CORPORATE CRIME REPORTER
Repeal
of Antitrust Exemption Would Not Hurt Insurance Industry
23 Corporate Crime Reporter 42(14), October 30, 2009
The Democrats – from President Obama on down – have been threatening
the insurance industry with repeal of its coveted exemption from the antitrust
laws.
But the repeal would have limited – if any impact – on the operations of the major insurance corporations.
Randy Stutz is studying the issue for the American Antitrust Institute.
He’s a research fellow at the Institute – on leave from Skadden Arps.
He’s preparing a paper on the issue – and the exemption will be addressed at an upcoming AAI conference on regulation of insurance in June 2010.
We asked Stutz straight up – If the exemption is repealed, how does that hurt the health and malpractice insurance companies?
“Probably the short answer today is that it doesn’t,” Stutz told Corporate Crime Reporter.
“It's worth noting – and in recent days, we’ve heard the insurance industry driving home this point – it is a limited exemption from the antitrust laws. It doesn’t say that insurance companies are never subject to the federal antitrust laws. It also expressly does not exempt insurers from acts of boycott, coercion or intimidation.”
“What
it says effectively is that the business of insurance is exempt from the federal
antitrust laws to the extent that it is regulated by the states.”
Stutz said that “a big part of what the insurance companies have to do
is to predict the costs they are incurring in a given year without the information
of what those costs actually are.”
“They have to be as accurate as they can in order to set premiums. They have to engage in a form of joint activity that involves sharing historical data, so that they can get a large pool of data, so their actuaries can assess and analyze, and help them set premiums to be as low as they can be while still ensuring they are charging enough to protect against insolvency.”
“There were fears expressed over the years that this activity would be put at risk if it were subject to the federal antitrust laws.”
“It’s true that this activity is by and large recognized as pro-competitive joint activity and not the kind of anti-competitive collusion that the antitrust laws are designed to protect against.”
“But the vitality of that argument for an exemption has dissipated over the years.”
“Things are different now. Times have changed. The law has changed.”
“There are two big differences now over then.”
“We now have a developed rule of reason and state action doctrine which the courts can use as analytical tools. Both of those were in their infancy in 1945.”
“So, most people now agree that the types of joint activity that the insurers were most concerned about protecting under the exemption – they are going to be protected anyway.”
“So, with respect to that activity, the exemption is probably superfluous.”
The insurance industry is not exempt when it comes to merger activity and illegal concentration.
But the Justice Department has not acted to halt the wave of insurance industry mergers.
“Over the past twelve years, we have seen 400 health insurance mergers,” Stutz said. “And the Justice Department has challenged only two of them. And they were allowed to go through with only minimal alterations.”
“So, you haven’t seen the Justice Department active in the area of consolidation of the health insurance industry,” Stutz said.
“The American Medical Association found that 94 percent of existing commercial markets for health insurance in metropolitan areas are highly concentrated.”
“In 39 out of 50 states, two health insurers control at least 50 percent of the market for health insurance.”
“In 26 states, you have a single health insurer that covers at least half the population of the state.”
“In nine states, you have a single insurer that controls at least 75 percent of the market.”
[For a complete transcript of the Interview with Randy Stutz, see 23 Corporate Crime Reporter 42(14), November 2, 2009, print edition only.]
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