How can the insurance exchange provide competition when health insurers are exempt from anti-trust ?

[Nikki Stone1]

We have been told that the health insurance exchange will provide real competition, with a pool of health insurers competing for our business. But how can this be when health insurance companies are not covered by anti-trust laws?

http://www.cato.org/pubs/journal/cj8n3/cj8n3-11.pdf

This means that health insurers can FIX prices legally. How is putting them all in the same pool going to help? As long as they can fix prices, they will not be competitive.

One of two things has to happen. Either the McCarran act needs to be repealed so health insurers can't fix prices legally and have to compete. Or, the government has to provide a competitive public option that we all can choose to join, regardless of whether or not we are eligible to buy insurance in the private market.

WIthout either one of these things in place, the exchange will not be really competitive.

[NYC_SKP]

1. The last four paragraphs of the CATO piece in your OP are telling.

-snip-

The antitrust policy skepticism of the 1980s is the result of a num-
ber of different factors. There has been an increasing realization
recently among economists and others that specific business prac-
tices, once regarded as elements of monopoly power, may actually
enhance efficiency and the competitive market process. There was a
time in antitrust economics when almost any deviation from the
purely competitive model was seen as “resource misallocating” and
as a justification for stricter antitrust enforcement (Wilcox 1966). But
deficiencies in the purely competitive model (as a welfare paradigm)
have now been widely acknowledged, especially with respect to how
actual business organizations efficiently adjust to economic uncer-
tainty and change. Market output is no longer thought to be restrained
inefficiently by product differentiation, or economies of scale, or by
“restrictive” practices such as tying agreements.

Attitudes toward merger and increasing market share have also
changed somewhat over the last 10 years (Brozen 1982). Economists
now recognize that business organizations which are relatively more
efficient than their rivals (or potential rivals) will tend to grow faster
than their rivals, and will earn an increasing market share. Increasing
market concentration that is the result of innovation and increased
resource efficiency can be beneficial to consumers. In the absence
of legal barriers to entry, it is not apparent why government antitrust
regulation ought to interfere with such a benign market process.

Another important reason for the new antitrust skepticism is anti-
trust case revisionism. Prior to 1975 there was a widespread impres-
sion within the antitrust establishment that an impressive body of
evidence existed that supported traditional enforcement policies.
The laws had been enforced, presumably, to deter firms from reduc-
ingoutput and raising market prices. Yet this “public interest” theory
of antitrust enforcement has come under increasing criticism
(DiLorenzo 1985). Most of the important case evidence demon-
strates, contrary to the conventional wisdom, that many of the indicted
business organizations had expanded market output and lowered
market prices, and that trade had generally not been restrained
(Armentano 1982). Antitrust, especially in the private cases, may have
been employed as a club in an attempt to restrain the rivalry of more-
efficient defendant business organizations and to allow less-efficient
business plaintiffs to earn economic rents (Baumol and Ordover 1985).
If this is the manner in which antitrust has actually worked in prac-
tice, it is hardly the sort of public policy that one would want extended
willy-nilly to an industry such as P/C insurance.

Conclusion

Continuing to exempt the P/C insurance industry from antitrust
regulation is consistent with the new skepticism concerning the
social value of strict antitrust enforcement. It would appear especially
inappropriate to extend the reach of the antitrust laws to an entirely
new area (insurance) at the very time when the theory and practice
of such laws are being seriously questioned in traditional areas of
enforcement. The most intelligent public policy in insurance would
be to continue to deregulate the P/C industry at the state level by
removing all legal restrictions that deter competitive rivalry or coop-
eration, and to maintain the current McCarran-Ferguson Act exemp-
tion from federal antitrust law.

-snip-

[Nikki Stone1]

2. Thanks for posting those paragraphs. They are very telling.

It's an excuse for monopoly, and quite anti-capitalist, don't you think?

[NYC_SKP]

4. Yep, a not so well concealed way of saying corporate consolidation is a good thing, lets let it be.

From their point of view, "if it ain't broke, don't fix it."

Well, I'm not surprised.

:nuke:

[Nikki Stone1]

6. True capitalism relies on competition. Without it, you just have economic oppression.

:(

[Nikki Stone1]

7. .

.

[cbayer]

3. The House bill eliminates the exemption and an amendment to strip it is expected

in the Senate.

House:
ANTITRUST: Would strip the health insurance industry of a long-standing exemption from antitrust laws covering market allocation, price fixing and bid rigging. The bill also would give the Federal Trade Commission authority to look into the health insurance industry at its own initiative.

Senate:
ANTITRUST: Amendment expected to be offered on the Senate floor to strip the health insurance industry of its antitrust exemption.

http://www.google.com/hostednews/ap/article/ALeqM5gm81TTE7a0EUL9JlzVML1dnH2N2gD9BL9MB80

[Nikki Stone1]

5. Let's see how far that gets...

I'm not holding my breath.

[NYC_SKP]

8. Hope it sticks. n/t

[truedelphi]

11. That is very good news indeed. n/t

[Nikki Stone1]

9. Wow, this got unrec'd pretty quickly.

Unicorns are nicer to contemplate than reality.

[BrklynLiberal]

10. Now THAT is an excellent question...