Free Markets, Free People
The Democrats are bound and determined to demonize the private health insurance industry and use that demonization as a basis for further control by government. Seizing on one insurance company’s rate increase in California as a reason for government intervention the House has passed a piece of legislation in the House to remove the industry’s anti-trust exemption. That’ll teach ‘em (and by the way, the vote was 406-19 so a whole heck of a lot of Republicans have bought into this again).
The White House, of course, backs the bill claiming:
The repeal of the antitrust exemption in the McCarran-Ferguson Act as it applies to the health insurance industry would give American families and businesses, big and small, more control over their own health care choices by promoting greater insurance competition.
But will it do what the White House says it will do. Most likely not:
The Congressional Budget Office concludes that repeal “would have no significant effects on either the federal budget or the premiums that private insurers charged for health insurance.” University of Pennsylvania economist Scott Harrington says, “This is just barking up the wrong tree…It might sound good, but I can think of very few things …that would be less consequential for consumers of health insurance.” Professor Austin Frakt of Boston University notes, “Repeal of the exemption is popular, but like a lot of things done in anger, it isn’t particularly wise and won’t be very effective.”
In essence this is a political temper tantrum of the type where bad law is usually made. It’s not clear that this particular law will have negative effect, but it is apparently not going to do what the White House claims. But it will accomplish one thing – increase the power of the federal government.
To understand that, a little background concerning the exemption might be informative:
In 1944, the Supreme Court overturned prior case law and held that the antitrust laws should apply to insurance.
Congress responded with the McCarran-Ferguson Act, which created a limited exemption from federal antitrust law for the “business of insurance.” To qualify for the exemption, each state had to engage in oversight of its insurance market. States responded by creating insurance commissioners and regulating insurer conduct.
The logic of the exemption was that prior to 1944, insurance had been regulated by the states anyway. No one felt any compelling need for intrusion by the federal government, or to allow private litigants to bring federal antitrust suits against insurers. In addition, insurers — particularly smaller insurers —can more accurately price risk if they can share information on their actuarial experience. The exemption created a safety zone for insurers to share information free from the threat of private antitrust suits.
McCarran-Ferguson still left insurers subject to state regulatory oversight and federal antitrust scrutiny for matters that don’t involve “the business of insurance.” Contrary to Sen. Reid’s claim, the federal government already scrutinizes mergers for anticompetitive consequences, and has brought several challenges.
The point of the exemption was to actually help make the industry more competitive. Sharing “actuarial experience” will now be an anti-trust violation. Additionally, private litigants will now be able to bring federal anti-trust suits against insurers – if this passes the Senate.
So when the White House continues, saying:
The repeal also will outlaw existing, anti-competitive health insurance practices like price fixing, bid rigging, and market allocation that drive up costs for all Americans. Health insurance reform should be built on a strong commitment to competition in all health care markets, including health insurance.
It’s describing what was formerly considered to be “the business of insurance.” Now it is “price fixing” and “bid rigging”. And most disingenuous of all is the claim it will spur competition.
So what will this do?
Insurers fear that losing the exemption would force them to deal with an additional (federal) regulator and expose them to private federal antitrust suits. State insurance commissioners also want to keep the exemption, because they prefer to remain the dominant regulator. On the other hand, federal antitrust authorities want to scrap the exemption because they don’t like exemptions — although they don’t seem to be claiming that repeal would result in greater competition.
Then the point of the bill is to increase what? Federal regulation. More federal control of the private health insurance industry that states have always regulated. This isn’t about competition, “bid rigging” or “price fixing”. This is about gathering more power at the federal level.
The excuse is this “greedy” insurance company in California (btw, the health insurance industry’s profit margin is 35th among all industries at 2.2%) that is raising premiums.
But what most don’t seem to understand is there are different types of greed. And one of them is a greed for power. That greed has been on display for years, and intensely so for the last year, within the federal government. This bill is nothing more than another manifestation of that greed.
Private health insurance companies have been demonized by the Democrats and the administration as modern day “robber barons” who are raking in obscene profits mostly by denying you coverage. But a simple fact checking dispels that sort of an attack as negative propaganda with no basis in reality:
Health insurance profit margins typically run about 6 percent, give or take a point or two. That’s anemic compared with other forms of insurance and a broad array of industries, even some beleaguered ones.
Profits barely exceeded 2 percent of revenues in the latest annual measure. This partly explains why the credit ratings of some of the largest insurers were downgraded to negative from stable heading into this year, as investors were warned of a stagnant if not shrinking market for private plans.
In other words, the methodical demonization of private insurance by government has put the industry on very shaky footing. Should a public option – defined as the government selling insurance or, as the Democrats are trying to rebrand it, Medicare part E – be placed into law, there’s a distinct possibility that the private market may dry up. Another untruth the government is pushing is that it’s entrance into the market will offer “choice and competition”. In fact, with the unlimited borrowing power of the US Treasury backing the public option and no requirement to make an profit, there will likely be less competition and at some point no real choice.
A little reality check pertaining to the industry:
Health insurers posted a 2.2 percent profit margin last year, placing them 35th on the Fortune 500 list of top industries. As is typical, other health sectors did much better – drugs and medical products and services were both in the top 10.
It is pretty tough to characterize an industry making an average 2.2% profit margin as one which is exploiting its customers. As a comparison:
The railroads brought in a 12.6 percent profit margin. Leading the list: network and other communications equipment, at 20.4 percent.
Can anyone point me to the government characterization of those two industries making obscene profits or exploiting their customers? Apparently the government has no plans to take them over – yet.
In fact, the private health insurance industry isn’t at all in the ‘obscene profit’ category and falls more in the “average” category when it comes to comparison to other industries in various sectors:
The industry’s overall profits grew only 8.8 percent from 2003 to 2008, and its margins year to year, from 2005 forward, never cracked 8 percent.
The latest annual profit margins of a selection of products, services and industries: Tupperware Brands, 7.5 percent; Yahoo, 5.9 percent; Hershey, 6.1 percent; Clorox, 8.7 percent; Molson Coors Brewing, 8.1 percent; construction and farm machinery, 5 percent; Yum Brands (think KFC, Pizza Hut, Taco Bell), 8.5 percent.
In this case the devil isn’t in the details, it is instead in the factually incorrect and disingenuous attack of politicians.