Why Insurance Companies Are Different, And Why They Need To Be Regulated More Than Your Job

Much has been made of “insurance companies’ right to make a profit” and “treating them like everyone else” lately. What this attitude fails to take into account is the series of massive favors that we, as a society, do for the health insurance industry. See, we are allowed to add regulations and requirements because we have exempted health insurance companies from the Federal Anti-Trust Act (the act that prevents an industry from having a monopoly on the entire market). Let’s say that again.

We have exempted health insurance companies from the Federal Anti-Trust Act. The McCarran-Ferguson Act of 1945, 15 U.S.C. § 1011, allows state law to regulate the business of insurance without federal government interference, though it does allow the Federal Government to pass laws specifically aimed at the insurance industry. It just exempts them from non-insurance-specific Federal Laws. Including anti-trust laws.

This is important because it means that we have not required health insurers to have competition or behave in a competitive manner. As such, “the market,” which everyone screams will save us from the horrible health care companies, has no bearing. “The market” requires competition. So it’s kind of like if we stopped regulating prices on energy companies completely. How much do you think you’d be paying for electricity if there weren’t rules about that sort of thing? See, that’s a trade-off. We give Entergy, or SoCal Edison, or whoever, a monopoly in a certain area. We then regulate their prices and what they supply to be sure they don’t take advantage. But we haven’t been doing enough of that in the United States in the health insurance arena.

Some facts about the anti-competitive nature of health care in America in 2008, according to the United States Government Accountability Office:

• The median market share of the largest carrier in the small group market was about 47 percent, with a range from about 21 percent in Arizona to about 96 percent in Alabama. In 31 of the 39 states supplying market share information, the top carrier had a market share of a third or more.

• The five largest carriers in the small group market, when combined, represented three quarters or more of the market in 34 of the 39 states supplying this information, and they represented 90 percent or more in 23 of these states.

• Thirty-six of the 44 states supplying information on the top carrier identified a Blue Cross and Blue Shield (BCBS) carrier as the largest carrier, and in all but 1 of the remaining 8 states, a BCBS carrier was among the five largest carriers.

• The median market share of all the BCBS carriers in the 38 states supplying this information was about 51 percent, with a range of less than 5 percent in Vermont and Wisconsin and more than 90 percent in Alabama and North Dakota.

This is unacceptable. A lack of competition coupled with a lack of regulation means higher costs to consumers and skyrocketing profits for companies. Which helps explain why 17.6 percent of our GDP is spent on health care, and why the average family health care plan has increased from $6,654 per year to $13,378 per year in the last decade. That’s over double, for those of you counting.

Nationally, the average premium for health insurance rose five times as much as median worker wages in the last ten years.

If health insurance companies want an exemption, they will live with regulation. If not, the numbers above show that they would already be under court order to split up if it weren’t for anti-trust exemptions. We should stop letting them be ungrateful, gluttonous children and show them what life is like for the rest of the businesses in this country. It’s cutthroat, it’s tough to scrape out a living, and it involves needing actual business acumen and sense.

Or, they can simply jump on board with reform and regulation. It seems like that would be in all of our best interests.