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Federal H.B. 1418 - Antitrust in Health Insurance?


In today's climate, we've seen a large emphasis on breaking up the big companies. When it comes to the largest corporations in the S&P500, most are tech companies that allocate a portion of annual revenues towards buying out competitors and growing their footprint. These very things are what antitrust was designed to stop. Wallstreet refers to the gap between a leading firm and its competitors as their moat. They insist an investor should seek out companies with a "Wide Economic Moat." For instance, what would it take a start-up search engine to overtake the search engine we all currently use(you know the one we are talking about)? As new and emerging Tech arrives, these behemoths buy out competitors making it perpetually harder to compete with.


For consumers, it's important to understand the protections afforded to the Insurance industry, what changed in 2020 and what actual reforms can help you see lower, more transparent, health insurance options. That's what this article accomplishes.


McCarran-Ferguson and Antitrust

When it comes to health insurers, where there is increasing complexity, how do we manage antitrust? The fact is, we haven't had to consider this... until now. In March 1945 President Roosevelt signed the McCarran-Ferguson Act which has exempted insurers from the scrutiny of Antitrust. Insurers include those who offer Life, Health, Accident, Annuities, and Property and Casualty Insurance.


New Legislation - CHIRA

On Jan. 1, 2021, President Trump was presented with a bill that would repeal this immunity for health insurers specifically. The bill, Competitive Health Insurance Reform Act of 2020 (CHIRA) (H.R.1418), currently awaits his signature. This bill was passed in the House on September 21st and later in the Senate on December 22nd. It was expected to be signed by the president but has since been eclipsed by the events on the Capitol that transpired on January 6th. Regardless, if the current administration signs this bill, it's likely that the Democratic-run government post-inauguration will push to enact further antitrust measures.


National Law Review states "Data sharing among insurance companies helps them take advantage of industry-wide experience to better conduct business, but it also leaves the door open to anticompetitive conduct. Under McCarran-Ferguson, though, the industry was immune from federal scrutiny.


CHIRA would continue to allow data sharing but points out that the practice is not without limits." According to the bill, it doesn't apply to "'a contract, combination or conspiracy to (1) collect, compile, or disseminate historical loss data; (2) determine a loss development factor for historical loss data; (3) perform actuarial services if the collaboration does not involve a restraint of trade; or (4) develop or disseminate a standard insurance policy form if adherence to the form is not required.'"


Antitrust isn't the issue, transparency is.

We look at this piece of legislation with mixed emotions. Under current legislation, there are medical loss ratios that limit the profits any insurer is allowed to have. "Medical loss ratio (MLR) is a measure of the percentage of premium dollars that a health plan spends on medical claims and quality improvements, versus administrative costs." - Healthinsurance.org So, insurers are limited by the number of policyholders they have and the amount of claims they make. This MLR requires at least 80% for general plans and 85% for large group plans to go back into paying claims. This is already a limiter to an insurer. It doesn't put them in a position to stifle competition. Rather, a focus on growing their footprint of policyholders forces them to be more efficient in claims processing, onboarding clients, and network agreements with providers.


The larger issue at hand is price transparency and driving down the cost of medical care. Insurers actually benefit from higher claims, as counter-intuitive as that may seem. If their role is to look at the claims cost and inflate the premiums by 25%(80%x1.25 = 100%) then the higher their claims are, the higher the premiums are and the more net profit they have to work with. For Instance. An $800 claim gives them $200 to work with. Comparatively, a $400 claim only gives them $100 to allocate. It's in the insurer's best interest to have rising rates. Antitrust protection simply gives insurers protections to share data for actuarial purposes to be clear across the board and help the overall healthcare system. But, to fix the system we need to focus on issues that will actually drive down costs. We don't think antitrust and limiting transparency is going to help with that cause.


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