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Why Are Insurance Companies Exempt From Antitrust Laws?

Sen. Chuck Schumer (D, NY) and Patrick Leahey (D, Vermont) appear to be gaining ground in their efforts to pass an amendment to remove insurance companies from the protection of antitrust laws. The health care reform currently being debated has highlighted the privilege the insurance industry has enjoyed for the past 64 years: Insurance companies, like Major League Baseball, have been exempt from federal antitrust laws.

Monopolies stagnate markets by preventing others from participating in healthy market competition. Is the exemption a dying dinosaur?

A brief history of antitrust laws

Given the fears of monopolies in the late 1800s and to preserve America’s free market economy, Congress passed the Sherman Antitrust Act in 1890; its objective is to combat anti-competitive practices, reduce market domination by individual corporations, and preserve unrestricted competition as the rule of trade.

Soon, the courts found that certain activities were outside the scope of the Sherman Antitrust Act. To fill this loophole, Congress approved the Clayton Antitrust Act of 1914. The Clayton Act added the following practices to the list of prohibited activities: price discrimination between different buyers, if such discrimination tends to create a monopoly; exclusivity agreements; tying arrangements; and mergers and acquisitions that substantially reduce market competition.

The Robinson-Patman Act of 1936 amended the Clayton Act. The amendment was intended to prohibit certain abuses in manufacturers’ practices.

Brief history of the insurance exemption

Before the 1940s, insurance regulation was the exclusive province of the states. A Supreme Court case by the name of United States v. Southeast Insurers it contested that in part for antitrust reasons. The Supreme Court rules that the federal government could regulate insurance companies under the authority of the Commerce Clause in the United States Constitution. The McCarran-Ferguson Act of 1944 states that federal antitrust laws will not apply to the “insurance business” as long as the state regulates in that area, but federal antitrust laws will apply in cases of boycott, coercion, and intimidation.

The intention of the McCarran-Ferguson Act was to return the legal climate to the one that existed before Southeast Insurers by specifying that the states retained the authority to continue regulating and taxing the insurance business. According to Senator Patrick Leahey, Chairman of the Judiciary Committee, the antitrust exemption in the McCarran-Ferguson Act of 1944 was intended to be temporary. Senator Trent Lott and others have argued that the exemption has led to collusion by insurance companies to set rates and deny claims, as the experience of Hurricane Katrina demonstrates. McCarran-Ferguson, in other words, is outdated and potentially harmful.

Position in the Department of Justice

Christine A. Varney, Assistant Attorney General (Antitrust Division), testified before the US Senate Judiciary Committee hearing on “Prohibiting Pricing and Other Anticompetitive Conduct in the Health Insurance Industry.” The following points can be drawn from his testimony:

Ms. Varney argues: Health insurance reform must be based on a strong commitment to competition in all health care markets, including health insurance and medical malpractice. Repeal of the McCarran-Ferguson Act would allow competition to play a greater role in reforming the health insurance and medical malpractice markets than it would otherwise.

The House health reform bills contemplate quasi-national exchanges, the Senate Finance bill contemplates national health insurance plans, and all bills contemplate interstate compacts that would allow insurers to sell a single product in a variety of ways. Of states. All of these moves are likely to increase competition and make antitrust enforcement less likely, but they also make the presence of the exemption more dangerous. “


When the main attorney for the Department of Justice identifies the exemption as “dangerous”, for the operation of quasi-national exchanges [this is the public option, really], the time may have come for Congress to remove the exemption. On the other hand, by spending untold millions of dollars lobbying Congress, the insurance industry could still have the upper hand to influence health care reform. Why should they lose this monopoly? In some states, one or two insurance companies control the entire insurance business. Is this a “free market economy”?

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