[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]
COMPETITIVE HEALTH INSURANCE REFORM ACT OF 2017
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
REGULATORY REFORM,
COMMERCIAL AND ANTITRUST LAW
OF THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTEENTH CONGRESS
FIRST SESSION
ON
H.R. 372
__________
FEBRUARY 16, 2017
__________
Serial No. 115-3
__________
Printed for the use of the Committee on the Judiciary
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Available via the World Wide Web: http://judiciary.house.gov
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COMMITTEE ON THE JUDICIARY
BOB GOODLATTE, Virginia, Chairman
F. JAMES SENSENBRENNER, Jr., JOHN CONYERS, Jr., Michigan,
Wisconsin Ranking Member
LAMAR S. SMITH, Texas JERROLD NADLER, New York
STEVE CHABOT, Ohio ZOE LOFGREN, California
DARRELL E. ISSA, California SHEILA JACKSON LEE, Texas
STEVE KING, Iowa STEVE COHEN, Tennessee
TRENT FRANKS, Arizona HENRY C. ``HANK'' JOHNSON, Jr.,
LOUIE GOHMERT, Texas Georgia
JIM JORDAN, Ohio TED DEUTCH, Florida
TED POE, Texas LUIS V. GUTIERREZ, Illinois
JASON CHAFFETZ, Utah KAREN BASS, California
TOM MARINO, Pennsylvania CEDRIC RICHMOND, Louisiana
TREY GOWDY, South Carolina HAKEEM JEFFRIES, New York
RAUL LABRADOR, Idaho DAVID N. CICILLINE, Rhode Island
BLAKE FARENTHOLD, Texas ERIC SWALWELL, California
DOUG COLLINS, Georgia TED LIEU, California
RON DeSANTIS, Florida JAMIE RASKIN, Maryland
KEN BUCK, Colorado PRAMILA JAYAPAL, Washington
JOHN RATCLIFFE, Texas BRADLEY SCHNEIDER, Illinois
MARTHA ROBY, Alabama
MATT GAETZ, Florida
MIKE JOHNSON, Louisiana
ANDY BIGGS, Arizona
Shelley Husband, Chief of Staff & General Counsel
Perry Apelbaum, Minority Staff Director & Chief Counsel
------
Subcommittee on Regulatory Reform, Commercial and Antitrust Law
TOM MARINO, Pennsylvania, Chairman
BLAKE FARENTHOLD, Texas, Vice-Chairman
DARRELL E. ISSA, California DAVID N. CICILLINE, Rhode Island
DOUG COLLINS, Georgia HENRY C. ``HANK'' JOHNSON, Jr.,
KEN BUCK, Colorado Georgia
JOHN RATCLIFFE, Texas ERIC SWALWELL, California
MATT GAETZ, Florida PRAMILA JAYAPAL, Washington
BRADLEY SCHNEIDER, Illinois
Daniel Flores, Chief Counsel
Slade Bond, Minority Counsel
C O N T E N T S
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FEBRUARY 16, 2017
Page
THE BILL
H.R. 372, the ``Competitive Health Insurance Reform Act of 2017'' 3
OPENING STATEMENTS
The Honorable Tom Marino, a Representative in Congress from the
State of Pennsylvania, and Chairman, Subcommittee on Regulatory
Reform, Commercial and Antitrust Law........................... 1
The Honorable David N. Cicilline, a Representative in Congress
from the State of Rhode Island, and Ranking Member,
Subcommittee on Regulatory Reform, Commercial and Antitrust Law 7
The Honorable John Conyers, Jr., a Representative in Congress
from the State of Michigan, and Ranking Member, Committee on
the Judiciary.................................................. 8
WITNESSES
Honorable Paul Gosar, a Representative in Congress from the State
of Arizona
Oral Testimony................................................. 10
Prepared Statement............................................. 13
Honorable Austin Scott, a Representative in Congress from the
State of Georgia
Oral Testimony................................................. 19
Prepared Statement............................................. 21
Thomas P. Miller, Esq., Resident Fellow, American Enterprise
Institute
Oral Testimony................................................. 35
Prepared Statement............................................. 37
David Balto, Esq., Principal, David A. Balto Law Offices
Oral Testimony................................................. 53
Prepared Statement............................................. 55
Robert W. Woody, Esq., Vice President, Policy Property Casualty
Insurers Association of0 America (PCI)
Oral Testimony................................................. 77
Prepared Statement............................................. 79
George Slover, Esq., Senior Policy Counsel, Consumer Union
Oral Testimony................................................. 87
Prepared Statement............................................. 89
LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
Material submitted by the Honorable David N. Cicilline, a
Representative in Congress from the State of Rhode Island, and
Ranking Member, Subcommittee on Regulatory Reform, Commercial
and Antitrust Law.............................................. 27
Material submitted by the Honorable Eric Swalwell, a
Representative in Congress from the State of California, and
Member, Subcommittee on Regulatory Reform, Commercial and
Antitrust Law.................................................. 33
Material submitted by the Honorable David N. Cicilline, a
Representative in Congress from the State of Rhode Island, and
Ranking Member, Subcommittee on Regulatory Reform, Commercial
and Antitrust Law.............................................. 100
OFFICIAL HEARING RECORD
Unprinted Material Submitted for the Hearing Record
Submissions for the Record. These submissions are available at the
Subcommittee and can also be accessed at:
http://docs.house.gov/Committee/Calendar/
ByEvent.aspx?EventID=105573
COMPETITIVE HEALTH INSURANCE REFORM ACT OF 2017
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THURSDAY, FEBRUARY 16, 2017
House of Representatives,
Subcommittee on Regulatory Reform,
Commercial and Antitrust Law
Committee on the Judiciary,
Washington, DC.
The Subcommittee met, pursuant to call, at 10:06 a.m., in
room 2141, Rayburn House Office Building, the Honorable Blake
Farenthold (Vice-Chairman of the Subcommittee) presiding.
Present: Representatives Marino, Goodlatte, Farenthold,
Issa, Collins, Buck, Ratcliffe, Gaetz, Cicilline, Conyers,
Johnson, Swalwell, Jayapal, and Schneider.
Staff Present: (Majority) Ryan Datilo, Counsel; Andrea
Woodard, Clerk; and (Minority) Slade Bond, Minority Counsel.
Mr. Farenthold. The Subcommittee on Regulatory Reform,
Commercial and Antitrust Law will come to order.
Without objection, the Chair is authorized to declare a
recess of the Committee at any time. We welcome everyone to
today's hearing on H.R. 372, the ``Competitive Health Insurance
Reform Act of 2017.''
We will start with my opening statement. This morning, the
Subcommittee meets to examine H.R. 372, the ``Competitive
Health Insurance Reform Act of 2017.'' Historically, the
business of insurance was viewed as not falling within
interstate commerce and, thus, subject to State, not Federal
regulation.
In 1944, the Supreme Court effectively reversed itself on
this question, holding that Federal antitrust laws were
applicable to an insurance association's interstate activities
and restrain of trade. Both States and insurers were not happy
with that change.
Congress responded with the McCarran-Ferguson Act, which
exempts insurers from certain Federal antitrust laws. As we
have seen in the recent rejection of both the Anthem-Cigna and
Aetna-Humana mergers, Federal antitrust laws regarding mergers
still clearly apply. The Competitive Health Insurance Reform
Act would repeal the McCarran-Ferguson Act's Federal antitrust
exemption, so that it no longer applies to the business of
health insurance. The McCarran-Ferguson Act would remain in
effect for other types of insurance, such as property,
casualty, and automobile insurance.
The issue of repeal has been discussed by the House
Judiciary Committee on several occasions, and various
iterations of legislation to repeal it have been offered for
decades. Within the broader ongoing discussions regarding
efforts to repeal and replace ObamaCare, Affordable Care Act,
the question of the continued necessity and viability of the
McCarran-Ferguson Act has, once again, arisen.
In his planned outline for reforming ObamaCare, newly
appointed Health and Human Services Secretary, Tom Price has
called for permitting the sale of insurance across State lines.
Similar thinking has been echoed by President Trump and is
included in House Republicans' ``A Better Way'' plan. Opening
up the market to cross-border of sales would increase both
competition in insurance markets, and the choice of insurance
products offered to consumers. The ability to sell insurance
across State lines is often tied to discussions about the
McCarran-Ferguson Act. In fact, interstate insurance sales are
already legal under certain conditions.
A provision in the Affordable Care Act allows the states to
establish what are called ``healthcare choice compacts,'' which
permit insurers to sell policies to individuals and small
business in any State that participates in the compact. State
regulatory agencies set rules and minimums insurers must meet
to sell plans in their State.
Instances of cross-state sales to date, however, have been
relatively limited. We have an excellent panel of witnesses
before us today who will help update us to evaluate the issues
more effectively, and place this litigation into the larger
context of the looming healthcare discussion. I look forward to
our witnesses' testimony on the merits of H.R. 372.
[The bill, H.R. 372, follows:]
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__________
Mr. Farenthold. And I now recognize the Ranking Member, the
gentleman from Rhode Island, Mr. Cicilline, for his opening
statement.
Mr. Cicilline. Thank you, Mr. Chairman. Before I begin my
remarks, I would like to take a moment to thank Chairman
Marino, who was detained on other matters this morning, for his
gracious welcome to this new position. I want to recognize my
immediate predecessor, Mr. Johnson, and thank him for being
here, as well as the Ranking Member of the full Committee, Mr.
Conyers, for being here as well.
As Ranking Member of the Subcommittee, it is my foremost
priority to work with the majority wherever possible to be find
pathways to lowering prices for consumers, promoting innovation
in existing new markets, and ensuring that every business has a
fair opportunity to compete on an even playing field. Free
markets only work for consumers to improve standards of living
where there are sufficient competition. As the Council of
Economic Advisers under the Obama administration reported last
year, robust enforcement of the antitrust laws is an important
way in which the government makes sure the market provides the
best outcomes for society with respect to choice, innovation,
and price as well as fair labor and business markets.
This Subcommittee plays a vital role in ensuring this
outcome through oversight of the antitrust agencies'
competition policy and the antitrust laws. Just this month, the
Justice Department has won two important civil antitrust
lawsuits initiated under the Obama administration to prevent
unprecedented consolidation in the health insurance market.
According to the Justice Department, these transactions would
have stifled competition, harming consumers by increasing
health insurance prices, and slowing innovation aimed at
lowering the cost of health care.
But long before the Justice Department filed a lawsuit to
enjoin these transactions, this Subcommittee held an important
oversight hearing of these mergers, providing the public with
insight into the matter and underscoring the importance of
hearings and other oversight activity conducted by the
Subcommittee.
In terms of the immediate topic of today's hearing, there
are few better examples of entrenched market power resulting in
higher consumer costs than those found in the healthcare
market. The McCarran-Ferguson Act was enacted more than 70
years ago in response to the Supreme Court's ruling in South-
Eastern Underwriters Association. That insurance activity
across State lines is commerce within the meaning of Article I
of the Constitution and, therefore, subject to the antitrust
laws.
To qualify for this exemption, an insurer must be engaged
in the business of insurance that is not designed to boycott,
coerce, and intimidate, and is regulated within the State.
While these requirements somewhat constrain anticompetitive
conduct by insurers, it has long been clear that they do not
preclude the most egregious forms of anticompetitive conduct,
such as price fixing, bid rigging and market allocation by
health and medical malpractice insurance insurers.
Indeed, as then-Assistant Attorney General Christine Varney
testified in 2009, decades of case law suggests that the
McCarran-Ferguson Act exempts many forms of anticompetitive
conduct that occur within State regulation, no matter how
toothless State regulatory schemes may be. It is, therefore,
critical that we use every tool to preserve and promote
competition in these markets. I believe that proposals to
repeal McCarran-Ferguson Act, such as H.R. 372 and H.R. 182,
Ranking Member Conyers' proposal, are important to achieving
this result. But make no mistake, promoting competition in the
State markets must not occur at the expense of strong
regulatory protections that establish health insurance
exchanges, make health markets more efficient, and ensure
baseline protections against discrimination. Far from it.
As Professor Tom Greaney, a leading expert of competition
in healthcare markets testified last year, the Affordable Care
Act vastly improves conditions necessary for competition to
take hold and flourish in these markets.
Lastly, I would be remiss if I did not renew my call for a
hearing on drug price competition. There are few other issues
that so directly affect the lives of working American families
as the price and availability of prescription drugs. While this
Subcommittee has held a hearing on competition in the market
for opioid treatment medicine, we have not considered the
broader issue of drug price competition, and it is my hope that
we will.
With that, I thank the Chairman for holding today's
hearing. I very much look forward to the testimony of our
witnesses. And I want to particularly welcome our colleagues,
Mr. Gosar, Mr. Scott, and I look forward to hearing your
testimony.
And I yield back the balance of my time.
Mr. Farenthold. Thank you very much, Mr. Cicilline.
We will now go to the Ranking Member of the full Committee,
Mr. Conyers of Michigan, for his opening statement.
Mr. Conyers. Thank you, Mr. Chairman. Welcome to our
distinguished witnesses this morning. I am pleased that the
Subcommittee's first hearing of this new Congress is on H.R.
372, the ``Competitive Health Insurance Reform Act of 2017,''
which repeals the antitrust exemption in the McCarran-Ferguson
Act for the health insurance business.
For many years, I have advocated for such a repeal, so I am
heartened to see the bipartisan nature of the support for this
position.
My own bill, H.R. 143, would similarly repeal the McCarran-
Ferguson antitrust exemption from the health insurance
business, and it does so for price fixing, bid rigging, and
market allocation, the most egregious kinds of anticompetitive
conduct there is.
Additionally, my legislation would repeal the exemption for
the business of medical malpractice insurance, as this would be
another key component ensuring competition in healthcare
markets.
There are several important reasons why Congress should
repeal this antitrust exemption. To begin with, there is no
justification for continuing such a broad antitrust exemption
for health insurance insurers.
Congress passed the McCarran-Ferguson Act in response to a
1944 Supreme Court decision finding that antitrust laws applied
to the business of insurance, like everything else. Both
insurance companies and the States express concern about that
decision.
Insurance companies worry that it would jeopardize certain
collective practices like joint rig setting and the pooling of
historical data. And the States were concerned about losing
their authority to regulate and tax the business of insurance.
To address this concerns, McCarran-Ferguson provided that
Federal antitrust laws apply to the business of insurance only
to the extent that it is not regulated by State law, which has
resulted in a broad antitrust exemption. Industry and State
revenue concerns rather than the key goals of protecting
competition in consumers were the primary drivers of the Act.
In passing, McCarran-Ferguson, Congress, however, initially
intended to provide only a temporary exemption and,
unfortunately, gave little consideration to ensuring
competition. Not surprisingly, three commissioners observed in
the 2000 Southern Antitrust Modernization Commission report
that McCarran-Ferguson should be repealed because it has
outlived any utility it may have had and should be repealed.
And another commissioner stated that the Act is among the
most ill-conceived and egregious examples of antitrust
exemptions, that its repeal should not be delayed.
In addition, repeal would be timely, given that the health
insurance industry is highly concentrated, the situation that
exacerbates harms against consumers.
Although Federal courts have recently blocked two mergers
among four of the Nation's largest health insurance companies,
the situation before these proposed mergers look bleak.
The American Medical Association has warned that the health
insurance markets are highly concentrated with mere total
collapse of competition among health insurers. The blocking of
these mergers in the already high level of market concentration
further suggests that for the good of consumers and the
economy, the business of health insurance should not continue
to enjoy an antitrust exemption.
And, finally, repeal of the McCarran-Ferguson antitrust
exemption where the business of health insurance is a
complement, not an alternative, to the affordable health care
act. Some may be think that appealing McCarran-Ferguson alone
would be sufficient to help patients and other healthcare
consumers obtain affordable health insurance, but we should
remember that the House included language almost identical to
H.R. 372 in its version of the Affordable Care Act.
This is not an either/or situation. We need both measures
to be in place to maximize benefits, improve quality, and lower
price for consumers. And so I look forward to the testimony of
our witnesses today.
I yield back my time. Thank you, Mr. Chairman.
Mr. Farenthold. Thank you. Without objection, other
Members' opening statements will be made part of the record.
Now, we now turn to our first panel of witnesses. Dr. Paul
Gosar represents the Fourth District of Arizona and is a
sponsor of the legislation that is the subject of this hearing
today. Dr. Gosar serves on two Committees, the House Committee
on Oversight and Government Reform, and the House Natural
Resources Committee. Before being elected to Congress in 2010,
Dr. Gosar owned his own dental practice and was a small
business man in Flagstaff for 25 years.
Mr. Austin Scott represents the Eighth District of Georgia.
Mr. Scott serves as Chairman of the House Agriculture
Committee, Subcommittee on Commodity Exchanges, Energy and
Credit. Additionally, he is an active Member on the House Armed
Services Committee.
Prior to joining us in Congress in 2010, he spent 14 years
in the Georgia State House, and has owned and operated an
insurance brokerage firm for nearly 20 years.
Each of the witnesses' written statements will be entered
into the record in its entirety. I would ask you to summarize
your thoughts within 5 minutes and you understand how the
signal system works, so let's get going.
Dr. Gosar.
TESTIMONY OF THE HONORABLE PAUL GOSAR, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF ARIZONA
Mr. Gosar. Thank you, Chairman Farenthold, Ranking Member
Cicilline, and the full Chairman Goodlatte, and Ranking Member
Conyers. I appreciate it.
I thank you for having this hearing on our bill, the
Competitive Health Insurance Reform Act, and for the time you
devoted to studying the issue of McCarran-Ferguson, the
antitrust exemption for health insurance.
As Congress once again faces the preeminent test of
repairing our Nation's healthcare system, first and foremost,
we must establish the proper foundation for a competitive and
consumer-driven health insurance marketplace. The Competitive
Health Insurance Reform Act of 2017 will restore the
application of Federal antitrust and competition laws through
the health insurance industry. Ending the special interest
exemption is the essential first step to broader healthcare
reform. Popular cost-reducing reform priority, such as selling
insurance across State lines and developing diverse consumer-
driven plans, are predicated on the robust competition
marketplaces this bill would ensure.
As a healthcare provider for more than 25 years, I
understand firsthand the importance of a competitive and
dynamic health insurance market. Patients, doctors, and
hospitals alike benefit when health insurers compete to provide
a variety of quality coverage policies.
As a dentist, I have a unique perspective of the power a
truly competitive marketplace could have on price control.
Staying far away as possible from government-run health care
and utilizing doctor-led insurance practices, industry has been
able to deliver care at cost that closely matches inflation,
unlike general medicine, whose costs have risen more than 20
times that.
The McCarran-Ferguson Act of 1945 exempted the insurance
industry from the Sherman Act and the Clayton Act, acts that
have a purpose of ensuring fair competition. This broad
exemption was intended to assist the newly developing business
of insurance, so that those companies could set sustainable
premiums by permitting data sharing between insurance
companies. It is important to note that this industry-specific
exemption was created and built around antiquated rudimentary
practices for data collection and information processing. The
health insurance industry of 1945 was far different than that
of today. Today's health industry is concentrated into
vertically integrated behemoths, with immense computing power
able to access and process more information than the quaint
insurers of the 1940s could ever dream of. It seems the only
thing that hasn't changed is the special interest antitrust
exemption that only this market enjoys.
However, after 70 years, it is apparent that the broad
stroke exemption created by Congress in the 1940's was not
wise. Over the decades, and expeditiously since the passage of
ObamaCare since 2009, the health insurance market has devolved
into one of the least transparent and more anticompetitive
industries in the United States. These antiquated exemptions
are no longer necessary. There is no reason in law, policy, or
logic for the insurance industry to have special exemptions
that are different from all other businesses in the United
States.
The interpretation of antitrust law has narrowed
dramatically over the decades. Many of the practices which
insurers say they need this exemption to do, such as analyzing
historical loss data, have proven to be permissible by the FTC
and courts over the decades since McCarran-Ferguson was passed.
This narrowing of the scope has resulted in the zombie law,
whose efficacy and usefulness has long since expired; yet, it
looks to scare off potential legitimate legal challenges from
States, patients, and providers. These entities do not have the
tools, money, or manpower to challenge these monopolies in
court or head on in the current market. Only the Federal
Government with its resources can enforce the laws which
rebalance the playing field fairly. Repeal of the specific
section of the McCarran-Ferguson Act, which applies only to
health insurance, has strong bipartisan support. As we saw in
the 2009, 111th Congress, a vote of 406-19 passed the
democratically held Congress. In the 112th Congress, it passed
by a voice vote. Similar legislation has been introduced by
multiple Democratic Members of the House, and attached to my
bill has been included in the Republican Study Committee's
healthcare reform bill for the last 4. In fact, they even
appeared in the Republican Party platform in the convention in
Cleveland last year.
As a dentist, I know how important robust competition is to
dynamic and effective health insurance. It should protect the
patient as well as the healthcare provider.
It should provide uniformly applied associated checks and
balances that incentivize competition and prevent monopolies.
Today, in the healthcare market, those equally applied
antitrust predictions don't exist.
Now, I don't have a crystal ball that will tell you what
the future of health care would look like. I don't think
anybody knows. But I can tell you that history is an important
guide. The 70-year antitrust exemption for the health insurance
industry has resulted in a consolidated, anticompetitive, and
nontransparent scheme controlled by five mega corporations.
That is not what we want for the future. Instead, let's
liberate the market by removing this antitrust exemption.
Imagine what could exist when we put the patient first and
demand that health insurance companies compete for their
business. This market should be patient centric, provide a
variety of affordable, quality options, and empower patients'
involvement and accountability. I thank everybody for their
time today in considering this bill. I look forward to its
passage, and thank you for considering it today. Thank you very
much.
[The prepared statement of Mr. Gosar follows:]
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__________
Mr. Farenthold. Thank you.
Mr. Scott, you are recognized for 5 minutes.
TESTIMONY OF THE HONORABLE AUSTIN SCOTT, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF GEORGIA
Mr. Scott. Chairman Farenthold, Ranking Member Cicilline,
Chairman Goodlatte, Chairman Conyers, and Members of the
Subcommittee, thank you for allowing me to submit my testimony
in support of H.R. 372, the ``Competitive Health Insurance
Reform Act of 2017.''
Many of you have law degrees from very distinguished
schools, none quite as distinguished as the University of
Georgia, where I received my degree in risk management and
insurance in the early 1990's. This is when I was first
licensed to sell life and health insurance during an internship
in the summer of 1991. All in all, I spent approximately 20
years as an employee benefits broker, licensed in multiple
States representing approximately 40 carriers. I was designated
by the American College as a charter life underwriter, charter
financial consultant, registered health underwriter, and a
registered employee benefits consultant. I might also mention
that my father is a surgeon in a small town, so I have seen
this situation from the rural provider's side as well. I have
actually read the contracts.
Before I go any further, I want to be clear that I believe
there were a number of problems in the health insurance market
before the Affordable Care Act passed. I think most brokers
would tell you that. I also think that patients, physicians,
pharmacists, people who work in the hospitals, would tell you
that many of the problems that existed have been made worse by
the lack of competition in the health insurance industry today.
If I may be so bold as to ask you a few questions.
Do you think that pharmacies should be exempt from the
antitrust laws of the country? Do you think that physicians
should be exempt from the antitrust laws of the country? What
about hospitals? Nobody in this room has or would put forward a
bill that exempted any of these people who actually provide
health care to patients from the antitrust laws of the country.
So why would we allow the health insurance industry, who
controls, through their contracts, who our doctor is, who our
pharmacist is, which medicine we can get, and which hospital we
can go through to being exempt from the antitrust laws of our
country?
No doubt, their lawyers will tell you they are exempt
because they are regulated by the States. Nothing in this
legislation changes the fact that they are regulated by the
States.
The groups that I just mentioned are also regulated by the
States: Physicians, pharmacists, hospitals, and insurance
brokers, all licensed and regulated by the States, not by the
Federal Government. None of that changes with this legislation.
All of those are subject to the antitrust laws of our country
just as they should be.
The only thing that would change is that the health
insurance industry would no longer be exempt. I very distinctly
remember a renewal letter that a client received with a choice
of sign here and accept the new preexisting acceptance clause,
and your renewal will be a certain dollar amount, or don't sign
and your renewal would be significantly higher.
The people who argue that the health insurance industry
should be exempt from the antitrust laws will also defend this
pricing as just good business. This was from one of the biggest
of the big carriers, and they are bigger and more controlling
today than ever before. They are, in fact, the only carrier
available to many of my constituents today.
The dominance of the market that these large carriers enjoy
has forced many providers to move, close, merge, or sell to
larger regional hospitals. The end results of this is that in
the 24 counties that I represent, patients have fewer
healthcare providers left. How is the antitrust issue relevant
here? By definition, health care and health insurance are not
the same thing.
But when one insurance company controls such significant
portions of the cash flow of all of the providers in a region,
no provider can stay in business without a contract with that
carrier. Therefore, the insurance company gets to determine who
is and who is not able to provide health care. Sign a contract
with the competing carrier, we will cancel your contract.
Accept the lower reimbursement, or we will cancel your
contract. It is closer to extortion than negotiation.
I don't believe that all of this anticompetitive conduct is
technically exempt from the antitrust laws. I have no doubt
that in this room, the insurance industry would say the most
reprehensible of these conducts is not. But in the courtroom
down the street, they know that no provider has the resources
to challenge them. The fact is most States don't have the
resources to challenge them. The insurance company will simply
cancel the provider's contract, and the provider would be
broke, and that is the end of the case. A few brief comments to
finish. This exemption is not only damaging to the consumer
when they purchase health insurance, it damages the healthcare
providers and, therefore, further limits access to health care.
I don't think this issue alone solves all of the problems
in the health care industry, but I don't think that any of the
problems in the insurance market will be solved if this
exemption stays in place. Just as Mr. Conyers spoke to, I think
it is noteworthy that on February 24th of 2010, the Health
Insurance Industry Fair Competition Act passed the House with a
vote of 406-19, yet, it was not included in the Affordable Care
Act. The sharing of historical loss data primarily benefits
small carriers. I think it would be wise to consider
specifically allowing historical loss data to be shared to
prevent costly, unnecessary litigation.
And I want to thank you for your time and the opportunity
to provide testimony this morning. And with that, I yield back
the 29 seconds that I don't have.
[The prepared statement of Mr. Scott follows:]
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__________
Mr. Farenthold. And we appreciate your testimony here today
on this important issue.
I think this concludes our first panel. Thank you, again,
for sharing your insights with us.
I believe Mr. Cicilline----
Mr. Cicilline. Yes. Mr. Chairman, I would ask unanimous
consent that written testimony of the Honorable Tom Perriello,
our former colleague from Virginia, be entered into the record.
Tom was the lead sponsor of the Health Insurance Industry Fair
Competition Act, which passed by a vote of 406-19 in the 111th
Congress and has long supported competitive health insurance
markets.
Mr. Farenthold. Without objection, so ordered.
[The prepared statement of Mr. Perriello follows:]
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__________
Mr. Farenthold. We will take a short break here while they
set up. But as soon as they get set up, we are going to get
going. We have a busy day in Washington today.
Mr. Swalwell. Would the gentleman yield just briefly?
Mr. Farenthold. Sure.
Mr. Swalwell. Thank you. Also, I will also be going between
hearings. I was hoping I could enter into the record an
American Association of Oral and Maxillofacial Surgeons' letter
dated February 16, 2017, from their president, Douglas Fame.
Mr. Farenthold. Without objection, so ordered.
Mr. Swalwell. Thank you.
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__________
Mr. Farenthold. I see the usual efficiency of our Judiciary
Committee staff as they have gotten you guys ready to go in no
time at all. So we will get going on panel two.
We will begin by swearing in our witnesses before I
introduce them.
Gentlemen, would you all please rise and raise your right
hand.
Do you swear the testimony you are about to give before
this Committee is the truth, the whole truth, and nothing but
the truth, so help you God?
Let the record reflect that all witnesses answered in the
affirmative.
You all may be seated.
Or distinguished panel today includes Mr. Thomas Miller, a
resident fellow at the American Enterprise Institute, AEI,
where he studies healthcare policy, including health insurance
and market based-alternatives to the Affordable Care Act. Prior
to joining AEI, Mr. Miller served as a senior health economist
for the Joint Economic Committee, JEC, in Congress. He's
testified before Congress on issues such as the uninsured
healthcare cost, Medicare, prescription drug benefit, health
insurance tax and credits, generic information, Social
Security, Federal reinsurance of catastrophic events, among
others. Mr. Miller also practiced as a trial attorney for the
firm of Powell Goldstein Frazer & Murphy in Atlanta, Georgia,
where he served as a lead attorney in a lawsuit challenging the
State of Georgia's proposed Medicaid regulations. Mr. Miller
received his bachelor's degree in political science from New
York University, and his JD from Duke University School of Law.
Mr. David Balto is an antitrust attorney with over 15 years
of government antitrust experience. Mr. Balto has worked as a
trial attorney in the Antitrust Division at the Department of
Justice, and several senior level positions in the Federal
Trade Commission during the Clinton administration. He received
his bachelor's degree from the University of Minnesota and his
JD from the Northeastern University School of Law.
Mr. Robert Woody is Vice President for policy at PCI with a
primary focus on the development of PCI's policy position on
Federal issues. He was deeply involved in the PCT's efforts to
educate Congress on the impact of the Dodd-Frank Act, as it was
considered in Congress, and continues to be involved in the
implementation and reform issues. He is also responsible for
reinsurance and guaranteed fund issues at the State and Federal
level.
Prior to joining PCI, Mr. Woody practiced law for 16 years
at an international law firm. He advised both U.S. and non-U.S.
citizens on insurance regulatory matters from the firm's
Washington and London office. He was active in lobbying the
Congress on the enactment of the Terrorism Risk Insurance Act
in 2002, and its subsequent reauthorizations and continues to
advise insurance on compliance with what that statute does and
its implementing regulations. He is the author of several
published articles on various insurance law topics including
privacy compliance.
Prior to joining the firm, he was a legislative assistant
to Representative Bill Emerson, and previously worked in
several capacities in the Virginia General Assembly. He got a
bachelor's degree from James Madison University and a JD from
the Catholic University of America.
Mr. George Slover is a senior policy counsel at Consumers
Union, where he helps develop and coordinate regulatory
comments across a wide range of policy issues, focusing on
antitrust and competition issues. Mr. Slover has three decades
of Federal Government policy experience with service in all
three branches, including 9 years in this Committee, 2 years at
the Energy and Commerce Committee, and 11 years at the Justice
Department's Antitrust Division. He also serves on the advisory
board of the American Antitrust Institute, the Steering
Committee of the D.C. Bar's antitrust and consumer law section,
and is an elected member of the American Law Institute.
Mr. Slover received his bachelor's degree from Vanderbilt,
a master's degree in public affairs from the LBJ School of
Public Affairs at the University of Texas, and his JD from the
University of Texas Law School. Fellow Longhorn.
All right. So each of your written statements has been
provided to us, and will be entered into the record. I would
like you to summarize your testimony in 5 minutes. You have got
the timer in front of you. I think all of you are familiar with
how that works as well. Much like a traffic stoplight, green
means go, yellow means hurry up, and red means stop. So we will
get going here, and we will start with Mr. Miller.
TESTIMONY OF THOMAS P. MILLER, ESQ., RESIDENT FELLOW, AMERICAN
ENTERPRISE INSTITUTE
Mr. Miller. Thank you, Vice Chairman Farenthold, Chairman
Goodlatte, Ranking Member Conyers, Subcommittee Ranking Member
Cicilline, and all the Members of the Subcommittee for the
opportunity to testify today on this proposed legislation, and
more generally, on competition policy considerations involving
limited antitrust exemption for health insurers under the
McCarran-Ferguson Act.
Overall, the approach in this bill and similar ones in the
recent past does not raise new or pressing issues. It appears
to advocate at best the uncertain and limited remedy in search
of problems that are hard to find and quantifying empirically,
particularly within the health sector of the insurance
industry. Many other existing tools already remain in place to
police health insurance competition. The likely gains and
reciprocal cost of removing the limited antitrust exemption in
this sector may appear minor; however, the additional risks of
adding new regulatory uncertainty, increasing boundary testing
litigation, and distracting policymakers from more important
ways to reduce healthcare costs and improve healthcare
competition suggested further caution and delay on this front
is advisable, at least until the post Affordable Care Act
policy path is determined.
Increasing the Federal Government's role in regulating
health insurance even more through expanded antitrust
enforcement would appear to conflict with proposed reforms to
delegate more responsibility to State governments and
individual consumers.
The McCarran-Ferguson Act to reaffirm the basic policy
against Federal Government regulation of insurance, and more
particularly, antitrust regulation, but this rule would apply
as long as State governments took on that responsibility.
As interpreted and fleshed out by a long series of court
decisions in later years, the Act's protection against Federal
antitrust regulation applies only when the conduct of insurers
constitutes the business of insurance, is regulated by State
law, and does not constitute an agreement to act--an agreement
or act to boycott, coerce, or intimidate.
Over the decades, court interpretation of which activities
meet a three-factor test for being within the business of
insurance have become tighter in accordance with the general
rule disfavoring expansive interpretations of exemptions to the
Federal antitrust laws.
My written testimony includes a long list of insurer
practices that have been ruled to be outside the antitrust
exemption. Moreover, the extent of State and Federal regulation
of insurers remains broad and deep.
McCarran-Ferguson provides no safe harbors under scrutiny
under State antitrust laws, merger enforcement activity over
insurers remains at both the State and Federal levels. States
also have consumer protection laws and unfair claims practices
statutes that further police health insurers' practices. The
primary argument over time for establishing retaining--and
retaining the antitrust exemption under McCarran-Ferguson has
been to facilitate economically efficient sharing of
information that helps insurers to evaluate risk and price
accurately. However, those cooperative activities always have
mattered far more to property casualty insurers than to health
insurers. Health insurers have no similar history of utilizing
advisory organizations for the joint estimation and projection
of medical claims cost.
One can make an argument that many, if not all, the
remaining efficiency enhancing and pro-competitive aspects of
advisory organization activities today might well pass muster
under modern rule of reasoned applications of antitrust
enforcement. However, the uncertain risk of litigation
challenges and organizational change pressures would produce
some offsetting costs. Another less anticipated counter
reaction instead might be greater alliance on the State action
doctrine, which might not just deflect antitrust concerns but,
actually, further enshrine unwise and overaggressive State
regulation.
The Competitive Health Insurance Reform Act of 2017 really
provides little, if any, evidence of absence of current
antitrust and regulatory review of health insurance services,
or court decisions allowing anticompetitive conduct under
current law, or actual marketplace behavior by health insurers
that was enabled by the limited antitrust exemption.
This legislation lacks any real empirical basis for
suggesting that health insurers have persistently achieved
high, let alone abnormally high profits due to the antitrust
exemption. When the congressional Budget Office last examined
in 2009, similar legislation to remove the antitrust exemption
for health insurers, and also medical liability insurers, it
concluded that any effect on insurance premiums is likely to be
quite small, because State laws already bar the activities that
would be prohibited under the proposed Federal law if enacted.
The larger problem in health policy today is that health
care and health insurance is regulated too heavily, not too
lightly, particularly after passage of the Affordable Care Act
in 2010. In all likelihood, concentrating on this stale issue
of the McCarran-Ferguson antitrust exemption, will merely
distract our attention from more urgent tasks encouraging and
adopting far more important market-oriented reforms that our
health system definitely needs. Thank you.
[The prepared statement of Mr. Miller follows:]
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__________
Mr. Farenthold. Thank you, Mr. Miller.
Mr. Balto, you are up for 5 minutes.
TESTIMONY OF DAVID BALTO, ESQ., PRINCIPAL,
DAVID A. BALTO LAW OFFICES
Mr. Balto. Thank you, Chairman Farenthold, Ranking Member
Cicilline, and the other Members of the Committee. I am David
Balto. I am for--used to be the policy director of the Federal
Trade Commission. This is actually the 15th time I have
testified on healthcare competition issues before Congress, the
sixth time before this Committee. I welcome returning to you. I
also lead a consumer coalition on healthcare competition
issues, the Coalition to Protect Patients' Rights.
The question before you is simple, easy, and clear: Is the
McCarran-Ferguson Act necessary--is it necessary to exemptions
to the antitrust laws? The answer is clear. It is not. The
antitrust modernization committee that this committee helped
form says that for there to be an antitrust exemption, there
has to be clear case that the conduct in question would subject
the actors to antitrust liability, and there is no less
restrictive way to solve the problem.
The proponents of keeping the exemption cannot demonstrate
a clear case. The law is crystal clear here that the conduct
that they would like to engage in would not violate the
antitrust laws.
Mr. Miller, in his testimony, actually says they don't even
need to engage in this kind of information sharing.
Why are antitrust exemption disfavored? There has not been
an industry-wide antitrust exemption passed since this one.
That is because the anti--an antitrust exemption replaces the
discipline of the free market with private regulation, not
government regulation. Even worse, private regulation. Private
parties get to determine the terms of competition. That is the
worse result for consumers.
Now, the two of us can engage in a debate. You can bring
lots of lawyers in front of you debating about how bad the
exemption is. But Herb Hovenkamp, Professor Herb Hovenkamp, who
is sort of the Tom Brady of antitrust, when the Supreme Court
makes a decision on antitrust, they open his treatise first. He
says that this distracts a significant toll on competition and
on consumers. And, in fact, in the worst ways possible.
Sure, there are exceptions to the Act that the court has
tried to form by--in sort of a Swiss-cheese approach, but when
you look at a variety of egregious practices, those are
permitted by the Act.
Now, what--the proponents of the legislation want you to
ask the wrong question. They want you to ask, is there any harm
from the exemption? That is not the right question. The right
question, according to the Antitrust Modernization Commission,
is there an essential benefit that is necessary from this
legislation?
Now, they pose three myths, the proponents to the
legislation: The first is sort of like, there is only a small
pothole. There is a little bit of problem here, but it is, you
know, not that big a deal. Well, according to Herb Hovenkamp,
it is. And in any case, why do we want to permit potholes in
any case? Why do we want to create--give the health insurance
industry a get-out-of-jail card? Of all the industries to give
a get-out-of-jail card, the health insurance industry is
probably the last one.
Second, they sort of say that there aren't costs imposed,
but there are costs imposed. I'll just give the issue of,
currently, Blue Cross has agreements that prevent Blue Cross
subsidiaries from being able to effectively invade each other's
territory. So CareFirst in northern Virginia can't makes its
way down to Richmond, and the Blue Cross of Virginia can't make
its way up into northern Virginia. That loss of competition
costs consumers in higher premiums, and it costs healthcare
providers, too.
Third, they say State regulation is enough, but careful
studies of State regulation that we cite in our report
demonstrate that the vast majority of States do no consumer
protection enforcement action. There is zero consumer
protection enforcement actions in over 33 States. 80 percent of
the actions are done by five States. We went back and searched
the websites of all of the insurance commissioners and the NAD.
Mr. Miller cites a 2009 case. Great. That was, you know, 8
years ago. There haven't been any cases brought since then. So
State regulation isn't enough. There is real harm, and it is no
small pothole.
This Committee should go further in its oversight. So
illuminating the exemption, the exemption only causes harm.
There is no benefit that it causes whatsoever. This Committee
should continue, in its oversight function, to make sure that
antitrust enforcement continues to be strong in the health
insurance industry. That, and smart regulation, work hand-in-
glove together to make sure that these markets begin to start
to work effectively.
Just to give an example, the Justice Department's challenge
of the Aetna-Humana merger, would result in savings of over
$500 million a year to American taxpayers and to American
consumers, particularly over a million Medicare beneficiaries
who would be vulnerable to anticompetitive conduct. This
exemption has outlived its usefulness and should be abolished.
[The prepared statement of Mr. Balto follows:]
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__________
Mr. Farenthold. Thank you very much, Mr. Balto.
Mr. Woody, you are recognized for 5 minutes.
TESTIMONY OF ROBERT W. WOODY, ESQ., VICE PRESIDENT, POLICY
PROPERTY CASUALTY INSURERS ASSOCIATION OF AMERICA (PCI)
Mr. Woody. Thank you, Chairman Farenthold, Ranking Member
Cicilline, and Chairman Goodlatte, and Ranking Member Conyers.
I am Robert Woody, the vice president for Policy and Property
Casualty Insurers Association of America. PCI is composed of
nearly 1,000-member companies representing the broadest cross-
section of insurers of any national insurance trade
association.
PCI appreciates that the sponsors of H.R. 372 are genuinely
concerned about the availability and affordability of health
insurance, the consumers, and we share that concern.
We also appreciate that the bill does not include property
casualty insurers in the proposed repeal of the limited
antitrust provisions of the McCarran-Ferguson Act. As such, PCI
has no formal position on the bill. But I am here today because
PCI is extremely concerned that supporters of this bill have
misidentified McCarran as the source of the problems in the
health insurance industry, and that misperception of how and
why McCarran-Ferguson works as it does could ultimately cause
significant harm to our industry and, more importantly, to our
consumers and your constituents were the repeal ever expanded
to cover the PC industry.
The bill appears to be premised on the mistaken perception
of McCarran's antitrust provisions leave insurers unfettered by
antitrust laws, and free to engage in what would otherwise be
illegal and anticompetitive activity, but this is not the case.
The decision Congress made in enacting McCarran was not to
excuse the industry from antitrust compliance completely, but,
instead, to assign to the States the power to enforce certain
limited antitrust functions with respect to the business of
insurance.
In particular, they recognize that some joint insurer
activity is actually pro-competitive, and, thus, good for
consumers. For example, small and medium-sized insurers don't
have a base of loss experience large enough to be statistically
significant. And, so, they must rely on historical loss costs,
and industry loss costs data to be able to look into the future
and to project loss costs and then price their products
responsibly. If they can't do that, they are effectively driven
from the market, leaving it only to their largest competitors.
Those are all things that are part of the insurance pricing
process. And so the Congress said, in 1945, why shouldn't the
entire regulation process be overseen by the same regulators?
And the result has been that the State insurance regulatory
system has performed remarkably well, I think, especially as
compared to the Federal regulators in other financial services
sectors.
I want to highlight several particular misperceptions about
McCarran as it relates to health insurance. First, McCarran is
being cited as a barrier to the ability of the health insurers
to sell insurance across State lines. Now, PCI takes no
position on that health industry issue, but it arises because
of differences from State to State in the regulation of health
insurance products, not from antitrust concerns.
There is no connection between that issue and the antitrust
provisions of McCarran. Moreover, when the Congress reserved to
the States the right to regulate the business of insurance, it
was also very careful, to preserve for itself, the right to
preempt State regulation whenever it sees the need. All
Congress must do is to be clear that the legislation it passes
expressly applies to insurance. Congress has done that many
times without seeing the need to amend McCarran.
But some has suggested that McCarran is also responsible
for the high level of market concentration in the health
industry, which can result in a lack of competition. But
McCarran also applies to the property casualty insurance
industry, and yet, the PC industry is extremely competitive,
has very low market concentration. If McCarran caused higher
levels of concentration in the health insurance market,
wouldn't it also be expected to have the same effect in the
property casualty market? Clearly, it does not.
Moreover, just this week, we have seen the power of the
Federal Government at work to block not just one, but two major
proposed mergers in the health insurance industry. The
Department of Justice and the courts are actively blocking M&A
activity in that industry. Again, McCarran-Ferguson has not
stood in the way.
And, finally, the Congressional Research Service has said
that repealing McCarran could spur further consolidation in
insurance markets. The Congressional Budget Office has said
that repeal is not likely to reduce the cost of health
insurance for consumers, and the National Association of
Insurance Commissioners, our regulators, said that this bill
could ``hinder competition, harm consumers, and weaken the
health insurance market.''
So listen to the nonpartisan organizations that serve
Congress and listen to those who regulate insurers and protect
consumers, your constituents. PCI urges the Subcommittee to
investigate the true causes of the problems in the health
insurance market and to recognize that the McCarran-Ferguson
Act is not one of those causes.
Thank you, again, for the opportunity to testify today.
[The prepared statement of Mr. Woody follows:]
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__________
Mr. Farenthold. Thank you very much, Mr. Woody.
Mr. Slover, 5 minutes is yours.
TESTIMONY OF GEORGE SLOVER, ESQ.,
SENIOR POLICY COUNSEL, CONSUMER UNION
Mr. Slover. Thank you. Consumers Union supports this bill.
We have long supported removing this antitrust exemption, so
the rules of competition can apply as they do in the rest of
the American free market economy. The antitrust laws help the
free market work for consumers, and the insurance industry
should not be left out.
This antitrust exemption was created by accident. It was
supposed to be a 3-year breathing spell so insurers could
adjust to a Supreme Court decision. That was 70 years ago. We
hope that, for health insurance, the stars have aligned. A
similar bill passed the House with over 400 votes a few years
ago, and there is bipartisan support in this Committee now.
Since our founding more than 80 years ago, we have worked
to make health care available and affordable for all Americans.
We are strong supporters of the Affordable Care Act, which has
significantly improved health care availability and
affordability for many millions of Americans, including
millions who previously had no health insurance.
We would be very concerned by any move to repeal it without
having an effective new plan already figured out and in place
that maintains comparable coverages in consumer choices and
protections.
The healthcare marketplace is complex in how it operates,
and an effective regulatory framework is needed to shape that
complex environment to help safeguard consumers and keep costs
under control, and make a full range of healthcare services
widely available.
Our country's long experience shows you can't expect a
healthcare system to function effectively on competition alone.
For example, making sure preexisting conditions are not
excluded required a rule. The free market simply wasn't going
to give us that key protection.
But while the regulatory framework sets important
requirements and safeguards, competition within--the bounds of
that framework--adds a market-driven business incentive to
improve service while holding down prices and providing better
value. Regulation and competition both work best when they can
work hand in hand. For these reasons, we support the bill the
Subcommittee is considering today. The rest of the healthcare
supply chain is already operating under the antitrust laws, and
we would like to see health insurers join in.
As the healthcare marketplace evolves, we want health
insurers motivated to continue improving the way coverage is
provided to consumers with higher quality, better choice, and
more affordability. A key part of that motivation is knowing
that if they don't, others likely will, and they could be left
behind.
But an antitrust exemption dampens that motivation,
inviting insurers to make a pact to delay making improvements
until everyone is ready to agree that no one will get out in
front of the others and offer consumers a better deal. That
harms consumers, and it blocks progress.
For example, consumers like to have a choice about which
doctors they can see, and which hospitals they can go to. But
some insurers have been moving to narrower provider networks as
a cost-cutting measure. If there is effective competition and
transparency, consumers who don't like the narrower network can
switch. But if insurers can make a pact that they will all move
to narrower networks, consumers don't have the power of choice.
Regulation can address the too-narrow-network problem by
setting some minimum baselines for what qualifies as an
adequate network. But we don't want health insurers all just
doing the bare minimum, agreeing among themselves to treat the
regulatory floor as also their ceiling. Competitive incentives
can and should augment whatever minimum that regulation sets.
Just to be clear, having a health insurance activity
subject to the antitrust laws is not the same as automatically
outlawing that activity. Passing this bill won't warp the
antitrust laws into a straitjacket that keeps health insurers
from engaging in activities that benefit consumers. To violate
the antitrust laws, the activity would have to significantly
harm competition and consumers, like a price-fixing conspiracy
would, or the improvement stalling pact I just described, or
restrictive deals to lock up providers blocking other insurers
from getting fair access so they can offer consumers better
choices.
This bill won't be the cure-all for everything that ails
health insurance, but it is a constructive step that is going
to help give insurers better choices, and, as a result, help
promote better value.
Health insurers play a key role in our healthcare system.
Adding a dose of competition would help focus their incentives
in line with benefiting consumers. Healthcare markets, for all
their complexities and special characteristics, are no
exception to this economic fact of life. Thank you.
[The prepared statement of Mr. Slover follows:]
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__________
Mr. Farenthold. Thank you very much.
And we will get started with questions. And I will
recognize myself for 5 minutes.
Mr. Miller, I am a big fan of AEI. I tend to agree with
them on most issues, but this one kind of issue I struggle
with. By definition, antitrust laws were designed to promote
competition. And by exempting them, the natural occurrence in,
somebody who is not an expert in the field's mind is, if we
exempt them from antitrust laws, you are going to get
anticompetitive behavior. And that is what antitrust laws were
designed to protect against.
I understand the devolving things to this date. I know it
is something AEI supports devolving as much as possible to the
States. But one of the key features of the debate on the
replacement of ObamaCare is creating competition across State
lines. So all of a sudden, some of these regulations are going
to be preempted just out of necessity by whatever provisions we
choose to enact to enable sale across State lines.
So I guess my question is, what is so special about the
insurance industry when we create a more traditional market for
it that would require this exemption to continue?
Mr. Miller. Well, I am trying to put this in a little bit
of a larger context to suggest you just might want to curb your
enthusiasm on this. There is more than one school of antitrust
thought and practice, and there is a mixed history as to what
antitrust means beyond the pro-competitive wrapper. So we need
to have the same skepticism about antitrust regulation, which
is not uniform and always good, and from Administration to
Administration, you will see how it changes,
In the same way, we need to have some skepticism about the
proclaimed virtues of independent, politically driven
regulation. It is somewhat like, if you will, Forest Gump
opening up a box of chocolates. You don't always know what you
are going to get in antitrust regulation.
Now, on the McCarran-Ferguson--or on the across-State-lines
issue, you are talking to someone who probably wrote the first
academic article in favor of that about 15 years ago. First,
that issue has changed. There is less space to really do much
on that front, but in this particular context, Congress can, at
any time, write a new law that deals with that issue.
McCarran-Ferguson is just a, you know, initial place
setting, which Congress periodically changes in terms of--you
mandated various benefits in health insurance, and have done
other types of Federal moves into the healthcare space. So it
is not an end-all/be-all. Also, there are interstate compacts
which get around that issue as well. The magnitude, though, is
a little bit exaggerated as to how much savings you get from--
--
Mr. Farenthold. I want to talk to Mr. Woody about across
State lines and State regulatory issue as well. It would seem
to me that, as just a cost of compliance, having to deal with
50 different State regulations for an insurance company would
be more expensive than trying to deal with just one Federal
standard. Again, that--I am kind of loathe to say that, because
I am opposed to Federal regulation, but we have got a real
crisis right now on how to deal with the cost of health care.
So what is your take on that?
Mr. Woody. Mr. Chairman, PCI has over 1,000 members, and
many of them are small- to medium-sized companies that don't do
business on a 50-State basis. So to them, State regulators are
closer to them, closer to their markets and closer to their
consumers. I can certainly understand why an insurer who does
business nationally might say, well, it might be more efficient
to have one regulator instead of 50. And, indeed, over the
years, we have seen some discussion within the industry, and in
Congress, about an optional Federal charter. Even from those
who, at one time, supported an optional Federal charter, we
don't hear much talk about that now. And I think one of the
main reasons is there is concern about the regulatory
environment at the Federal level that they see with respect to
other sectors of the financial services industry, and I think
even those insurers are now saying, at least for the time
being, we are happier at the State level than at the Federal
level on balance.
Mr. Farenthold. Finally, I just want to talk for a second
about barriers to entry. One of the arguments for the exception
was to make data more available.
I will give Mr. Miller and Mr. Slover a chance to just give
me about 15 seconds on this, since I am almost out of time.
How do we effectively remove barriers of entry to bring
more competition? I will give Mr. Balto 15 seconds, too.
Mr. Miller?
Mr. Miller. I will be simple. It is a different context in
health insurance, since it is mostly actuarial consulting
firms. Although, you never can tell where you may go with
antitrust once you open them up to challenge, I suppose, they
may have a lot of lawsuits.
But the barriers, to answer you, are more a matter of
lightening the load so that less conventional insurers or other
people approaching this space can get in. We have made it so
dense and difficult, only the largest operators can basically
comply with the burden of regulation. We keep loading on, plus
what we add from the ACA.
Mr. Farenthold. I know, Mr. Balto, you wanted to weigh in
on this. And I know I am running out of time.
Mr. Balto. The simple message for this Committee is that
McCarran-Ferguson could conceivably facilitate dominant
insurers to engage in anticompetitive practices that would keep
other insurance companies from entering.
Example, in Michigan, Blue Cross of Michigan had a most-
favored-nations provision that kept other insurers out. Aetna
sued, and successfully challenged that provision. Aetna, not a
small competitor----
Mr. Farenthold. Again, I apologize. I will give you an
extra minute, Mr. Cicilline.
But, Mr. Slover, did you want to weigh in on that real
quick?
Mr. Slover. Yes, just briefly.
Briefly, from an antitrust perspective, the--removing the
exemption will make it harder for insurance companies to create
barriers to entry across the board.
Mr. Farenthold. Thank you very much.
Mr. Cicilline.
Mr. Cicilline. Thank you, Mr. Chairman.
I want to start with Mr. Miller. I want to be sure I
understand your argument. In your written testimony, and you
repeated it again today, you say the primary argument over time
for establishing and retaining the antitrust exception under
McCarran-Ferguson has been to facilitate economically efficient
sharing of information that helps insurers to evaluate risk and
price accurately.
You go on to argue in your written testimony that that
really doesn't apply in the health insurance market. And that
really----
Mr. Miller [continuing]. A component of the historical
background to this.
Mr. Cicilline. Yeah. ``Meanwhile, health insurers have no
similar history of utilizing advisory organizations for the
joint estimation and projection of medical claim costs.''
So it seems like you argue against your own position. You
say, ``The primary reason for this is a sharing of information,
which is much more present in the property casualty insurance
market,'' to Mr. Woody's point, but you acknowledge it actually
doesn't implicate the health insurance market. So the primary
argument that's advanced is actually an argument that you don't
think is credible.
Mr. Miller. There's a larger argument involved in the
overall testimony.
Mr. Cicilline. No, I understand. Your other argument----
Mr. Miller. That's one slice of it.
Mr. Cicilline. Okay. But that's the primary, and you say
it's not a good one. And then you say----
Mr. Miller. Historically, that's been the primary argument.
That's correct.
Mr. Cicilline [continuing]. It's disruptive and you think
the Committee and Congress should look at other things. That's
the, sort of, gist of the argument.
Mr. Miller. We are in the midst of re-sorting how we are
approaching regulation in health care and health insurance. I
would not change one thing in isolation without looking at the
larger context.
We have just gone through over the last 5 years a massive
increase in regulation of health insurance. I could tick them
off in my testimony.
Mr. Cicilline. No, no.
Mr. Miller. What could possibly have gone wrong?
Mr. Cicilline. That's a different----
Mr. Miller. Maybe lack of insurers in markets? Rising
prices and problems in concentration?
Mr. Cicilline. Right. That's a different question----
Mr. Miller. We need to rethink it in a larger context.
Mr. Cicilline.--Mr. Miller. That's a different question.
What I'm asking you is----
Mr. Miller. It's a more important question.
Mr. Cicilline. No, what I'm asking you, though, is, if the
presumption is--and I think the organization you work for has
advanced this presumption many times over--that competition is
advantageous to consumers, to choice, to spurring innovation,
that this is an exemption which exists in this industry and no
other, that there ought to be a justification. And fear of what
it might bring, it seems to me--and we'll disagree--is not
sufficient justification.
But I'll turn now to Mr. Slover.
Professor Herbert Hovenkamp, who is widely regarded as the
dean of American antitrust law, has written that under the
McCarran-Ferguson Act the presence of even minimal State
regulation, even on an issue unrelated to the antitrust law, is
generally sufficient to preserve the immunity.
Can you respond to that?
Mr. Slover. Yes, that's how the language has been
interpreted. About the same time as the McCarran-Ferguson Act
was enacted, the Supreme Court was deciding Parker v. Brown and
establishing how State regulation and the antitrust laws work
hand-in-hand. And there was a looking at the State regulation.
This was later fleshed out, that there had to be a clear State
regulation and there had to be active supervision in order to
displace the antitrust laws.
What you have, unfortunately, under the McCarran-Ferguson
Act is a minimal requirement, where there doesn't have to be
any State regulation; there just has to be the sense of
regulation. And so it doesn't have to pass any grade. And so
you have a situation in which there isn't a natural incentive
to make State regulation effective, and you don't have either
one.
Mr. Cicilline. So there's been a lot of discussion, both in
this hearing already but throughout the country, about this
notion of allowing competition across State lines. There is
nothing that prohibits that today in the ACA. In fact, it is
expressly authorized, is it not?
Mr. Slover. That's correct; it is expressly authorized in
interstate compacts. It is also perfectly legal for an
insurance company to sell in any State it wants to, as long as
it abides by the rules of that State.
The distinction here I think that's important is not can
they, but will they? And there are natural impediments to the
insurance companies wanting, having the incentive to enter into
each other's territory that this would help fix.
Mr. Cicilline. I think that's a very important point,
because there's been a lot of discussion of, if only we would
allow this to happen, this will solve the problem. There is
nothing that prohibits this from happening, and I think you're
exactly right.
And I'd ask unanimous consent to introduce an article dated
October 13 entitled ``Insurers Not Interested in Selling
ObamaCare Across State Lines,'' which recounts that for the
last 12 months States have been legally allowed to let insurers
sell plans outside their borders. Despite the idea's enduring
popularity, no States have signaled an interest in the policy.
And I think this is really the question of whether or not
insurance companies are interested in doing that, but there is
no legal prohibition. And so we just sort of should view this
issue in the context of the facts. And I'd ask unanimous
consent that be included in the record.
Mr. Farenthold. Without objection, so ordered.
[The information referred to follows:]
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__________
Mr. Cicilline. And I yield back.
Mr. Farenthold. Thank you very much.
We'll now recognize the Chairman of the full Committee, the
gentleman from Virginia, Mr. Bob Goodlatte.
Mr. Goodlatte. Well, Mr. Chairman, thank you. And thank you
for holding this hearing.
And I want to commend all the witnesses. This has been an
excellent discussion. I think it's very helpful.
A couple of things that I think are a reality here that we
all ought to focus on. One is that similar legislation passed a
few years ago by 406 to 19. So the odds are we're going to pass
it again. The question is what should it look like, so I'd like
to get some of you to focus on that.
But before I do that, I'd like to pick up where the
Chairman left off, on the issue of what is causing this problem
in terms of regulation.
I happen to believe that competition is good. That's our
objective. It will help to hold down costs. And McCarran-
Ferguson may be an impediment to some of that competition. I
will say that I think the largest problem here we have with
choice and healthcare costs is related to overregulation by,
first, the States--and this problem existed prior to the
Affordable Care Act coming into being--and then, to some
extent, the Federal Government stepped in and expanded upon
that by dictating to virtually every insurance company in
America what should be in every health insurance plan in
America.
So that's, in my opinion, why there's not a lot of
competition across State lines, because there isn't any
incentive to have that competition. If have you to go in and
comply with the States' regulations and you have a homogenized
Federal regulation, the net effect of that is that only the big
guys are going to be able to succeed and continue in the
marketplace.
But here's my question for you, Mr. Woody. I think Mr.
Balto gave an example for Virginia about Blue Cross Blue
Shield, which I was very interested in since I represent
Virginia. I don't represent the parts of Virginia that are
affected here, so I feel very comfortable asking the question.
But he said that Blue Shield Blue Shield has an agreement
that they don't compete with each other, separate Blue Cross
entities don't compete with each other. So the Blue Cross in
Richmond doesn't do business in northern Virginia; the one in
northern Virginia doesn't do business in Richmond.
Wouldn't the elimination of McCarran-Ferguson enable State
and Federal Governments to step in and say, why aren't you
competing in these two separate marketplaces and providing at
least some more choice for consumers?
Mr. Woody. Well, I have a disadvantage over Mr. Balto in
that I'm not an antitrust lawyer, and I'm certainly not an
expert in the blues. But I'll tell you what I do think I know
about it, and that is that the antitrust law has developed such
that market allocation cases, instances where defendants have
tried to assert a McCarran-Ferguson defense have generally not
been very successful. And I understand that even in a recent
case involving Blue Cross it wasn't successful.
I saw a Law Review article just the other day that said
that----
Mr. Goodlatte. So do you think it's just Virginia's choice
that they're not going to try to encourage this competition
within their State?
Mr. Woody. I don't know what Virginia's choice is, but what
I do know is that McCarran-Ferguson does not, I think, present
a barrier to going after these market allocation issues.
Mr. Goodlatte. Let me ask Mr. Balto to respond.
Mr. Balto. Well, you know, we could have a lengthy
discussion of, you know, the nature----
Mr. Goodlatte. Not too lengthy, because I've only got a
minute and a half left.
Mr. Balto. Yeah. So, no, the defense has applied in certain
circumstances. The fact that there are some district court
decisions that have narrowed the defense just shows the problem
of the defense. Courts work actively to try to narrow it,
whereas it should just be eliminated because it's not serving
any purpose. There is, as my testimony documents, harmful
conduct that does come about because----
Mr. Goodlatte. Okay. Let's see what we can agree upon in
terms of what we should preserve. If we are going to do this,
we've talked about keeping the ability for loss histories to be
preserved. Are we all in agreement that we should allow
insurance companies to have that, or should it just be smaller
insurance companies? If you're above a certain size, should you
not be able to share that information, or should everybody
share that information?
Mr. Balto. The caselaw and the statements of the antitrust
enforcement agencies are crystal-clear on this. That conduct is
legal so long as it's properly structured. There is no
antitrust risk from that kind of conduct.
Mr. Miller. There's a line between the assembly of the
historical loss data and then you get into trending and
beginning to move toward signaling rates. And that's where I
think there's a little bit of a barrier to it.
Mr. Goodlatte. So build on that, Mr. Miller. And let me ask
Mr. Woody, as well. Assuming we are going to take action here,
what kind of things should be looked for to make sure we have
in this measure that changes or repeals McCarran-Ferguson?
Mr. Miller. Well, I'm not a fanatic about this in terms of
the exemption is so wonderful you have to keep it. I'm saying--
and you're only a Subcommittee of particular jurisdiction, but
you need to see this in the larger context. Not all antitrust
regulation is pro-competitive. It depends on the eye of the
beholder and who's there. And so you're opening up a toolbox
which could be used for other purposes as well.
Mr. Goodlatte. I get that. But what kind of--you may want
to write to us afterwards, but what kind of things--what kind
of precautionary----
Mr. Miller. I'm generally comfortable with the type of safe
harbors--there's elements beyond historical loss data. There
are some elements of building common forms, if they are not
coercive, where they're put as options out on the table, where
coordinated activity, whether it's advisory organizations, has
some validity as well.
Mr. Goodlatte. All right.
Mr. Miller. There could be joint underwriting activities
for high risks, which are a valid--and that's generally
accepted under rule of reason. If you want to legislate it, you
can do it, although the courts have handled that fairly well
thus far.
Mr. Goodlatte. Mr. Chairman, my time has expired. I just
want to make one last point.
And I think that when we talk about the difference between
the disparate effect of McCarran-Ferguson that I think Mr.
Woody pointed to in property and casualty insurance and in
health insurance, I would say that the biggest explanation
there is again going back to the regulations. While States do
regulate property and casualty insurance, they don't get into
the minute details of telling insurance companies what they
have to cover and under what circumstances they have to cover.
And I think that has both driven up cost and driven down
competition and driven down choice for consumers, and we've got
to find a way around that.
I'm very interested in anything you submit to us following
this in terms of how to frame this legislation as the Committee
considers it.
Mr. Farenthold. Thanks, Chairman Goodlatte.
We'll now recognize the Ranking Member of the full
Committee.
Mr. Conyers. Thank you so much.
George Slover, Consumers Union. Your testimony, to me,
captured what I think is key here, and I've got a couple
questions for you.
Mr. Miller's testified that current enforcement tools and
regulatory policies already address competition issues at the
State and Federal level. How do you respond to that?
Mr. Slover. Well, the health insurance marketplace is very
complex, and there is a regulatory framework that has developed
over many years to try to deal with some of that. It's
developed in the absence of the antitrust laws being
applicable. And there are parts of it that seek to set
baselines to protect consumers. There are also some States who
choose to enforce their competition laws, even though the
Federal antitrust enforcement agencies can't do that.
But there is no substitute for having the Federal antitrust
laws apply, and for the industry and the people in the industry
to take heed of that when they're making decisions about how
they're going to structure their relationships with their
competitors.
Mr. Conyers. So we need a Federal involvement in this whole
consideration?
Mr. Slover. I believe that would be very helpful, yes, sir.
Mr. Conyers. Uh-huh.
Now, what about the suggestion that State insurance
commissioners are in the best position to promote competition
and other issues in the health insurance costs? How do you feel
about that?
Mr. Slover. Well, they are regulators; they are not
competition enforcers. And they just come from a different
background and have different goals. And I think you want to
put the competition policy enforcers in charge of enforcing
competition policy.
Mr. Conyers. So you don't agree with this position.
Mr. Slover. I think State regulation definitely has a role
to play, and they can play that role alongside Federal
antitrust enforcement.
Mr. Conyers. Uh-huh.
Now, do you think that McCarran-Ferguson's exemption no
longer serves a legitimate purpose? I mean, that was back in
1945. Have things developed since then that don't make this as
important a consideration as it once was?
Mr. Slover. I don't think it was really needed, even back
in 1945. I think the practices that the insurance industry
wanted to engage in that were legitimate, and didn't harm
competition, they would've been able to engage anyway. I also
think State regulatory authority was going to be fine. I think
that's become clearer as the antitrust laws have evolved and
the caselaw has evolved over the 70 years since then. But I
don't think it was necessary then, and I certainly don't think
it's necessary now.
Mr. Conyers. Uh-huh. Well, thank you very much for your
position as a leader in Consumers Union.
And I yield back my time if there's any left.
Mr. Farenthold. Thank you very much.
We'll now recognize the gentleman from Georgia, Mr.
Collins.
Mr. Collins. Thank you, Mr. Chairman.
I think one of the more telling points here--and I think it
was a good point--is a concern here, but also from the Chairman
just a few moments ago, that, you know, this is an idea that
has seen in this Congress a very, I guess, positive vote,
depending on which way you're going to look at it. And so the
question is a little bit more of how do we make sure that this
is, you know, properly done if this is the way we're
continuing.
So one of the questions I have--and just a few questions
here. Because I think what we have seen--and I'm going to bring
this up again in a moment. But I think one of the things we
have seen in the healthcare market, especially in the pharmacy
benefit manager perspective, is we have seen how monopolistic,
terroristic kind of organizations can do to an independent
community healthcare field.
So, Mr. Miller, let me just--just a couple of quick things.
With the exception of per se violations, would you agree that
the Sherman Act only prohibits anticompetitive conduct that
unreasonably restrains trade?
Mr. Miller. That's how it's written. That's not always how
it's enforced. Give me a period of time, and I'll give you
different versions of antitrust.
Mr. Collins. We'll give you who's interpreting on the
Court. Great. I love that.
Would you agree that the FTC Act only bans that and not all
methods? It only bans that quote part but not all methods of
competition, correct?
Mr. Miller. All right, all right. I'll play along. Yeah.
Mr. Collins. You'll play along with that one? Okay. Then
why, then, would health insurers need to be able to engage in
unreasonable restraints on trade or unfair competition?
Mr. Miller. I'm not in favor of them doing that. We have
other tools to handle that.
Look, part of this argument, if you really want to boil it
down politically, is a disagreement over whether--you know,
different States may have different views as to the type of
competition and type of regulation they want. There's an
impulse to say, let's do it all at the Federal level and let's
make it uniform, and let's go hunting for things and we'll
figure out kind of what it is.
So the question is whether there might be different
political preferences and different degrees of regulation in
different States. That goes back to the interstate proposal.
It's not to enshrine the Affordable Care Act's menu in every
State in the same way under a different wrapper. In a world in
which you might have different brands of State insurance
regulation, consumers could choose which regulation they want
as part of their insurance package. We can't do that today
because the marketplace has changed. That's the original
concept and----
Mr. Collins. And, you know, reclaiming my time, I think
that's a great argument to have at another hearing, and I think
that's a----
Mr. Miller. Well, it came up at this hearing.
Mr. Collins. And I agree with you. But I think that is one
of the problems that we are dealing with. You're very right in
that regard. I'm not--this, I think, is one of the--just before
I move on, real quick, will the sky fall down if McCarran-
Ferguson is repealed?
Mr. Miller. I think I said in my written testimony the sky
wouldn't fall down, but the sun, when it rises, is going to be
clouded by a lot of other problems.
Mr. Collins. Oh, okay. We can go on that.
Mr. Balto, there is clearly a lack of competition in health
insurance markets throughout the country. We're seeing that
right now. One-third is basically represented by one or less,
actually. Would eliminating this exemption make that worse?
Mr. Balto. No. In fact, it would potentially lead to
improvements here. Right now, dominant insurance companies can
engage in anticompetitive practices to keep new entrants from
the market, and they can claim that that's protected by the
McCarran-Ferguson Act----
Mr. Collins. Okay.
Mr. Balto [continuing]. Or they can deliver inferior
services to consumers.
Mr. Collins. Well, and one of the things--and, again, not
necessarily projected by the McCarran-Ferguson Act--is I
think--and it's what I mentioned here just a minute ago--I
think we're seeing how a monopolistic look at a health care--
from a regulation standpoint or unregulated, however we look at
it. And we're particularly dealing in the pharmacy benefit
manager perspective--which is, you know, doing nothing but
terroristic raids on independent community pharmacists. They're
hijacking the price setup. They're trying to claim, you know,
rebates and passing on the savings to others, which has been
proved false on many occasions.
And right now I do realize that there is a large generated
money machine ready to try to rebuke everything that I've said
over the past 2-1/2 years on this issue. The problem is you
can, you know, smear all the makeup you want on that pig but it
ain't going to look good.
And so I think this is an area where we need to continue to
look at, and I appreciate your concern on this.
Mr. Balto. Yeah. If I could just reply to that, there is a
fundamental problem in lax regulation of payors, such as PBMs
and insurance companies. And the people who are on the front
lines--the doctors, hospitals, and pharmacists--are being given
take-it-or-leave-it reimbursement terms that ultimately result
in poor health care for consumers.
Mr. Collins. Exactly. And I think--and that's the one part
of that. It's why I bring it up here, but I think that's one of
the issues that we do need to address. But it shows what
happens in this kind of a constricted market.
So, again, with that, Mr. Chairman, I thank you, and I
yield back.
Mr. Farenthold. Thank you very much.
And we'll stay with the great State of Georgia and
recognize Mr. Johnson for 5 minutes.
Mr. Johnson. Thank you, sir.
Mr. Miller, would you agree that the insurance marketplace
should be left free of government regulation?
Mr. Miller. No. That's a little extreme. Left free of
regulation? I mean, I like the First Amendment that says there
should be no law, but we do go beyond that and suggest that
maybe occasionally we should have a few other things--enforce
fraud and property rights, steady rule of law. There's plenty
of role for government regulation. It's not a, you know,
absolutist, night watchman alternative.
Mr. Johnson. But, basically, you would want the laws of the
free market economy, so in other words supply and demand, to be
able to dictate prices within the insurance marketplace.
Mr. Miller. Well, generally, the role of government is to
say it's our job to restrain competition rather than private
parties to do it. And it's done a pretty good job of it in the
healthcare space.
Mr. Johnson. Yeah, but you would agree, though, that the
health insurance marketplace should largely be free of
government regulations so that the law of supply and demand is
what determines prices.
Mr. Miller. That's a simple construct and a starting point.
Obviously, it's much more complicated than that alone.
Mr. Johnson. I understand. Well, do you agree that
monopolistic behavior distorts the free market force of supply
and demand?
Mr. Miller. There are practices that move toward monopoly
which need to be policed.
Mr. Johnson. Well, let me ask you----
Mr. Miller. There are also monopolies that arise because
someone else does a better job.
Mr. Johnson. Let me ask you the question this way and ask
you for a yes-or-no answer. Do you agree that monopolistic
behavior distorts the free market force of supply and demand,
yes or no?
Mr. Miller. Yes, in those simple terms.
Mr. Johnson. Now, would you agree that the antitrust laws
protect against monopolistic behavior?
Mr. Miller. I think they are written to do that. They have
not always done that in practice.
Mr. Johnson. Well, if we did not have any antitrust laws,
do you believe that monopolistic behavior would go away, or
would it predominate?
Mr. Miller. We've had lots of monopolies supported by
government policy. That's the historical record.
Mr. Johnson. Well, are you saying that we don't need
antimonopolistic legislation?
Mr. Miller. We need better antitrust policy. Just enacting
a law isn't the same as carrying it out in a market-competitive
manner.
Mr. Johnson. Well, let me ask you this. Is it your position
that applying antitrust laws to the health insurance
marketplace will result in higher insurance costs to consumers?
Mr. Miller. It's an open question.
Mr. Johnson. Well, shouldn't we try--after 70 years of
exemptions from antimonopolistic conduct, shouldn't we try at
this point to bring a little less monopolistic behavior into
the healthcare marketplace?
Mr. Miller. My testimony has indicated that we've already
been applying a lot of antitrust and procompetitive----
Mr. Johnson. How?
Mr. Miller [continuing]. Policies.
Mr. Johnson. How?
Mr. Miller. States have a wide latitude to apply all of
this. Merger enforcement activity goes on. There are a range of
activities which are not within this exemption whatsoever----
Mr. Johnson. Well, let me ask you this.
Mr. Miller [continuing]. And they've been doing enforcement
actions as a result of it.
Mr. Johnson. Isn't it a fact that States have not done any
antitrust enforcement solely on their own, without taking the
lead from Federal enforcers over the years?
Mr. Miller. Well, that's what Mr. Balto's testimony wants
you to believe. I think that's a judgment from time to time
depending on who the personnel are in place. They allocate the
resources. There are different views as to what a particular
State, you know, should or should not do. That's part of the
diversity across 50 States, rather than saying, here's one
single policy.
Mr. Johnson. Well, let me ask you this question, Mr.
Miller. The American Medical Association has studied the health
insurance marketplace for the past 15 years, and they have
found that there is ``a near-total collapse of competition
among health insurers.'' Do you----
Mr. Miller. I think that's overstated. Their methodology
has been criticized by some people, including myself. There are
ways in which you can draw lines. They have their particular
point of view, and they want to magnify that. It's not that
stark a situation.
There are problems in doing statewide levels. Now, there
are different ways to break it up in terms of metropolitan
areas, but you can play a lot of games with statistics on that.
Mr. Johnson. Gosh, Mr. Balto, you've got 6 seconds to
respond to anything that has come before you.
Mr. Balto. I disagree with everything Tom says.
But, look, just on the higher cost issue, years ago we
eliminated antitrust exemptions like in the airline industry
and railroads, and there were tremendous cost savings. But the
question here, is do you want to have private regulation, you
know, private parties, competitors determining the terms of
competition, or do you want to have the forces of the free
market.
Thurgood Marshall said that the antitrust laws are the
Magna Carta of our free market system. Why should we cut them
short when it comes to health insurance?
Mr. Johnson. Thank you.
Mr. Slover, it's good to see you.
Thank you for coming, Mr. Woody.
And, with that, I yield back.
Mr. Farenthold. Thank you very much, Mr. Johnson.
We'll now recognize the gentleman from Florida for 5
minutes.
Mr. Gaetz. Thank you, Mr. Chairman.
My question is a simple one, Mr. Balto. And as I've spoken
with a number of my Republican colleagues, they answer the
question in almost diametrically different ways.
Today, under current law, are health insurers allowed to
functionally collude on price?
Mr. Balto. That technically would not be exempt under--the
exemption would not apply to that.
Mr. Gaetz. When you say ``technically,'' so does that mean
that the type of information that health insurers are allowed
to share with one another facilitates outcomes that walk and
quack like collusion?
Mr. Balto. No. First of all, if they engaged in naked price
fixing, that would be illegal under the Act. If they want to
engage in the kinds of things that, you know, Mr. Woody is
talking about, the black letter law at this point is that
sharing information is legal under the law.
Mr. Gaetz. So does the consequence of the sharing of that
information result in monopolistic tendencies in the price
space?
Mr. Balto. No, I think everybody--in terms of sharing
historical information, I think everybody sees that as being
procompetitive. But Mr. Miller says that they don't even need
to do that and they don't really do that in the health
insurance industry.
Mr. Gaetz. I guess my next question relates to the extent
to which----
Mr. Miller. Well, they do it in different ways. And the
question would be whether----
Mr. Gaetz. Right. I'm on to a different question.
Mr. Miller. Okay.
Mr. Gaetz. So, as we look at a potential for ACA reforms
and replacement that would allow people to purchase insurance
across State lines, in the absence of dealing with this
McCarran-Ferguson question, would we see the choice impact of
those reforms impaired?
Mr. Balto. You might not, because the exemption provides a
dominant insurance company to engage in anticompetitive conduct
to keep new rivals from entering their markets. So the goals of
ACA reform might be stifled if you permit this exemption to
continue.
Mr. Gaetz. Mr. Miller, would you agree that the goals of
those reforms to enhance consumer choice would be stifled in
that context?
Mr. Miller. It's not going to have much of an effect, this
particular reform. There's a lot of other reforms that would.
Just in terms of the interstate thing, one of the biggest
barriers to having interstate competition is individual State
insurance commissioners who believe that their approach to
regulation is perfect----
Mr. Gaetz. Well, sure, but we're contemplating----
Mr. Miller [continuing]. Anyone else.
Mr. Gaetz. Right. I think it's pretty out there that we're
contemplating some functional preemption of that, where we
would not allow States to be able to bar people from being able
to cross State lines for the purpose of purchasing insurance.
The question is, if we do not enact reforms that Mr. Gosar
and Mr. Scott were advocating this morning, do we limit the
effect of those choice protocols?
Mr. Miller. You can legislate right around it. Look,
there's older bills, and you know a number of them, which have
set up a template of primary State insurer and the secondary
State, domicile-based choice by the insurer as to where they're
going to be regulated. There are models for doing that which
don't in any way get to the particulars of the antitrust
exemption.
Mr. Gaetz. Mr. Balto, I served in the Florida legislature,
and, you know, I saw the interaction that we had between health
insurers in our State.
Do you have a fear that there are circumstances around the
country where States have sort of wrapped their legislative
apparatus around the business models of various health
insurers, leading to anticompetitive outcomes?
Mr. Balto. Yes. Oftentimes, there are relationships between
the legislatures and the insurance commissioners and insurance
commissioners doesn't effectively police the market.
In your State, unfortunately, for example, in the Aetna-
Humana merger, the insurance commissioner did a very cursory
review of the merger. Ultimately, the Justice Department sued
and blocked the merger because of the substantial harm to
Florida consumers.
Mr. Gaetz. Thank you, Mr. Chairman. I yield back.
Mr. Farenthold. Thank you very much.
We'll now recognize the gentlewoman from Washington, Ms.
Jayapal.
Ms. Jayapal. Thank you very much, Mr. Chair.
Thank you for your testimony.
And, Mr. Slover, thank you for all of your work at
Consumers Union.
I come from the State of Washington, and I want to direct a
few questions to you so I can understand what the impacts of
this would be on a State that, frankly, has embraced the
Affordable Care Act, and has put in place a relatively strong
insurance commissioner. We do have a fairly robust insurance
set of plans and insurers in the State. And we also have had, I
think, decent oversight on many of our plans to make sure that
we have small insurers that are able to participate.
Part of our success also is that we, in our strong market,
is that we moved very early to expand access to the State's
Apple Health Care Medicaid program and chose to run our own
State exchange.
At the same time, our premiums are still too high. They are
much lower than they are for the midlevel plans compared to the
Federal increases and premiums, but we have had two insurers
drop out and two more that potentially might drop out in 2017.
I'm trying to understand how a repeal would affect a State like
Washington, where we've actually embraced regulation at the
State level in a way that benefits consumers.
Could you speak a little bit to those issues of a repeal
and how we put in place protections so that we don't have a
race to the bottom as we open up the marketplace but we
actually protect the strong regulation that we already have in
place in the State and strengthen it further?
Mr. Slover. Sure. Well, we are supporters of the Affordable
Care Act, and whatever happens in the future, there are a lot
of specific protections that are in that Act that we think are
very important.
What this legislation that's before us does is to add a
dose of competition to the mix, that's lacking right now. We
don't want everything that we want an insurance company to do
to have to be regulated, to have to be a regulatory
requirement. We would like the free market incentives of
competition to also come into play, so that whatever a State
decides is a minimum floor that needs to be set for some
protection doesn't become the ceiling because the insurance
companies all agree, ``Well, we've got to follow whatever the
State's telling us to do, but that's all we're going to do,
right, guys? We're not going to see if we can cut consumers a
better deal. We're going to stick together on this so the
consumers don't take advantage of us.''
We don't want businesses with that instinct. We want
businesses with the instinct to say, ``Okay, we've got this
requirement. What else can we do? We have a certain market
share now. We'd like to get more consumers buying from us, so
we're going to look for ways to make our service better.''
Ms. Jayapal. If we did repeal this, are there particular
protections that you would want to see put in place in the
manner in which we repeal it?
Mr. Slover. I don't think allowing competition to be added
to the current mix is going to create any uncertainties or
dangers that would need to be separately addressed. I think
those still need to be considered, as they have been. And
whatever those decisions are, they will be augmented, the
benefits to consumers will be augmented by having competition.
Ms. Jayapal. I did have a question for Mr. Miller.
Mr. Slover had stated that regulation and competition both
work best when they can work hand-in-hand. What is your
response to that?
Mr. Miller. I think if we had less health insurance
regulation we might be able to accommodate more antitrust
regulation as a backup move. And I signaled that in my
testimony. I'd like to see that mix put on the table.
Ms. Jayapal. So you would support strong regulation in
conjunction with----
Mr. Miller. A balanced regulation.
Ms. Jayapal. And what does that----
Mr. Miller. It's a matter of degree. What I'm saying we are
regulating this space so heavily through so many tools that
adding more on top of it is piling more on, not just
redundancy, but actually adding to it.
If instead you had freer competition at the baseline level
in other areas of regulation of health insurance, then there is
an argument that could be made, as a backup policing move, that
the normal operations of better versions of antitrust may be
more appropriate in that regard.
Ms. Jayapal. I have just 20 seconds left, but can I push
you a little bit on that? Just tell me, what balanced
regulation would you support?
Mr. Miller. Well, depends which Administration you're
talking about. We improved antitrust regulation quite a bit in
the late 1970's and the 1980's. It slipped backwards over the
last decade in general.
Ms. Jayapal. So no specific--go ahead.
Mr. Miller. I can elaborate in some followup testimony. You
asked for a quick answer.
Ms. Jayapal. Go ahead. You've got a couple more seconds.
Mr. Balto. Yeah, I can't think of anything worse than
suggesting that we slip backwards in antitrust enforcement. In
the Bush administration, there were over 400 health insurance
mergers; they didn't challenge any. When they've gone back and
done econometric studies, they found that consumers are paying
a lot more for their health insurance. The Obama administration
reversed that, and I hope those gains are retained in the new
Administration.
Ms. Jayapal. Thank you.
I yield back.
Mr. Farenthold. Thank you very much.
We'll now recognize my colleague from Texas, Mr. Ratcliffe.
Mr. Ratcliffe. Thank you, Mr. Chairman.
Mr. Woody, I want to start with you because you've staked
out kind of an interesting middle ground, it seems to me, as a
property casualty insurer.
The group that you represent doesn't appear to be directly
impacted by the current legislation. I guess, first of all, am
I correct with respect to that? And if that's the case, do you
have a concern regarding the repeal of McCarran-Ferguson?
Mr. Woody. It is correct that the bill as it's currently
drafted does not apply to property casualty insurers. Our
concern is that we rely on the McCarran exemption, though, I
think, much more than the health insurance industry does. So
we're looking down the road and saying, well, if they repeal it
for the health industry, we might very well be next. And I
think we have a bigger stake in it, actually, than the health
insurers do.
Mr. Ratcliffe. Okay.
Well, so let me ask you a followup question. Data sharing
is one of the key activities that insurers cite for maintaining
McCarran-Ferguson. But one criticism of the exemption is that
it doesn't distinguish between procompetitive and
anticompetitive data sharing.
Do you think that's a valid criticism?
Mr. Woody. I don't. I actually think that the data sharing
that goes on in the industry is largely procompetitive. And I
think there may be some agreement on the panel about that. I
think it's working fairly well, the State system is working
fairly well to police activity, anticompetitive activity that
shouldn't be allowed, and yet allow the procompetitive
activities that are good for consumers.
Mr. Ratcliffe. Well, I'm guessing maybe Mr. Miller agrees
with that.
Mr. Miller. Sure. I mean, that's pretty well-established.
There's a little bit of an odd contradiction in some of the
arguments here, which is that all these things antitrust
currently would say is okay, that's why it's so vital that it
be restored in order to police these things, which is already
waving it ahead and saying is all right.
Mr. Ratcliffe. I noted in your written testimony you said
that we've seen a shift in tighter Federal regulation following
the passage of ObamaCare. What impact has that increased
regulation had on the current marketplace with respect to
competition, pricing, product offerings?
Mr. Miller. If you're asking me, a more narrow range of
policies that people can choose from. That's why a number of
people are upset in the outside market that they had to either
change provider networks or the policies they previously had--
well, there's been some grandmothering to paper that over.
In addition, we've had in many areas--it's done more on a
county basis than a population basis, that's a different
measure, in terms of a single insurer in a lot of the
marketplace exchanges, as the early rush in has been followed
by an exit out as insurers find out it's not a good business to
keep losing money based upon the prescribed formulas in which
they have to operate.
Mr. Ratcliffe. So how would repealing McCarran-Ferguson
impact that further?
Mr. Miller. No, what I've said is that it's not really an
issue of repealing McCarran-Ferguson really helping it or not.
It's reconsidering those policies as part of the broader
regulatory mix.
Mr. Ratcliffe. Okay.
Mr. Balto, I want to give you an opportunity here. Your
position was very clearly stated when you said you think that
McCarran-Ferguson does nothing but bring uncertainty and
confusion to the market.
You've said that State insurance commissioners don't
necessarily have the capacity to fully understand or to fully
address the problems that their State residents are
experiencing. But the National Association of Insurance
Commissioners has submitted a letter, in this case, opposing
repeal. So where do you see the lack of capacity playing out?
Mr. Balto. So when we've studied this issue--and we went
back and studied it again and will continue to study it--you've
seen very sporadic actions by State insurance commissioners.
And if you were to contrast that, Congressman, with other
industries where we have a Federal consumer protection
enforcer, the Federal Trade Commission, it's dramatically
different. You have one enforcer which has sophistication, the
resources to bring the kinds of nationwide cases we're looking
for.
By the way, going to a point you were making before, this
whole debate about the regulations to protect consumers, one
way McCarran causes harm is it keeps the FTC out of the game.
And because we don't really have an effective Federal enforcer,
we have to look more toward Federal regulation to protect
consumers, whereas if you eliminate McCarran and the FTC
becomes the Federal consumer protection enforcer here, you
might not have to rely on regulations quite as much.
Mr. Ratcliffe. I want to thank all the witnesses for being
here. Mr. Slover, I'm sorry, my time's expired, but I
appreciate you all being here.
I yield back, Mr. Chairman.
Mr. Farenthold. Thank you, Mr. Ratcliffe.
We'll now recognize the gentleman from Illinois for 5
minutes.
Mr. Schneider. Thank you, Mr. Chairman.
And I want to also thank the witnesses for being here, for
sharing your perspectives on a debate that, as you have all
touched on, has been going on since McCarran-Ferguson was
introduced, let alone passed.
I'd like to start with Mr. Slover, please.
One school of thought holds that repeal of McCarran-
Ferguson won't necessarily achieve the desired objectives of
providing affordable, accessible, high-quality health care. How
would you respond to that? And why do you get a sense that
they're arguing it won't move the needle?
Mr. Slover. Well, I think competition is always a good
thing. I think this marketplace also needs regulation. And they
work in tandem, or that's how they ought to work, is in tandem,
and that competition will spur businesses to want to--the
insurance companies here, the health insurance companies--to
find a way to give consumers a better deal because their
business will thrive as a result of that.
So in all kinds of ways the whole principle behind
antitrust is that you don't want competitors getting together
and saying, you know, ``We're feeling a lot of pressure from
competition now. If we all sit down and talk together, we can
figure out a way to take some of this pressure off so that
consumers won't be taking such advantage of us, and we'll be
able to get a better deal for ourselves in the marketplace.''
You don't want that kind of an instinct to develop as a way
of doing business. And, in general, having the antitrust laws
there, you don't have to bring an enforcement action every day.
Just the fact that they're there is going to change business
instincts for the better.
Mr. Schneider. Mr. Balto, do you want to expand on that?
Mr. Balto. That was a great answer. I can't do better than
that.
Mr. Schneider. Fair enough.
One of the debates happening in Congress right now is
whether or not to repeal the Affordable Care Act, whether we
repeal the Affordable Care Act without a replacement.
What impact would a repeal of McCarran-Ferguson, repeal of
the Affordable Care Act without replacement, what sense would
you have that would have on the marketplace?
Mr. Balto?
Mr. Balto. First, at the end of our testimony, it builds on
George's point that you need a mix of antitrust enforcement and
smart regulation to make these markets work effectively. And I
think it's worth everybody taking a look at it to sort of see
how regulation does really improve the nature of competition.
I think eliminating this just provides greater opportunity
for competition to fully break out, and that's something that's
necessary to make health insurance markets work. And if that
happens, then, you know, we may need to rely somewhat less on
regulation as we go forward.
Mr. Schneider. Mr. Miller?
Mr. Miller. Well, what I usually hear is the addition key
and not the subtraction key or the balancing key--more, more,
more. If there's a window to think about a better balance,
that's a more promising avenue in which to follow.
Mr. Schneider. But is it a fair question--you look at the
Affordable Care Act that has tried to increase competition.
Overall, I think the assessment is, over the last number of
years, the rate of increase in healthcare costs have come down,
but we're seeing that health insurance costs and the
competition in States like Illinois isn't what we had hoped it
would be.
How would repeal of McCarran-Ferguson address----
Mr. Miller. I think it's really somewhat to the side of it,
and that's the reason why you had the Congressional Budget
Office view in 2009 on similar legislation that it really
wouldn't have much impact in either direction.
However, we have to be careful of what we call competition.
What the Affordable Care Act wanted was a particular type of
highly managed, highly regulated ``competition'' in quotation
marks, which was to achieve certain results. They haven't
worked out as materialized, but it was not the same thing as a
consumer-directed level of procompetitive activity.
Mr. Schneider. And Mr. Balto?
Mr. Balto. And my testimony directly addresses that and
shows that there have been savings because of some of those
regulatory provisions. But just to give one concrete example,
when you talk about the market division in Virginia affecting
Mr. Goodlatte's constituents, there's clearly added costs that
might come about because of the McCarran-Ferguson Act. It
dampens the type of competition that would otherwise occur.
Mr. Schneider. Okay.
Again, I'll thank the witnesses for your testimony and your
input and thank the Chairman for calling this hearing. Thank
you very much. I yield back.
Mr. Farenthold. Thank you.
We'll now recognize the gentleman from California for 5
minutes.
Mr. Swalwell. Thank you, Chair.
Mr. Slover, you've expressed your support for the
Affordable Care Act and its important provisions that have
extended health insurance coverage to millions of Americans.
This landmark legislation has even saved the lives of people
like Terri, one of my constituents from Dublin, California.
Before the Affordable Care Act, Terri did not have access
to proper medical care. After the Affordable Care Act was
passed, Terri got covered and was able to get preventive care.
During a well-woman exam, it was revealed that Terri had early-
stage breast cancer. By catching her cancer early, she was able
to undergo surgery and is now cancer-free. Without the
Affordable Care Act, Terri tells us she would never have
received the preventive care that she credits for saving her
life.
While I've heard countless stories like Terri's, House
Republicans are looking to dismantle the hard-fought
protections of the Affordable Care Act. How do you think
Congress should be working to strengthen the Affordable Care
Act and ensure people like Terri from Dublin, California, can
keep their coverage?
Mr. Slover. Well, we're strong supporters of the Act, and
we want to see whatever is changed to continue the essential
protections that are in the Affordable Care Act, to build on
those, rather than to undermine them.
And I could take some time to tell you some of the key
things that we think are benefits of the Affordable Care Act
that we think need to be preserved.
It should cover as many or more Americans as currently--not
just make coverage ``available'' in some sense, but actually be
as affordable or more affordable to those who are now covered.
Preexisting conditions should not be excluded or charged at
a higher rate. Families are now protected against being frozen
into keeping the same insurance company, or keeping the same
job because that's where they get their insurance, or being
devastated when circumstances force them to switch insurance
companies or jobs.
A family should all be able to stay on the same health plan
until the kids are grown and out of the house and have their
own jobs.
A basic package of health benefits should be as good or
better than what's available now.
There should be no caps on coverage, not annual and not
lifetime. They would've probably affected your constituent that
you're talking about. We don't want consumers to be hit with
devastating illness and then find that they don't have
insurance any longer to cover that.
There should be strong, clear provider network standards.
The choices of available plans must be clear and
understandable.
And then there's a lot in the Affordable Care Act that
doesn't make the headlines but that has been critically
important for bringing down the cost of providing health care
while also improving patient safety and quality of care, and
those programs should continue.
And that's just a short list. You know, we could spend all
day talking about what the benefits are. Our point is just
there's a lot of good stuff there, and we want to see it kept.
Mr. Swalwell. Mr. Slover, I was talking to a small-business
owner in the East Bay area of California over the weekend, and
he told me something that I don't think gets enough attention.
He said, look, I'm a small-business owner. I'm exempted from
the Affordable Care Act because I have 50 or fewer employees,
so I don't have to provide healthcare coverage to my employees.
But he said, what I appreciate about the Affordable Care
Act is that, each year, before the Affordable Care Act, my
team, management team, would have to sit down and look at how
astronomically high the coverage costs have been, and then we'd
have to figure out how to cover the difference, and sometimes
that meant, you know, increasing the deductible amounts so that
our employees could afford it.
And he said, what I've noticed since the Affordable Care
Act is that we don't have to have those pressure-point
decisions anymore, meaning that he hasn't seen the costs of
health care go up as much or at the same rate that it was going
up before the Affordable Care Act went in place.
So what he is saying is he doesn't even fall under the
Affordable Care Act as far as now having coverage and didn't
have coverage before, but because so many other people have
coverage, he's noticed that the cost of healthcare coverage for
his company and providing for his employees has gone down. Have
you seen that?
Mr. Slover. Yes. I think a rising tide lifts all boats. And
California has been particularly good in implementing the
Affordable Care Act. One of our offices is in San Francisco, so
we're very well aware of how things have improved in
California, and we hope that will stay.
Mr. Swalwell. Great. Thank you.
Mr. Chair, I yield back.
Mr. Farenthold. Thank you very much.
Seeing as we have no other Members with questions, I want
to take this opportunity to once again thank our panel of
witnesses and welcome Mr. Cicilline. This is his first day as
the Ranking Member of the Committee. I'm the Vice-Chairman of
this Subcommittee. You will usually see Mr. Marino sitting up
here.
But I hope I made your first day a pleasant one.
Mr. Cicilline. You did. You did.
Mr. Farenthold. And I would also remind our panelists that
the Chairman of the full Committee, Mr. Goodlatte, did indicate
that the political climate is such that the repeal of McCarran-
Ferguson is likely, and if you all have concerns about how it's
done, now is the time to let the Committee know about it. And
we would welcome any followup you have in writing.
So thank you all again very much.
And, with that, this Subcommittee is adjourned.
[Whereupon, at 11:59 a.m., the Subcommittee was adjourned.]
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