Reviving an Old Threat in Health-Insurance Battle

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Health-insurance companies contend that McCarran-Ferguson simply allows them to cooperate with one another to advance policies that are beneficial both to them and their consumers, such as sharing data to prevent fraud, assessing medical malpractice risk, and maintaining consistent policy language. "The argument here is that the insurance industry is unregulated and that is completely untrue," says Robert Zirkelbach, press secretary of America's Health Insurance Plans, or AHIP, the industry's major organization. He says health care is one of the most regulated industries in the country. Rather than addressing competition in the marketplace, he says, "The focus on this issue is a political ploy and designed to distract attention away from the real issues."

Could Repeal Hurt Competition?

Even some independent analysts question whether repealing McCarran-Ferguson alone would be enough to change pricing. The immediate effect would be to subject insurance companies—including automobile insurers and life insurers—to federal antitrust law for purposes of conduct, such as day-to-day decisions about how to price products, where to offer them, and what they'll look like, says David Hyman, a professor of law and medicine at the University of Illinois College of Law and adjunct scholar at the Cato Institute. Hyman considers it unlikely that repeal would fundamentally change the nature of the market. While it might increase competition in some markets, he says, it could actually decrease it in others, such as those where small insurers survive because they have access to larger providers' data. Changes to the act could therefore hurt smaller companies more than larger ones, he says.

Because the act doesn't outlaw the existence of a dominant provider but simply prohibits collusion, says Hyman, a repeal would fall short of breaking up existing market monopolies that are blamed for artificially inflating prices. The current move against McCarran-Ferguson, he says, "has more to do with the politics of pushing back against the insurance industrys opposition to health reform than it does with increasing competition in health-insurance markets."

Repeal wouldn't be a simple process. "There would be quite a bit of confusion and legal action on the state and federal level as regulators try to figure out who's responsible for regulating what," says Joseph Paduda, principal of Health Strategy Associates, a managed-care consulting firm in Madison, Conn. Austin Frakt, a health economist and assistant professor at Boston University's School of Public Health, says lawmakers also would have to take into account the other parties that contribute to driving up health-care costs—including doctors, hospitals, and drug companies—which McCarran-Ferguson does not address.

Threatening a repeal of McCarran-Ferguson "doesn't seem like it has been thoroughly thought through," says Frakt. As with every aspect of the proposed reform, the question of whether to regulate insurance at the federal or state level "requires a nuanced approach."

Deprez is a reporter for BusinessWeek.

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