Insurance industry update, continued

President Obama mounted a frontal assault on the insurance industry on Saturday,
accusing it of airing “deceptive and dishonest ads” to derail his
health care legislation and threatening to strip the industry of its
longstanding exemption from federal anti-trust laws.

Here is the longer story.


Are we supposed to note the surface similarity to Hugo Chavez' government, or what?

President Obama should be silent. He has no right to defend his healthcare plan.

Free speech is only for those who pay for advertising and support grass roots public interest groups, like the Koch's.

How dare he try to counteract any of the statements of the insurance industry, which has only our interests at heart.

You'd think he were President.

Yeah, Obama's free speech, that's what this is about. We are threatening Obama with imprisonment or ex post facto law changes to attack HIS freedom speech. That's what we want to do. Us libertarians want to use the power of the government to threaten Obama's free speech. That's what we are about- because Presidents deserve the same tolerance of idiotic speech as the average citizen. Because only Obama should air ads about his proposal ( and should not be criticized by lowly citizens for using his free (as in not paid for) speech to attack his opposition with threats of the power of government. Because the opposition ads are propaganda and dishonest by definition and thus are not protected as free speech.

Obama should be perfectly free to say things like this...

"It is no exaggeration to say that unless we act, these costs will devastate the U.S. economy," Obama said.

...implying we will spend all our resources on healthcare and have nothing left for dog food. Ridiculous as that sounds considering healthcare costs haven't been the problem yet and we can always just stop spending on healthcare but have to pay the asking price for energy for example, he's free to fearmonger at will for his pet project.

Jeez Louis, Republican administrations have threatened to remove the insurance industry's antitrust exemption.

It was the Nixon/Ford Administration's Antitrust Division which issued critical reports on the McCarran Ferguson antitrust exemption as part of a deregulatory effort which included deregulation of airlines and surface transportation.

No one has a right to make false history or create false memories.

"...implying we will spend all our resources on healthcare and have nothing left for dog food."

"healthcare costs haven't been the problem yet"

"and we can always just stop spending on healthcare"

Shit is airtight.


That is just par for the course hyperbole that comes out of the mouth of any politician.


One suggestion he makes is the adoption of the Maryland system for health care pricing: all prices are required to be the same to everyone. If you are an individual paying for a procedure, you pay the same as the small insurer, the same as the large insurer - there is one price.

Price controls invariably fail; indeed, we already have lots of government mandated price controls in U.S. health care.

Guys, guys, guys...noone has said strong-arming was a new thing.

The point is there was some reason for the exemption, and now Obama is threatening to yank it not on actual merits, but as leverage. The point is he's not actually going to yank it.

It has been a bit surprising that the AHIP wizards did not grasp from the beginning that the legislation to "Force" additional persons into the private insurance "risk" (actually cost sharing) pools, with or without change in "penalties," is just as likely to fail as lacking constitutional authority; and as a violation of limitations on the express powers of taxation set forth in the Constitution; uniform excise, per capita, by enumeration or income.

Plainly, a requirement for compulsory purchase of healthcare coverage enforced by taxation would not stand the test; whatever other constructs might be attempted.

So, the whole proposition of driving more sheep into the pen was iffy from the start.

Could failure to buy insurance be deemed even a "misdemeanor;" of what? Can one be required to report (to the IRS) information not related to Income, Estate or (valid by uniformity or enumeration) Excise Taxation?

By the way, there is no proposal to completely repeal McCarran. Most of the proposals apply the antitrust laws and then create safe harbors for, for example, collecting and aggregating past losses, etc.

Andrew does raise a valid point: should anyone be threatening an industry's overbroad antitrust exemption as part of a debate on healthcare reform?

For tactical reasons, I don't think this is the brightest thing for Obama or the Senate to do: McCarran repeal (read modification) brings in other parts of the insurance industry and other constituents: casualty carriers, insurance agents, etc., who now become part of the fight. I mean, if you have one fight, why do you want to start a bar room fight with everyone else?

And, to be objective, no one expects McCarran reform (not even the insurance indusrty) to be done overnight: Congress has been going at this for years, and even Trent Lott came out against McCarran when he found out that the carriers would all be able (and did) agree on the terms of his homeowners policy.

No, you have to ask a different question: if something needs reform and you want some other objective, should you be able to shine a light on the other thing that needs reform even if you know reform will not happen. Sure. Now, how about a harder question: if you thought you could win on reforming McCarran and you bargained not to do it in order to get healthcare reform, would that be the real problem. That would trouble me more.

At the same time, we live in a political state--we make tradeoffs on policy all the time. If one wants to say total welfare increases with one combination of actions over another based on what is achievable at the time, who is to say we cannot make that choice. And, the industry won't back down just because you threaten McCarran reform, for sure.

Shouldn't we be asking the question of why insurance companies are exempt from anti-trust legislation?

The insurance companies were exempt from federal regulations but subject to state regulation. McCarran did not leave insurance companies unregulated or exempt from government control - it just left it in the hands of the states.

What Obama is really saying is that he wants the Federal government to take over the insurance industry - because they have upset him and his plans. Then the insurance companies will have to deal with his justice department when they set rates etc.

Ok, here is some more detailed background on McCarran for those who read the above post believing that "state" regulation saves you from antitrust problems in the insurance industry.
McCarran provides that the antitrust laws do not apply to the "business of insurance" provided that it is regulated by state law. So, you say, that must mean price fixing, etc. is regulated. No. The regulated by state law phrase has been interpreted as meaning, for example, that if the state insurance regulation has, say, an 'unreasonable and non-discriminatory' phrase, or very broad language, that is sufficient to be 'regulated by state law'. What this means is that a price fixing agreement between two carriers in such a state would not be something that would be reviewed by the insurance commissioner--that is, you wouldn't have to submit your agreement to the state regulator for approval or review, since the regulator has the power to review rates.
Now, insurance is quite different for different products--so, workers comp insurance has rating bureaus--groups of insurers--who jointly set rates, and then submit the rates to the insurance commissioner. Some states approve these as minimum rates--you can't go below them but you can go above--some states say you can only use these rates, not going above or below--and some states have adopted rules that say the bureau can collect only past loss data and individual carriers (without agreement) must submit their own rates.
Most versions of McCarran reform limit rate setting, price fixing, etc., and permit loss data pooling and require companies to submit their own rates, still operating under state solvency and other regulation. Other forms of McCarran permit the carrier to opt in to state regulation, or opt out for a federal insurance charter, which would enable the carriers to do things nationally, rather than state by state.
Finally, the existence of regulation is not antithetical to antitrust. Many regulated industries operate under the antitrust laws. Nor does the existence of regulation, particularly of the type that occurs (and I would argue in some cases does not occur at all but in name only), mean that consumers are protected. They are not.
Finally, talk about regulatory capture and state insurance regulation in one breath, and I will tell you that the industry has had an easier time capturing state regulators than they would ever have capturing federal. That's why they sought McCarran. One recent case of state regulatory capture was when the state insurance commissioner "appointed" with subpoena power the attorney of the insurance agents as the prosecutor of an insurance agent who had allegedly discounted his commission to make a sale.
Even though McCarran reform will probably go nowhere, I am glad the light is shining on this. It's just when I see people who should be in favor of market solutions taking a position opposite Obama (and you could say Nixon and Ford as well) just because it is Obama or just because it is the federal government that I wonder if we are responsible citizens serious about confronting and discussing serious problems or just pawns being moved back and forth across a chess table.

Bill you claim expertise that is lacking in your posts.

Your understanding of economics is weak, demonstrating little formal education on the topic.

You claim that you are an expert on McCarren, but please cite where I am wrong.

You seem to agree that the states were left free to set regulations. You may not like the way that states have regulated but that does not mean that they lack the power to correct the imperfections that you feel are present, if they agreed with you.

So, is there anything in McCarren that keeps states from passing laws against price fixing? In what state do you think rate fixing is a problem. Are employers, politicians, and citizens blind to this issue?

A law that despite all the imperfections that you claim has remained in force since 1945, what has happened in the last nine months that the President has decided that it is a key piece of legislation.

I am in favor of market solutions. But this is a debate about who regulates not how can we make the market more competitive. I would much rather have the fifty states competing with each other based on how business friendly they are then having a Federal government concentrating power.

As to Ms. Varney's power, well, the way it works is that Ms. Varney doesn't grant waivers. Laws are written that describe the scope of an exemption. Since we live in a common law society, judges make the decision on whether a law has been broken, and if an exemption applies. So, there isn't anything Ms. Varney granteth or taketh away. She could give a speech; she could contribute her testimony on legislation, but, Congress decides and the courts apply the law.
If there is a federal chartering of insurance for carriers who opt in to federal regulation rather than remain under state regulation, then the federal regulator has to promulgate rules within its statutory authority.
As to Bork, I think Bork probably favors McCarran repeal for the same reasons I do. He was in the Ford administration when the Antitrust Division issued its exemption study. But, I don't know. You never know about Bork either--he represented a plaintiff's position in Microsoft.
And, I would certainly not say that most antitrust lawyers or economists today would necessarily agree with the Chicago school of the 1970’s--what has changed since the neoclassical period of the Chicago antitrust is a greater use and appreciation of game theory. The IO world is more of what is called NIE--New Industrial Organization. Antitrust economics today is far more empirical
I would not demonize the Antitrust Division or FTC. The people there serve both Republicans and Democrats. The world is not that partisan, by any means. This is not some vast radical action by Varney, any more than it was by her predecessors. People take their jobs seriously.
As to Obama’s deregulatory agenda, other areas of potential deregulation in this administration are probably in agriculture (there will be DOJ and Dept of Ag hearings next year), and some work on patent reform involving the misuse of the Hatch-Waxman Act. Deregulation or antitrust issues also appear in FCC and Surface Transportation Board matters which may get more attention.
As to whether people Ms Varney finds "demons everywhere in the business community". I doubt it. The leaders and people in the enforcement agencies are sincere and trying to work for the best interests of the public. They are also subject to oversight, there are checks and balances, and there are the courts. No one is a radical zealot.

If you want historical perspective; if for no other reason to pay attention to Santayana's admonition; consider another agressive "progressive"; Teddy Roosevelt.

Roosevelt's whipping boy was the railroads; he pushed for increased government control over rates using very similar concepts; he got it in 1906 in the form of the Hepburn Act; it increased the power of the Interstate Commerce Commission.

It wasn't until 1976 when the bankrupt Northeast railroads that the government realized how its regulation made running a railroad effectively impossible; a few years later we had the Staggers Act and by 1995, the end of the ICC, although there's still plenty of federal regulation from the FRA and The Surface Transportation Board.

@Dan, added to the other materials I mentioned, here is a summary of a George Mason article that sounds interesting:

M. F. Brinig1

(1) School of Law, George Mason University, 3401 N. Fairfax Drive, 22201-4498 Arlington, VA

Received: 28 June 1990 Accepted: 28 November 1990

Conclusion The insurance industry has for more than a hundred years enjoyed a system of friendly regulation by state authorities. Whatever the soundness of the original reasons for this privilege, they no longer exist in a day of increasingly inexpensive computer technology and a statistically significant pool of rating experience. But precisely because they have invested so much in presenting an impregnable force on the state level, insurance interests are now vulnerable to attack from consumers and other interest groups. The expected forum for such attacks might be the legislatures, state and federal. Because the challenge to the industry comes at least partially from rather diffuse groups that might be dissuaded by the high costs of obtaining legislative relief, the most serious problems for insurers are coming in the federal courts.

If we are so worried about health providers having the upper hand over insurers, why aren't we hearing about increasing the supply of health care itself? The US has fewer doctors and hospital beds per capita than most of the west. Why aren't we hearing about deregulating there?

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