Red Herrings Are Not Kipper Snacks

I've discovered something interesting: some of the most rational analysis on health care reform can be found in the business pages of the Los Angeles Times. Two columnists in particular, Davis Lazarus and Michael Hiltzik, have done a fine job in pointing out just how we got to where we are in this health care cost morass and why some of the provisions suggested by Congress just aren't going to help Americans one bit. Michael Hiltzik's latest column is just one more piece of evidence for what I mean.

His subject is the suggestion of some in Congress that the exemption from anti-trust laws be stripped from insurance companies. Now, I have to admit I was a little leery of Hiltzik's thesis that the exemption is not what has enabled insurance companies to drive up premiums and to drive down payments to providers. However, as I read the article, I saw what he was driving at, and I pretty much agree with him.

Here are some of the facts Mr. Hiltzik was working with:

Health economist James Robinson found in 2003 that three large firms controlled more than 50% of enrollment in almost every state -- and that was before the biggest insurers launched a huge effort to snarf up their chief competitors, a trend exemplified by the 2004 mega-merger of WellPoint Health Networks Inc. and Anthem Inc. By 2008, according to the American Medical Assn., in nearly 90% of the metropolitan areas of the country, a single insurer controlled 30% or more of the market.

Is it merely a coincidence that health premiums have soared over the last decade -- up by 131% for family coverage from 1999 to 2009, according to the Kaiser Family Foundation?

"Competition in the health insurance industry is insufficient," Leemore S. Dafny, a health economist at Northwestern's Kellogg School of Management, told me last week. "It's becoming less competitive over time and it's causing higher premiums than we otherwise would see." [Emphasis added]

So, isn't this why the anti-trust exemption should be lifted? Not exactly, suggests Mr. Hiltzig. In fact, that exemption is just a red herring. Lifting the exemption won't change things a whit while all of this merging is going on. The real culprit can be found elsewhere:

There's plenty of guilt to go around. But the McCarran-Ferguson Act has done almost nothing to foster the consolidation of the health insurance industry. For one thing, health insurers don't typically share data in the manner that the exemption allows. Moreover, the courts have interpreted the law so narrowly that it doesn't exempt insurance mergers from federal scrutiny.

The real culprits are federal antitrust authorities, whose approach to health insurance mergers can best be described as supine. In other words, the truly effective antitrust immunity the industry has received has come not from lawmakers but from federal regulators.

As David Balto, an antitrust attorney working for the liberal Center for American Progress, told Congress in 2008, over the previous 10 years there had been more than 400 health insurance mergers. Only two drew challenges from antitrust regulators at the Department of Justice.

Federal officials had also failed to bring cases alleging other anti-competitive behavior by health insurers, Balto said. [Emphasis added]

If Anthem is the only insurer in town, lifting that megacorporation's anti-trust exemption won't do a thing because it doesn't have a competitor to collude with. Stopping the mergers that led to Anthem controlling the market in cities and states would have been far more effective. It's no coincidence that those mergers took place over the last ten years: the Department of Justice and its antitrust regulators weren't really too interested in examining business enterprises and their ways of scamming the public under George W. Bush and the Republicans.

While lifting the exemption might enable some congress critters to puff out their chests and wave their only slightly bloodied swords, all that will have been accomplished is that a few windmills got tilted slightly, and only for a moment.