Congress challenges insurer antitrust exemption

December 1, 2009

Two senators investigating medical loss ratios and pricing rationale for small-business policies

Killing the exemption is not likely to have a major impact on the cost or availability of health insurance. The campaign to end this fairly minor regulatory break, though, reflects Congressional intent to set new controls on private insurers. House Democrats advocating repeal acknowledged that the antitrust exemption might not change insurance market competition, but that ending it is still a worthy undertaking.

The antitrust exemption dates back to 1945 and gave states authority to regulate insurance. It was considered appropriate to free insurance companies from federal antitrust laws that regulate similar activities.

Repealing the exemption, though, would open the door to more federal investigations into insurer actions that smack of anticompetitive practices or consumer protection violations. And even if repeal fails to make it into final reform legislation, Congress is likely to step up its oversight of industry pricing and marketing activities.

The Senate Commerce Committee already is examining the percentage of premiums insurers spend on beneficiary claims, and how much they keep for administrative expenses, marketing and profits. Committee chairman Jay Rockefeller (D-W.Va.) challenged industry claims that medical loss ratios average 87%, citing regulatory filings that show the proportion is much lower, especially for individual policies. The House reform legislation requires insurers to spend at least 85% of premiums on benefits, and Rockefeller wants to get a similar provision into the Senate bill.

SMALL-BUSINESS POLICIES EXAMINED

Sen. Tom Harkin (D-Iowa), now chairman of the Senate Health, Education, Labor and Pensions Committee, recently launched an investigation of health insurance prices for policies sold to small businesses, picking up on press reports predicting 15% increases for the coming year. Harkin complained at a hearing last month that one new diagnosis of a worker or spouse will send company premiums skyrocketing. He sent letters to the chief executives of Humana, UnitedHealthGroup, WellPoint and Aetna seeking information on how they set rates and premiums for customers with 50 or fewer workers.

The chairman gave the companies only two weeks to provide detailed information on how they set initial and renewal rates for every state where they sell policies to small companies, on average premium increases, and what rates were rejected by state commissioners. The senator also wants data on revenues and payments, administrative expenses and profits, and how each firm calculates its anticipated medical loss ratio for 2010.

And because industry executives would not testify at the hearing, Harkin broadened his probe to explore how many company officers earn more than $5 million.

Jill Wechsler, a veteran reporter, has been covering Capitol Hill since 1994.