Why Are Insurance coverage Firms Exempted From Antitrust Laws?

Senator Chuck Schumer (D, NY) and Patrick Leahey (D, Vermont) appear to be gaining ground in their efforts to pass an amendment to get rid of insurance coverage organizations from the protection of antitrust laws. The ongoing well being care overhaul at present becoming debated has brought to the fore the privilege the insurance coverage business has enjoyed for the previous 64 years: Insurance coverage organizations, like Main League Baseball, have been exempt from federal antitrust laws.

Monopolies stagnate markets by stopping other individuals from engaging in healthful industry competitors. Is the exemption a dying dinosaur?

Short history of antitrust laws

Offered the fears of monopolies in the late 1800s and to preserve America’s no cost industry economy, Congress passed the Sherman Antitrust Act in 1890 its aim becoming to combat anticompetitive practices, lower industry domination by person corporations, and preserve unfettered competitors as the rule of trade.

Quickly the courts discovered particular activities to fall outdoors the scope of the Sherman Antitrust Act. To plug this loophole Congress passed the Clayton Antitrust Act of 1914. The Clayton Act added the following practices to the list of impermissible activities: price tag discrimination among diverse purchasers, if such discrimination tends to make a monopoly exclusive dealing agreements tying arrangements and mergers and acquisitions that substantially lower industry competitors.

The Robinson-Patman Act of 1936 amended the Clayton Act. The amendment aimed to outlaw particular abuses in manufacturers’ practices.

Short history of the insurance coverage exemption

Prior to the 1940s, insurance coverage regulation fell beneath sole province of the states. A Supreme Court case by the name of United States v. South-Eastern Underwriters challenged that in aspect on grounds of antitrust. The Supreme Court guidelines that the federal government could regulate insurance coverage organizations beneath the authority of the Commerce Clause in the U.S. Constitution. The McCarran-Ferguson Act of 1944 offers that federal anti-trust laws will not apply to the “organization of insurance coverage” as lengthy as the state regulates in that location, but federal anti-trust laws will apply in instances of boycott, coercion, and intimidation.

The intention of the McCarran-Ferguson Act was to return the legal climate to that which existed prior to South-Eastern Underwriters by specifying that the states retained the authority to continue to regulate and tax the organization of insurance coverage. According to Senator Patrick Leahey, Judiciary Committee Chairman, the antitrust exemption in the 1944 McCarran-Ferguson Act was meant to be short-term. Senator Trent Lott and other individuals have argued that the exemption has led to collusion by insurance coverage organizations on setting prices and denying claims, as witnessed by the knowledge of hurricane Katrina. McCarran-Ferguson, in other words, is obsolete, and potentially damaging.

Division of Justice position

Christine A. Varney, Assistant Lawyer Basic ( Antitrust Division), testified ahead of the Committee on the Judiciary United States Senate hearing on “Prohibiting Cost Fixing and Other Anticompetitive Conduct in the Well being Insurance coverage Market.” The following points can be gleaned from her testimony:

Ms. Varney argues: Well being insurance coverage reform should really be constructed on a robust commitment to competitors in all well being-care markets, which includes these for well being and healthcare malpractice insurance coverage. Repealing the McCarran-Ferguson Act would permit competitors to have a higher function in reforming well being and healthcare malpractice insurance coverage markets than would otherwise be the case.

The Property well being-care reform bills contemplates quasi-national exchanges, the Senate Finance bill contemplates national well being insurance coverage plans, and all the bills contemplate interstate compacts that would permit insurers to sell a single solution across an array of states. These moves are all probably to improve competitors and make it much less probably that antitrust enforcement is needed, but they also make the presence of the exemption a lot more unsafe.”


When the leading lawyer of the Justice Division identifies the exemption as “unsafe,” to the functioning of quasi-national exchanges [this is the public option, really], the time may well just be ripe for Congress to get rid of the exemption. On the other hand, by spending numerous millions of dollars lobbying Congress, the insurance coverage business may well nevertheless have the upper hand in influencing the well being-care reform. Why should really they shed this monopoly? In some states, a single or two insurance coverage organizations manage all the insurance coverage organization. Is this a ‘free industry economy?”

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