured persons. The top 4 firms insure just 55 percent of insureds. In antitrust, a "high" level of 4 firm concentration is 90%, a moderate level is 50-89% and a low is below 50%, so health insurances is on the "low" side of moderate concentration.

So, to your point about concentration. If the evidence indicates that there is no "there", there's likely to be few studies trying to measure the cause of it.

More seriously, McCarran-Ferguson applies to all lines of insurance, not just health insurance. There are many studies in the risk and insurance literature that show little to no impact on concentration. Even proponents of the repeal acknowledge no link between concentration and the exemption.


One person's status quo is another's marginalized interest group. You see insurer and management control everywhere. someone else might still see a lot of physician dominance. Your blog seemed to lack a little contrarian voice.

As for anonymity, I prefer it. It's the same reason I screen my calls. It keeps people and organizations that I may not want to have any interaction with from having information that would allow them to contact me. I get to choose when, where and how I interact with them. If anyone would like me to contact them, they can post their contact info, and I'll decide whether or not I want to respond.

Roy M. Poses MD said...

Anonymous -

You gave two examples over the last 30 years. That hardly suggests that there is a robust federal deterrant to concentration of power. I certainly would not quarrel with the notion that the Bush administration was not vigorous in its pursuit of restraints on competition (despite its apparent embrace of competitive markets as the solution to health care's problems). On the other hand, was there better enforcement under Clinton, Bush 1, or Carter?

I am aware that there have been some proposed mergers at a state level that were stopped at a state level. But that has not prevented major conentration power at local/ regional levels. If many patients only have 1-3 corporations from which they could purchase insurance (one of which is often very dominant), it does not matter to them that in theory, the national market is not concentrated, because they do not have access to that market.

There may be data about other forms of insurance, but our interest on this blog is health care and hence health insurance.

Your comment about our blog lacking a "contrarian voice" is, with all due respect, laughable. We have criticized the leadership and governance of practically every type of large health care organization, not just insurance and managed care. We have criticized universities and medical schools, hospitals and academic medical centers, pharmaceutical, biotechnology and device companies, health care information technology companies, medical societies, patient advocacy organizations, etc, etc. So the "contrarian voices" come from (probably hundreds) of billions of dollars worth of marketing, public relations, and lobbying departments. This is just a blog written by a few unpaid volunteers.

Your anonymity is your choice. Your analogy to call screening makes no sense. Presumably, those who call you know who you are. But the readers of this blog and I do not know who you are. We also do not know if you might be influenced by financial relationships with the industry you now seem to be defending, or even work in public relations for some part of that industry.

Anonymous said...

Again, the lack of federal cases is quite simply because there is a lack of concentration and because the feds defer to states on this. There are many more cases at the state level, but I'm not familiar with every state's record, and there's no centralized data. You'd have to check with each of the 50 state governments. But, even at the local level, insurance concentration is not high by antitrust standards. The faux numbers that the Obama administration used, for example, simply ignored all self-employed insurers, which all economists believe is incorrect. Further concentration is not a problem under antitrust law, unless you show that concentration harms consumers. Since insurer market concentration often establishes a bilateral monopoly market, the welfare effects depend on a variety of factors, including concentration and behavior by providers. Finally, while most studies show some increasing concentration in insurance markets in the past 15-20 years, insurance was far more concentrated in the 1950s and 1960s, when the Blues dominated almost all markets.

The facts are that antitrust violations are FAR more common on the part of physicians and hospitals than by insurers. May be tough for you and others to accept that, but collusion and concentration is rampant among providers, low to moderate among insurers. Even the Bush administration went after dozens and dozens of hospital, PHO, and physician group cases. In 2008 alone there were something like 115 antitrust cases against providers. You can find a record of those cases on the FTC/DoJ web sites.

Regarding call screening, do you own a phone? Rarely a day goes by where I do not get a good dozen of unwelcome calls, many from people I do not know or want to know or want to speak with at that time--double that if I include my mother-in-law's calls. I never judge a person's argument by "who they are". I judge it by the quality of the argument. FWIW, I'm a faculty member at a Research I university. I interact on a daily basis with people from all sectors of health care, including physicians, and I don't accept any money from pharma or insurers.

Roy M. Poses MD said...

Anonymous -

It seems to me that there are a number of possible reasons for a lack of federal cases, beyond insignificant concentration, including: 1) "administration philosophy," as you noted above, and, of course, 2) a law meant to restrict the federal regulatory role in this kind of case.

What the hay is a "self-employed insurer?"

Furthermore, there may be more prosecutions of physiicans and hospitals because 1) the "administration philosophy" again emphasizes them, or 2) again, the law restricts cases against insurers. In addition, number of prosecutions does not equal number of convictions, and number of prosecutions or convictions does not imply magnitude of effects. How many of the 115 cases were against providers as large and influential as some of the larger insurance companies? There are approximately 800,000 physicians in the US. Most are in relatively small group practices or solo practices.

Of course I know what call screening is. But your analogy to you screening incoming calls and your remaining anonymous is not clear. Furthermore, I do tend to reject calls from people who are anonymous, because I don't know who they are and don't know what they are selling.

I have been criticizing the quality of your argument all along. You have not so far done much to marshall evidence or logic in support of it.

When I see continuing argumentation without much evidence or logic, I start wondering whether the person making the arguments is trying to sell something.

Maybe you are a faculty member at a university, who doesn't accept money from pharma or insurers. Maybe you don't accept money from any other group with a vested interest, either. And maybe you work for a health care communications company and are paid to ham-string internet critics of client companies. How can I possibly tell who you are, and what your financial arrangements are or are not, if you remain anonymous?

MedInformaticsMD said...

Anonymous posts seem to be of two origins:

1) those where it is critical for people with valuable opinions to remain anonymous due to possible professional or political retaliation; and

2) those where there is great educational value in allowing readers to see prima facie examples of logical fallacy, from another subset of anonymous posters who hide behind the cloak of anonymity out of cowardice and/or conflict of interest.

-- SS