Political extortion

by on October 14, 2009 at 4:23 pm in Law | Permalink

Harry Reid is telling the Senate Judiciary Committee that the real
reason health insurance is so expensive is that they're evil monopolists…

There is talk of repealing the antitrust exemption enjoyed by the insurance industry.  Whether the exemption is a good idea or not, I do not know.  The relevant event is that the insurance industry seems to have turned against Obama's health care reform.  Everyone who cares about American democracy and rule of law should be complaining about Harry Reid, Patrick Leahy and their allies in this move.  So far I don't hear the outcry.

Doc Merlin October 14, 2009 at 4:28 pm

Um, isn’t political extortion or rent seeking the standard ways that regulatory increases happen? Um… I really can’t think of too many examples that aren’t one or the other.

Johynkansas October 14, 2009 at 4:38 pm

will this allow people to buy accross statelines?

DanC October 14, 2009 at 4:51 pm

our Founding Fathers.

Also see the deal cut with pharma

Colin October 14, 2009 at 4:57 pm

On the one hand I am tempted to defend the insurance companies. I mean, they are demonized while having a collective profit margin or around 3 percent. On the other hand these guys were perfectly willing to lay down with the Obama Administration as long as they could use the power of government to force consumers to buy their product.

I kind of think the insurance lobbyists and the Democrats deserve each other.

Chris Hanretty October 14, 2009 at 5:01 pm

Can someone explain why this should lead those concerned about American democracy and rule of law to complain? I can see one implicit argument

“If X criticises an aspect of policy proposed by a given group Y, then Y should not propose any changes which adversely affect X”

but the argument has got to be stronger than that. Maybe,

“If X criticises an aspect of policy proposed by group Y, then X’s criticising should not be a (sole or predominant) motivation for proposed any policy changes which adversely affect X”

But simply because the proposal followed insurance companies’ criticism doesn’t mean that that’s the sole or even predominant motivation. Maybe it’s more that they were in a regulatory glass house when they started throwing stones. (This comment made in complete ignorance of the relevant antitrust exemptions).

Russell L. Carter October 14, 2009 at 5:33 pm

So called “libertarians” who kept their lips zipped during the eight years of Republican rule that brought us two imperial wars, Guantanamo, warrantless wiretapping, the endless expansion of the military industrial state, and all the rest of it, bearing actual costs for real live human individuals, have got some gall to sit down and complain about garden variety political retribution against feckless corporations. Oh I get it, actual live individual human beings don’t pay the rent like the Kochs do.

American Democracy and the rule of law. It is to laugh.

With this, libertarianism in the spirit of the founding fathers is dead. Some sort of weird, tone deaf, lazer focused, and institutionalized corporate apologetics movement has taken its place.

Andrew October 14, 2009 at 5:48 pm

Russ,

From what I remember, it was the libertarians and only the libertarians who had an actual case against what Bush did with foreign policy. The Left had either nuanced arguments against unilateral action or outright support trying to appear as tough and patriotic as the red state fascists, both of these positions being unobjective pandering to their electorate depending on whether they were from relatively liberal or conservative areas. This is a big part of how Lew Rockwell took over the bulk of the libertarian movement and I have no idea what you are talking about with corporate apologetics.

It is important appealing to special interest interests is the pathway to South American governance. You can’t blame business for being mercenary, but you can blame the government for employing mercenaries.

It is not intuitive to me that how we get to a disaster for a huge part of the economy is more important than the nature of the disaster itself. Is it the same thing or an extension of what they’ve already been doing like screwing real economy bondholders to pay off labor unions and protect finance bondholders? I don’t know.

Duracomm October 14, 2009 at 5:48 pm

Russell Carter,

You need to pay attention to actions not party labels.

Obama has two imperial wars going, Guantanamo is still open, and the democrats who control the house and senate are renewing the patriot act and warrantless wiretapping continues.

In many ways obama has been the third term of bush’s worst policies.

Mario October 14, 2009 at 5:58 pm

People, the name of the post is “Political Extortion.” I think Tyler’s point is pretty clear; they were willing to leave the law alone as long as the industry was willing to play ball with their policy objectives. Now that the industry opposes the result, the law is suddenly the worst, most horriblest thing ever and needs to be immediately repealed. Either Reid et al. were opposed to taking an action that would benefit the country last week or they are today.

All that aside, I love this and I hope the Republicans climb aboard. One, there really isn’t much justification for the exemption, so there is at a minimum, no harm in its repeal (relative to every other industry to which it already applies). Two, this will make it slightly easier to later enable insurance companies to compete across state lines. Three, an all out war between Democrats and insurance companies just as a radical health care reform bill starts getting legs? Perfect.

Jason October 14, 2009 at 6:04 pm

To be clear for those who are having trouble reading between the lines here: The issue is that the insurance industry, which has thus far not openly opposed Obamacare, has now come out against the Dems’ plan. In response, a Democratic Congressman is proposing regulatory changes which will cause detriment to the industry.

We can debate the merits of the anti-trust exemption (in fact, I would strongly suspect that the greater barrier to consumer choice is the inability to buy insurance across state lines), but the timing of this move is purely dirty politics: “If you oppose our plan, we will regulate you out of existence, or until you support us.”

marc h. October 14, 2009 at 6:11 pm

http://www.oecd.org/dataoecd/46/4/38980557.pdf

Total spending on health care, per person, 2007
United States: $7290
France: $3601
Germany: $3588
United Kingdom: $2992
Italy: $2686
Spain: $2671
Japan: $2581 (2006)

http://www.who.int/healthinfo/paper30.pdf
The World Health Organization’s ranking of the world’s health systems

1 France
2 Italy
18 United Kingdom
25 Germany
37 United States
38 Slovenia

where’s the outrage over THAT?

rod October 14, 2009 at 6:26 pm

oh please. do you really think that tackling two wrongs that need to be righted, instead of just one, is illegitimate?

DavidS October 14, 2009 at 6:30 pm

I don’t get it. What is preventing an insurance company from setting up shop in a new state? Could it be that they don’t like the state law?

In other words, “allow people to buy across state lines” means “negate state health insurance laws”?

If so, won’t insurance companies move their headquarters to the state that allows them to exploit their customer best?

Bill October 14, 2009 at 6:39 pm

The premise of the original post is inaccurate and contains misinformation. Congress has, for many years, been attempting to repeal the McCarran-Ferguson Act, the act that exempts the business of insurance.

Numerous commissions have recommended its repeal or modification. (By the way, the exemption permits price fixing to the extent states regulate rates; but, some states permit rate deviation, so you do not get a benefit of price competition unless the State AG claims that the right to deviate is an exemption from regulation, as in California.)

Nevertheless, McCarran should be repealed or modified because of the way insurance is being deregulated. Let me explain.

McCarran exempts insurance when it is regulated by state law. If there are inter-state policies, as would appear from the legislation, then no state will regulate, or you could argue the home state regulates just in that state. So, there has to be something that fills the gap, or there has to be a rule that the antitrust laws apply; either way, Congress should deal with this issue–probably by repealing McCarran as to interstate policies.

The irony of this is that some insurance companies wouldn’t mind McCarran repeal so long as it freed them of state regulation and supplanted a federal regulator instead. State laws stifle product development and competition, and some national carriers would prefer to have national, and not state by state, policies.

What is unfortunate about this post is that it I would say almost paranoically infers things that are not true. Anyone who doesn’t believe me should look at hearings on repealing McCarran and get back to me.

The time to deal with McCarran is now, or if not entirely, at least with respect to health insurance. Do you want carriers discussing rates with antitrust immunity?

fusion October 14, 2009 at 6:48 pm

Is there a good argument in favor of an antitrust exemption for insurance companies? Antitrust laws seem like a good thing.

Bill October 14, 2009 at 7:21 pm

There really isn’t a good argument for the antitrust exemption in its current form. The only basis for a narrow exemption concerns pooling of loss data which would enable carriers to better predict risks, but that can be done by a narrower exemption–one that does not authorize price fixing.

I don’t know how the current legislation deals with interstate policies, or if they are even authorized. If they are authorized, then there is a regulatory/exemption question: who regulates; is there an exemption if there is no regulation, etc.

I also looked at the site in the Atlantic which did the original post. What a piece. I have to suspect some industry PR person got to the author with the misinformation, as it is not coherent.
What a PR trick: convince people they should not do something which should be done because it could be used to get the industry to back off health care reform. First fact, repeal or modification should be done regardless. Second fact, McCarran repeal is hard to do, but, if everyone is mad at them anyway, go right ahead. The public will be benefited, not hurt. I don’t think it will be repealed as the insurance agents get in a knot whenever McCarran is examined. They like the laws which prevent discounting.

Yancey Ward October 14, 2009 at 7:42 pm

Reid is bluffing. The biggest opponents to repeal of this law will be Democratic contituencies. It isn’t even a close race. Reid is completely full of it on this one.

capitalistimperialistpig October 14, 2009 at 8:27 pm

Because making insurance companies follow the same laws as most other companies would surely be an outrage to the rule of law and especially, democracy.

Take your meds, Tyler.

Anonymous Coward October 14, 2009 at 8:42 pm

Yes its bad that congress can and very often does extort people….

Ok, what can we do about it? Short of voting them out and then the next crowd doing the exact same thing, nothing.

Tyler, as you often say, incentives matter. Congress has the entire system set up to incentivise them to be corrupt and to use political extortion as much as they can. We need to remove the power of the state to regulate business. As far as I can tell, thats really the only way to stop the corruption in congress.

stanfo October 14, 2009 at 9:07 pm

The aristocracy of pull, people….

Mort Dubois October 14, 2009 at 9:44 pm

I’m shocked, shocked to see people with power use it to attain their desired goals. Tyler: what did you expect? Tell me a single field of human endeavor where this kind of thing doesn’t happen. And you would be the last person I would expect to defend an antitrust exemption.

Mort

Yancey Ward October 14, 2009 at 10:15 pm

Repealing this law would be an instance of real reform. Thus Reid is bluffing.

PQuincy October 14, 2009 at 10:27 pm

Jason says: “the timing of this move is purely dirty politics: ‘If you oppose our plan, we will regulate you out of existence, or until you support us.'”

Again, I fail to see the outrage.

The timing of many bills has political motivation, to pressure someone into support, to encourage a particular stance, to build support, to discourage opposition, to punish enemies and to reward friends (as another poster, shocked, shocked, remarked).

Another word for all this is “politics.”

When Democrats do it, Republicans complain. When Republicans do it, Democrats complain — that’s part of politics, too.

Do libertarians really imagine that wise impartial legislators have ever sat in empyrean discussion, calmly making rational choices that fulfill rational expectations? Either they’ve been reading too much Plato, or too much economics if that’s the case, rather than opening their eyes to the entire recorded history of the human species.

AdamJones October 14, 2009 at 10:44 pm

Please, you waffle on whether repealing the antitrust exemption status for health insurers is a good idea. Actually you cannot commit on whether it is bad or good but you sure have an easy answer for Reid rightly testifying as a witness to reapel the 60 year old law. This is a Federal Republic and Congress is acting in their right as a representatives in the interest of the people.

Seward October 14, 2009 at 10:50 pm

PQuincy,

Let’s see: a current statute exempts insurance companies from anti-trust regulation.

So that they can be regulated by the states. Which I think is a really dumb idea.

What the rest of your comments about the reality of politics illustrates to me is just how crappy democracy is. It is just one reason to endorse markets instead.

jose October 14, 2009 at 11:05 pm

I do not see why Reid is doing anything wrong. At the end here we must look at the public good and at the arguments that politicians give for supporting one law or another. He is not selling his vote to someone, or some other act of corruption. He is saying: with respect to health care the elected representatives of the country will decide which is best for their constituency.

At this point, where it is clear that there is a huge problem in American health care system, this seems a very reasonable (and even courageous) attitude.

DanC October 14, 2009 at 11:20 pm

What is different about this.

The Obama administration is seeking more government control over the economy, greater then wartime emergencies, then this country has ever seen. Health care, cap and trade, financial regulation, tax policies, that at their core are about creating a sense of equity. But equity is in the eye of the beholder and enforced with the full power of the government.

Look at how radically different the Fed and Treasury are today. In this financial crisis the government picked winners and losers. They strong armed companies into compliance and threatened their destruction if they did not comply with government demands. And some posters here just call that normal politics.

The more power that we give to the Federal government the more they use that power to punish enemies and reward friends, And this administration is calling for the biggest increase in Federal power in history. And they are demonstrating that they are willing to use whatever leverage they have to pass legislation that they want. Moreover they are demonstrating their thirst for more power.

What is the impact of all these indirect taxes. And hiring lobbyists to fight for your interests is a tax that an activists government imposes on companies.

What do we have here. A group of companies speak out about the negative impact of legislation on their companies. And the leaders of a political party threaten to use the power of government to punish them for having the nerve to question their government.

And I am shocked, truly shocked, that so many here just consider that normal, acceptable or necessary. I find it scary. What a road we are on with the mob cheering Caesar.

And when Emperor Obama has left office, and left so much power in the Federal government, will theses same commentators still say that it is just normal politics to destroy your critics and reward your friends.

Are our schools that bad at teaching the history of how and why this country was formed the way it was. Do we sell our liberties to a cult of personality.

Turquoise October 14, 2009 at 11:24 pm

Dear Libertarians,

Please remove all immigration restrictions so that low-fee doctors can immediately move in to the US. Remove all restrictions against foreign nurses, medical technicians, and allow foreign drugs. Allow outsourcing of all medical services.

I like libertarians with guts.

If you do not believe in unrestricted immigration/medical outsourcing, deal with the second best.

Seward October 14, 2009 at 11:28 pm

Turquoise,

Those are things that both major parties largely oppose as well as the vested parties involved.

Dear Democrats,

Please end the drug war, open the borders, cut the military by 90% and end agricultural subsidies and we can talk about health care.

Seward October 14, 2009 at 11:32 pm

DanC,

Something that is not getting a lot of play is the effort to give the President (any President) the monstrous power to “seize the internet.”

mulp October 15, 2009 at 1:05 am

The relevant event is that the insurance industry seems to have turned against Obama’s health care reform.

The insurance industry has a very rational reason for their change of heart, but they have been incredibly inarticulate at expressing their reason. It might be that they need to call out the Republicans who are the ones causing them the problem, but fear this will alienate the Republicans after 2011 and 2013.

The insurer’s issue is the greatly reduced penalties for failing to buy insurance, which increases the uninsured, especially among the young, significantly among the 45 million uninsured.

The penalties in the Finance bill were cut significantly because the subsidies to keep costs down were much higher in that bill than in the others. The idea of forcing healthy middle income singles to pay the full premium was objectionable or else face a large penalty bothered some, perhaps Snowe was the key objector, so the pretty much changed it to give a pass to younger adults.

That reflected a pattern that could turn into lower penalties at each future stage, so more and more people would only buy insurance when they get sick, paying a token penalty until then. This is one thing that is happening in Mass, where it is possible to still buy a temporary policy limited to six months.

The key deal between Obama and insurers was Obama agreed to mandates (reversing his campaign position) and insurers agreed support no pre-x and modified community rating. That is another provision where the Finance bill goes outside the agreement.

The insurance company ads are a warning to Obama to not give into the conservatives who are objecting to the mandates and costs.

Tom October 15, 2009 at 7:44 am

I don’t know how this exemption came to be;I’d be interested to know if insurance industry lobbyists and their Republican friends had anything to do with it. I though libertarianism was against monopolies.

Andrew October 15, 2009 at 8:05 am

“I though libertarianism was against monopolies.”

We are, especially ones big, powerful, and well-armed enough to grant monopoly, then yank it back under threat.

Chris October 15, 2009 at 9:15 am

I don’t get it. What is preventing an insurance company from setting up shop in a new state? Could it be that they don’t like the state law?

In other words, “allow people to buy across state lines” means “negate state health insurance laws”?

If so, won’t insurance companies move their headquarters to the state that allows them to exploit their customer best?

Yes, exactly. The “buy across state lines” slogan is cover for allowing insurers in state A to ignore the state laws of state B when selling to residents of state B. This would allow regulatory arbitrage and a race to the bottom and result in nobody having any protection, regardless of what their state legislature wants. At the same time, since the insurance industry is (currently) immune to antitrust law, the availability of multiple insurers won’t necessarily lead them to compete because they are perfectly free to collude instead.

And as for the idea that “they were willing to leave the law alone as long as the industry was willing to play ball with their policy objectives”, several other people have already pointed out that this statement is false. Tyler should retract promptly to minimize the loss of credibility — failure to retract will (one presumes involuntarily) signal that it was a lie rather than an error.

Chris October 15, 2009 at 9:24 am

Leave aside the relative merits of the legislation.

No. Legislation *should* be judged on its merits, not this meta crap and whining about whether it’s retaliation.

It’s true that this bill would have been a good thing to pass two years ago, or five years ago. But two years ago it would probably have been vetoed and five years ago it would have been squashed by the Republican congressional leadership. The suggestive timing was played up by the media to create a sensational narrative, but it’s beside the point.

DanC October 15, 2009 at 9:34 am

Tyler is not lying.

In reality what Reid is talking about is a Federal takeover of insurance regulation. The law that Reid want’s to repeal allowed state’s to regulate insurance companies within their borders and leave them free of Federal anti-trust rules.

What Reid is telling them is that if they dare to oppose him he will have the Federal government takeover their regulation and they won’t have a friend in Washington in charge.

That is intimidation.

Or does Chris want to say that this was part of any health care bill currently before Congress. And does he deny that the threat to change the legislation occurred after the insurance companies voiced opposition.

libert October 15, 2009 at 9:40 am

Good point David. “Buying across state lines” is quite literally equivalent to abrogating states’ rights. The only way to allow buying insurance across state lines is for the federal government is to supersede and eliminate the states’ powers to regulate intrastate commerce.

Matthew Tievsky October 15, 2009 at 9:53 am

Steve, you make some worthwhile points, though I disagree with you…here’s my quick response:

“How is this worse – or different – than when the Republicans threaten to strip Snowe of her committee seats / seniority for voting against the party line? Or the threats between Joe Lieberman and the Democrats?”

Yeah, this does depart from the ideal of pure-as-driven-snow politics. But this still isn’t not nearly as bad as what the threatened Democratic retaliation, because your examples involve politicians punishing OTHER politicians. Pure politics, in other words. We can’t realistically take the politics out of politics. But we should fight to ensure regulation is made purely in the public interest, not to engender political gain. The government should not become an engine for the party in power to become more powerful. That road leads to the one-party state.

“Or from the general rule of politics that Congressmen will not extend favors to donors for the other side? Or from the K-Street project blacklisting of Democratic-donating lobbyists?”

Honestly not sure exactly what you’re referring to. But it does sound wrong, though the stakes might not be as high as high, generally, as they are in this case.

“Or any interest group threatening to pump millions of dollars into a challenger unless you vote their way?”

There’s absolutely nothing wrong with this. A citizen has every right to throw his support only behind the candidate who will vote the way the citizen prefers.

RP October 15, 2009 at 10:05 am

Sometimes you advance a pawn to a position where it will remain simultaneously at risk from and able to capture an opposing pawn. Reid has chosen now, some number of moves after he advanced it originally, to make the capture. Tyler, while remaining agnostic on the quality of the move protests its legality because it (the pawn) is currently pinned. Many here protest there is no pin. This begs the question; What is the nature of this piece that Tyler claims is indeed not inhibiting the pin, yet many comments have attempted to describe?

Matthew Tievsky October 15, 2009 at 10:10 am

Russell: Tyler and Alex are economists, not foreign policy experts. Your concern trolling is lame. And I call BS on this so-called “tension” only you can see in Cato’s and (most of the writers of) Reason’s strong opposition to the Bush Administration policies you pointed out.

figleaf October 15, 2009 at 11:21 am

This reminds me of the similarly principled stand Tyler took when Boeing succumbed to so-called “K-Street Project” pressure during the Bush administration to relocate from a Washington, a state with two Democratic senators, to Illinois, which at the time had two Republican ones.

Oh wait! Maybe he believed Boeing’s line that moving their corporate headquarters from Seattle to Texas or Illinois almost immediately after Maria Cantwell’s election was the only way they could stay close to their growing customer base… in Japan, China, and the rest of Asia. (As a local pundit snarked, “gee if only there was some kind of giant mechanical flying bird they could use…”)

figleaf

RP October 15, 2009 at 11:43 am

Or, moving the pawn, thus unblocking the diagonal, did not expose the king to attack (illegal move). Instead it exposed the potential for a forced mate in 7 which becomes possible as long as he can entice the computer (pre-programmed public) to accept a sacrifice which will give him the initiative.

Justaguy October 15, 2009 at 12:32 pm

The Democrats started out their negotiations with a compromise – taking a single payer system off the table and going with a watered down public plan that would compete with private plans. While I support a single payer system, there’s no way it would pass – but they would have had a stronger hand if they hadn’t made that concession before negotiations.

This wasn’t received by Republicans or insurance company funded astro-turf organizations as a compromise at all, but as a Nazi plan to kill your grandmother. Learning from that, Reid is heading into final negotiations by putting the congresscritters that serve the insurance companies on the defensive – putting him in a stronger position to push the public plan.

While you might not like the outcome of all of this I fail to see how this is anit-democratic or violates the rule of law. If you need a refresher please see: http://www.youtube.com/watch?v=nlka6fTnDnI&feature=related

DavidS October 15, 2009 at 1:00 pm

Freedom of speech does not mean freedom from the consequences of making a speech.

Don’t interfere in the insurance industry ability to say what they want. But let us also, not interfere in the insurance industry’s suffering the consequences of their speech.

Joe October 15, 2009 at 2:23 pm

Matthew,

Under pure as snow politics – I agree, this shouldn’t be. My point was more that with all the other things, its weird for this to be singled out as some harbringer of totalitarianism unless Tyler was complaining about all that.

The K-Street project was the Congressional Republicans’ attempt to destroy Democratic lobbyists between 1994 and 2006 or so. DeLay, Santorum, Grover Norquist and others kept close tabs on the D.C. lobbyists. Firms would be cut off from access to the majority leadership if they were led by Democrats, hired too many Democrats, or made any substantial donations to Democrats (or not enough donations to Republicans).

As for the “pure politics” angle – I’m not so sure there’s a big difference here for two reasons.

First, it still corrupts lawmaking in the same way. The point of the Republicans pressuring Snowe was to get her to vote against what she thought was the public interest for the party’s private interest.

Second, I don’t think the insurance lobby was acting in a non-political role here. It was cutting backroom deals with politicians, helping to draft the bills, hiring truckloads of lobbyists, and making large political donations.

DanC October 15, 2009 at 4:11 pm

libert

Democrats have been pushing this for years? Please tell me what legislation was proposed and who sponsored it?

And if people can not tell the difference between using the regulatory power of government to punish free speech and political attempts to have your voice heard in government, well one was America and the other is a banana republic.

DanC October 15, 2009 at 4:48 pm

Senator Hatch was excellent at this hearing. If you are truly interested in the issues his comments are cogent and compelling.

In any case, it looks like Rahm had a thoughtful battle plan to attack potential critics. The hearings tjd mentions looks more like political opposition research then attempts at real change.

JSK October 15, 2009 at 10:43 pm

Russell: Tyler and Alex are economists, not foreign policy experts.

So, they shouldn’t make statements on “The rule of law in Amerika”, they being not experts on the subject?

Chris D October 18, 2009 at 9:34 pm

Of *course* they’ve turned against health care reform. It has a chance of passing.

In general, corporations would shoot any of us in the head if it would improve their bottom line. I fail to see any reason to give any special consideration to a psychopathic social construct which, after a couple hundred years of institutionalized human greed, now has more rights than individual human beings.

rosetta stone spanish July 30, 2010 at 5:03 am

Fighting a principled fight against an unprincipled opponent only works if you occupy the stronger position.

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