Health Insurance Market. The McCarran-Ferguson Act provides that the antitrust laws, including the Sherman Act, the Clayton Act, and the Federal Trade Commission Act, shall apply to the “business of insurance” only to the extent it is not regulated by a state, and shall also apply to boycotts, coercion and intimidation. As interpreted by the courts, the law exempts the business of insurance from government and private antitrust liability, unless the conduct is unregulated by a state or goes beyond otherwise actionable restraints of trade to constitute boycotts, coercion or intimidation (Lerner). According to the AMA, as of 2007: “In the past 12 years, out of more than 400 mergers, the DOJ has challenged only two” (AMA: 1).
State regulators often focus on health maintenance organization (HMO) market shares on the “mistaken view that HMO and PPO [preferred provider organization] product designs, and insured and self-insured funding arrangements do not compete with one another” (Robinson: 13). In a recent merger challenge, “the DOJ recognized that where a health plan accounts for more than 30 percent of a physician’s practice revenue, the health insurer can have monopsony power to the detriment of patients” (AMA: 2). Available data suggest a high level of concentration within the health insurance industry:
- Commercial Insurance Market, 2002-03. This study accounted for nearly all enrollment (insured and self-insured) in nonprofit and for-profit plans that provided coverage through HMOs, PPOs or other health insurance products):
- Based on 1997 DOJ/FTC guidelines, 34 states had a “highly concentrated” health insurance market; another 12 states were “concentrated” and only 3 were below the threshold for a low level of antitrust concern (Robinson: 15).
- In 43 states, the largest firm controlled 30% or more of the market; in 16 states, this market share exceeded 50% (Robinson: 13).
- HMO/PPO Market, 2005. Findings from the market shares of combined HMO and PPO enrollment in 313 MSAs representing 44 states showed:
Hospital Market. Hospital mergers resulting in high concentrations of market power appear to raise costs and reduce quality (Cogan: 55). Allowing hospitals to boycott patients and their health plans to attain concessions on prices or quality results in higher premiums for private health insurance and higher costs for Medicare and Medicaid (Cogan: 55).
Physician Market. The above concern about boycotts would apply to physicians as well. The Accreditation Council for Graduate Medical Education (ACGME), privately controlled by physicians and hospitals, exercises virtually complete control over the flow of new physicians, resulting in anticompetitive restrictions on the entry of new competitors (Cogan: 56).
Cogan, Hubbard and Kessler (2005) recommend the following:
- Eliminate federal antitrust exemptions for health insurers offering federally certified health-insurance products that meet all federal regulations governing ERISA plans (such plans would be exempt from state mandates and regulations and could be offered nationwide) (p. 46).
- Aggressively investigate hospital mergers that result in very high concentration of market power (p. 55).
- Limit strictly provider boycotts of health plans aimed at achieving anticompetitive price or quality concessions (p. 55).
- Examine the extent and impact of barriers to entry facing new physicians and specialists due to ACGME (pp. 55-56).
Representative Peter DeFazio and five cosponsors introduced H.R. 1583 in the House on March 18, 2009. H.R. 1583 has been referred to the House Judiciary Committee, House Financial Services Committee and House Energy and Commerce Committee. No hearings or markups have been held on the bill. Previous versions of the bill were introduced in the 110th Congress. H.R. 1583 would:
- abolish the current exemption from federal antitrust laws for the “business of insurance;”
- remove a prohibition on investigations of insurance companies by the Federal Trade Commission;
- not change the sections of the McCarran-Ferguson Act that give preeminence to state insurance regulators (CRS 2009:10).
Kessler and McClellan analyzed 1985-94 data for Medicare patients, showing that costs of heart attack care were about 8% lower in the most competitive hospital markets relative to the least competitive areas; as well, 1-year mortality risk was roughly 4% lower. Hubbard, Cogan and Kessler (2005) do not provide an aggregate estimate of cost savings that might result from their four recommendations. Moriya, Vogt and Gaynor (2010) found that increases in insurance market concentration are significantly associated with decreases in hospital prices, whereas increases in hospital concentration are non-significantly associated with increases in prices. A hypothetical merger between two of five equally sized insurers is estimated to decrease hospital prices by 6.7%.
Federal antitrust enforcement is well-established. The four options entail more vigilant application of these principles and enforcement mechanisms in health care domains that heretofore have been exempt or largely ignored.
- AMA. Competition in Health Insurance: A Comprehensive Study of U.S. Markets: 2007 Update. Chicago: American Medical Association, 2007. [Full Text (pdf)]
This study used county-level enrollment data from nonprofit and for-profit HMOs and PPOs to create market share estimates for 313 Metropolitan Statistical Areas (MSAs) in 44 states (excludes DC, KS, MS, ND, PA); self-insured plan membership was included only for plans administered by a health insurer surveyed by InterStudy.
- Cogan, John F., R. Glenn Hubbard, Daniel P. Kessler. Healthy, Wealthy, and Wise: Five Steps to a Better Health Care System. AEI Press/Hoover Institution (November 2005). [Table of Contents]
- CRS. Insurance Regulation: Issues, Background, and Legislation in the 111th Congress. Congressional Research Service, R40771, August 19, 2009. [Full Text (pdf)]
- DOJ/FTC. Horizontal Merger Guidelines. Washington, DC: U.S. Department of Justice and Federal Trade Commission, Issued April 2, 1992; revised April 8, 1997. [Full Text (pdf)]
- Incidental Economist. Hospital and insurer market concentration: from the literature. [Full Text (html)]
- Kessler, Daniel P. and Mark B. McClellan. Is Hospital Competition Socially Wasteful? Quarterly Journal of Economics, May 2000; 115(2): 577-615. Also available as NBER paper [Abstract]. We study the consequences of hospital competition for Medicare beneficiaries’ heart attack care from 1985 to 1994. In the 1980s, the welfare effects of competition were ambiguous; but in the 1990s, competition unambiguously improves social welfare. Increasing HMO enrollment over the sample period partially explains the dramatic change in the impact of hospital competition.
- Lerner, Arthur. Bill To Repeal Mccarran-Ferguson Act Antitrust Exemption For Insurance Business Introduced. Crowell and Moring. [Full Text (html)]
- Moriya, A. S., Vogt, W. B., & Gaynor, M. (2010). Hospital prices and market structure in the hospital and insurance industries. Health Economics, Policy and Law, 5(04), 459-479.
- Robinson, James C. Consolidation And The Transformation Of Competition In Health Insurance. Health Affairs, November/December 2004; 23(6): 11-24. [Abstract (html)].
This study included state-level data on commercial insurance enrollment, including all employer-based plan members (inclusive of federal and state employees and private self-funded plans) and non-group members with coverage from investor-owned commercial plans, Blue Cross and Blue Shield plans (nonprofit and for-profit), and state-specific enrollment data for specific products (which includes most nonprofit HMOs). The data exclude noncommercial lines of insurance provided by these same carriers, such as Medicare, Medicaid and military TRICARE managed care programs. Data were not available for 3 states (AK, HI and ND).