[House Report 111-322]
[From the U.S. Government Publishing Office]
111th Congress Report
HOUSE OF REPRESENTATIVES
1st Session 111-322
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HEALTH INSURANCE INDUSTRY ANTITRUST ENFORCEMENT ACT OF 2009
_______
November 2, 2009.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
_______
Mr. Conyers, from the Committee on the Judiciary, submitted the
following
R E P O R T
together with
ADDITIONAL VIEWS
[To accompany H.R. 3596]
[Including cost estimate of the Congressional Budget Office]
The Committee on the Judiciary, to whom was referred the bill
(H.R. 3596) to ensure that health insurance issuers and medical
malpractice insurance issuers cannot engage in price fixing,
bid rigging, or market allocations to the detriment of
competition and consumers, having considered the same, reports
favorably thereon with an amendment and recommends that the
bill as amended do pass.
CONTENTS
Page
The Amendment.................................................... 2
Purpose and Summary.............................................. 2
Background and Need for the Legislation.......................... 3
Hearings......................................................... 7
Committee Consideration.......................................... 7
Committee Votes.................................................. 8
Committee Oversight Findings..................................... 8
New Budget Authority and Tax Expenditures........................ 9
Congressional Budget Office Cost Estimate........................ 9
Performance Goals and Objectives................................. 10
Constitutional Authority Statement............................... 11
Advisory on Earmarks............................................. 11
Section-by-Section Analysis...................................... 11
Additional Views................................................. 11
The Amendment
The amendment is as follows:
Strike all after the enacting clause and insert the
following:
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Health Insurance Industry Antitrust
Enforcement Act of 2009''.
SEC. 2. PURPOSE.
It is the purpose of this Act to ensure that health insurance
issuers and medical malpractice insurance issuers cannot engage in
price fixing, bid rigging, or market allocations to the detriment of
competition and consumers.
SEC. 3. PROHIBITION OF ANTI-COMPETITIVE ACTIVITIES.
Notwithstanding any other provision of law, nothing in the Act of
March 9, 1945 (15 U.S.C. 1011 et seq., commonly known as the
``McCarran-Ferguson Act''), shall be construed to permit health
insurance issuers (as defined in section 2791 of the Public Health
Service Act (42 U.S.C. 300gg-91)) or issuers of medical malpractice
insurance to engage in any form of price fixing, bid rigging, or market
allocations in connection with the conduct of the business of providing
health insurance coverage (as defined in such section) or coverage for
medical malpractice claims or actions.
SEC. 4. APPLICATION TO ACTIVITIES OF STATE COMMISSIONS OF INSURANCE AND
OTHER STATE INSURANCE REGULATORY BODIES.
Nothing in this Act shall apply to the information gathering and
rate setting activities of any State commission of insurance, or any
other State regulatory entity with authority to set insurance rates.
SEC. 5. EXCLUSIONS.
(a) Excluded Conduct.--This Act shall not apply to making a
contract, or engaging in a combination or conspiracy--
(1) to collect, compile, or disseminate historical loss
data;
(2) to determine a loss development factor applicable to
historical loss data; or
(3) to perform actuarial services if such contract,
combination, or conspiracy does not involve a restraint of
trade.
(b) Definitions.--For purposes of this section--
(1) the term ``historical loss data'' means information
respecting claims paid, or reserves held for claims reported,
by any person engaged in the business of insurance; and
(2) the term ``loss development factor'' means an
adjustment to be made to reserves held for losses incurred for
claims reported by any person engaged in the business of
insurance, for the purpose of bringing such reserves to an
ultimate paid basis.
Purpose and Summary
H.R. 3596, the Health Insurance Industry Antitrust
Enforcement Act of 2009, will remove the antitrust immunity
currently provided to the insurance industry under the
McCarran-Ferguson Act\1\ in instances of price fixing, bid
rigging, and market allocation by health or medical malpractice
insurers. The amended bill leaves unchanged the current
treatment under McCarran for information-gathering and rate-
setting activities of State regulatory entities with authority
to set insurance rates, for certain practices involving the
collection, dissemination, and analysis of historical loss
data, and for the performance of certain actuarial services.
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\1\15 U.S.C. Sec. Sec. 1011-1015.
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Price fixing (including bid rigging and other forms) and
market allocation are part of a limited class of so-called per
se violations of the antitrust laws, practices so poisonous to
competition that they have long been deemed to have no
redeeming justification. They invariably result in fewer
choices, higher prices, and lower quality products and services
for consumers.
Background and Need for the Legislation
The Committee began seriously considering legislation to
repeal or scale back the McCarran-Ferguson antitrust exemption
in the late 1980's. The history of the insurance business, the
developments leading to enactment of the McCarran-Ferguson Act,
and prior legislative efforts to repeal or scale back the
exemption are discussed in some detail in the Committee's
report on the Insurance Competitive Pricing Act of 1994, H.R. 9
(103rd Cong.).\2\ A short summary of this history follows.
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\2\H.R. Rep. No. 103-853 (1994).
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MCCARRAN-FERGUSON ACT
The McCarran-Ferguson Act was enacted in 1945 in response
to a 1944 Supreme Court decision, U.S. v. South-Eastern
Underwriters Association,\3\ declaring for the first time that
insurance contracts are interstate commerce, and therefore
subject to the antitrust laws. McCarran-Ferguson prevents the
application of the antitrust laws to the business of
insurance--except as to boycott, coercion, or intimidation--to
the extent that the business of insurance is regulated by State
law.
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\3\322 U.S. 533 (1944).
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Prior to that Supreme Court decision, insurance had been
regulated for more than 75 years solely by the States. An 1868
Supreme Court decision, Paul v. Virginia,\4\ had turned aside
an insurance company challenge to Virginia's licensing and
bonding requirements, holding that issuing a policy of
insurance was not commerce. When the Sherman Act was enacted 22
years later, there was an assumption, based on Paul, that its
prohibitions did not reach insurance contracts.
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\4\8 Wall. 168 (1868).
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In response to South-Eastern Underwriters, the insurance
industry expressed concern that the decision would jeopardize
the system of joint rate-making and other collective practices
that had developed in the wake of Paul. For their part, the
States expressed concern that State authority to regulate and
tax the business of insurance--insurance premium taxes were an
important source of revenue in many States--might be in
question, especially after insurers began refusing to pay those
taxes, as well as refusing to abide by State licensing and
other regulatory requirements.
To address these concerns, in January 1945, the U.S. Senate
introduced legislation to reaffirm State authority to regulate
the business of insurance, which would eventually become the
McCarran-Ferguson Act.
The Senate bill included a 2-3 year moratorium on
application of the antitrust laws. Both the House and the
Senate passed the bill essentially unchanged. The Senate made a
minor clarifying amendment, however, which the House rejected,
sending the bill to conference.
The conference committee added an entirely new phrase,
providing that after the moratorium expired, the antitrust laws
would apply to the business of insurance only ``to the extent
such business is not regulated by State law.'' The courts have
interpreted this proviso as triggering antitrust immunity with
something far short of the active State regulatory supervision
that is ordinarily needed under the judicially-created ``state
action doctrine.''
While the courts have limited the scope of what constitutes
the business of insurance for purposes of the exemption to the
risk-transferring function of the insurer-insured
relationship,\5\ they have held that rates, coverage, and other
key policy terms are all covered by it.\6\
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\5\Union Labor Life Insurance Co. v. Pireno, 458 U.S. 119, 129
(1982); Hahn v. Oregon Physicians Service, 689 F.2d 840 (C.A.9 (Or.)
1982), cert. denied, 462 U.S. 1133.
\6\McIlhenny v. American Title Ins. Co., 418 F.Supp. 364 (E.D.Pa.
1976).
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The McCarran-Ferguson exemption has been invoked by
insurers to shield from legal scrutiny alleged price fixing,
market division, and other anticompetitive behavior.\7\ For
example:
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\7\Jay Angoff, Insurance Against Competition: How the McCarran-
Ferguson Act Raises Prices and Profits in the Property-Casualty
Insurance Industry, 5 Yale J. on Reg. 397, 402 (1988).
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In Schwartz v. Commonwealth Land Title Insurance. Co.\8\
the court dismissed a price fixing claim brought by title
insurance vendors alleging that insurance companies had used a
rating bureau as an intermediary to fix the price of the
closing fees charged to sellers of real estate at inflated
levels.
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\8\374 F. Supp. 564 (E.D. Pa. 1974).
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In Steingart v. Equitable Life Assurance Society,\9\ the
court dismissed a suit by policyholders alleging price fixing
by mutual life insurance companies.\10\
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\9\366 F. Supp. 790 (S.D.N.Y. 1973).
\10\See also Ohio AFL-CIO v. Insurance Rating Bd., 451 F.2d 1178
(6th Cir. 1971); Fleming v. Travelers Indem. Co., 324 F. Supp. 1404 (D.
Mass. 1971); and California League of Indep. Ins. Producers v. Aetna
Casualty & Sur. Co., 175 F. Supp. 857 (N.D. Cal. 1959).
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In Grant v. Erie Insurance Exchange,\11\ the court
dismissed a claim alleging conspiracy among insurance companies
to deny work loss benefits to individuals killed in motor
vehicle accidents.\12\
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\11\542 F. Supp. 457 (M.D. Pa. 1982).
\12\See also Dexter v. Equitable Life Assurance Soc'y, 527 F.2d 233
(2d. Cir. 1975) (McCarran-Ferguson required dismissal of allegations of
a tying violation against an insurance company that required the
purchase of unrelated life insurance policies in order to secure a
mortgage loan); Lawyers Title Co. v. St. Paul Title Ins. Corp., 526
F.2d 795 (8th Cir. 1975) (McCarran-Ferguson required dismissal of
alleged predatory pricing tactics by a title insurance company).
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In Ocean State Physicians Health Plan, Inc. v. Blue Cross &
Blue Shield of Rhode Island,\13\ the court overturned a jury
verdict against the dominant health insurer for using its
monopoly power to put financial pressure on area employers to
refuse to do business with a competing HMO.
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\13\692 F. Supp. 52 (D.R.I.1988), aff'd, 883 F.2d 1101 (1st Cir.
1989).
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In Feinstein v. Nettleship Co. of Los Angeles,\14\ the
court affirmed the dismissal of a claim by physicians that an
insurer had monopolized the market for medical malpractice
insurance by forcing the local medical association to deal with
it exclusively in order for the association's members to obtain
coverage.
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\14\714 F.2d 928 (9th Cir. 1983).
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RECONSIDERATION OF THE MCCARRAN-FERGUSON
ANTITRUST EXEMPTION
Criticism of the antitrust exemption and concerns about its
harmful effects began to arise even before the McCarran-
Ferguson Act became law. During the final Senate debates,
Senator Claude Pepper of Florida expressing concern that the
conferees had quietly transformed a temporary moratorium into a
permanent exemption, giving ``the States the privilege of
enacting some mild form of legislation, which they may call
regulatory, thereby defeating the purpose of the [South-Eastern
Underwriters] decision,''\15\ and struggled in vain to persuade
his colleagues to send the bill back to conference to remove
the newly added phrase.
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\15\91 Cong. Rec. 1443 (1945).
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Reconsideration of the exemption began in earnest in the
mid-1970's. A Department of Justice study issued in early 1977
advocated a move toward increasing reliance on price
competition, pointedly questioning whether the exemption was in
the public interest.\16\ Two years later, a Presidentially-
appointed National Commission for the Review of Antitrust Laws
and Procedures issued a report calling, with near unanimity,
for legislation repealing the exemption while affirming the
lawfulness of a limited number of essential collective
activities that did not raise competitive concerns--chief among
them the collection and use of historical loss data.\17\
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\16\U.S. Department of Justice, The Pricing and Marketing of
Insurance (1977).
\17\Report to the President and the Attorney General of the
National Commission for the Review of Antitrust Laws and Procedures 225
(1979).
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More recently, in the 2007 report of the Congressionally-
created Antitrust Modernization Commission\18\ (AMC), AMC
Commissioner Jonathan Jacobson, joined by Commissioners Debra
Valentine and John Warden, elaborating on the AMC's
recommendation that all antitrust exemptions be revisited with
a strong presumption of disfavor, called special attention to
the McCarran-Ferguson exemption. They stated that it has
``outlived any utility [it] may have had and should be
repealed.''\19\ In a separate statement, Commissioner John
Shenefield called it ``among the most ill-conceived and
egregious examples'' of antitrust exemptions and said its
repeal ``should not be delayed.''\20\
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\18\The AMC was a bipartisan commission created by Congress in Pub.
L. No. 107-273 to identify and study significant issues of antitrust
law.
\19\Antitrust Modernization Commission, Report and Recommendations
422 (2007).
\20\Id. at 442.
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The National Association of Attorneys General has long
urged Congress to ``repeal the special immunity from the
antitrust laws granted under the McCarran-Ferguson Act to the
insurance industry and to subject insurance companies to the
rules of the competitive marketplace applicable to other
firms.''\21\
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\21\E.g., National Association of Attorneys General, Policy
Positions: A Compilation of Actions Taken on Legislative and Other
Issues Through Adopted Resolutions 17 (1993). This position has been
reaffirmed repeatedly, as recently as 2007.
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Reconsideration of the exemption as it applies to health
insurers and medical malpractice insurers is particularly
timely now, as Congress considers other measures to reform the
health insurance marketplace. According to a recent study by
the American Medical Association, there have been more than 400
mergers among health care insurers in the past 14 years.\22\
Fully 96 percent of all health insurance markets are ``highly
concentrated,'' at levels often far exceeding the thresholds
that trigger antitrust concerns.\23\ Meanwhile, the cost of
health insurance premiums has increased almost 87% in just the
last 6 years.\24\
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\22\American Medical Association, Competition in Health Insurance:
A Comprehensive Study of U.S. Markets 2007 Update 1 (2007), available
at http://www.ama-assn.org/ama1/pub/upload/mm/368/compstudy_52006.pdf.
\23\Common Dreams.org, Study: Health Insurers Are Near Monopolies,
April 18. 2006, available at http://www.commondreams.org/headlines06/
0418-09.htm. See also Health Care for America NOW!, Premiums Soaring in
Consolidate Health Insurance Market, available at http://
hcfan.3cdn.net/5d6e7f78cc5132f791_dem6bxw84.pdf.
\24\Id.
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PREVIOUS JUDICIARY COMMITTEE EFFORTS TO SCALE BACK THE
INSURERS' EXEMPTION
In the 100th Congress, the Committee on the Judiciary's
Subcommittee on Monopolies and Commercial Law favorably
reported H.R. 2727, the Fairness in Insurance Act of 1987. As
reported, the bill would have removed insurers' antitrust
immunity with respect to price-fixing, monopolization,
allocation of territories, and unlawful tying arrangements. It
also created safe harbors for the joint collection of
historical loss data and loss development data.
In the next two Congresses, the full Committee favorably
reported similar versions of the bill, H.R. 1663 in the 101st
Congress and H.R. 9 in the 102d.
In the 103d Congress, a version of the bill was reported
favorably by the Judiciary Committee and incorporated into the
draft of H.R. 3600, the ``Health Security Act,'' being prepared
for consideration by the full House. The 103d Congress
adjourned before H.R. 3600 could be considered.
Other bills to repeal or scale back the exemption have been
introduced in subsequent Congresses, including more recently
the Insurance Industry Competition Act of 2007\25\ and the
Insurance Industry Competition Act of 2009.\26\ Like the
earlier bills reported by the Judiciary Committee, these bills
addressed the exemption in all sectors of the insurance
industry, not just health care sectors.
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\25\S. 618, 110th (2007); H.R. 1081, 110th (2007)
\26\H.R. 1583 (2009).
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Chairman Conyers and two cosponsors, Representatives Hank
Johnson and Diana DeGette, introduced H.R. 3596 on September
17, 2009, the same day that identical legislation, S. 1681, was
introduced by Senator Patrick Leahy and seven others.\27\ As
introduced, the bill would eliminate the antitrust immunity
provided under the McCarran-Ferguson Act as to price fixing,
bid rigging, and market allocation by health or medical
malpractice insurers, while leaving unchanged the antitrust
immunity for information-gathering and rate-setting activities
by State insurance commissions and other State regulatory
entities with authority to set insurance rates.
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\27\Sens. Cantwell, Durbin, Feingold, Feinstein, Reid, Schumer, and
Specter.
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On March 18, 2009, Representative Peter DeFazio, along with
seven co-sponsors,\28\ introduced the Insurance Industry
Competition Act, H.R. 1583, which would repeal the antitrust
exemption completely for all sectors of insurance industry.
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\28\The original co-sponsors of H.R. 1583 were Representatives
Baird, Kaptur, Nadler, Taylor, Hare, Massa, and Slaughter. In addition
to Judiciary, the bill has secondary referrals to the Committees on
Energy and Commerce and Financial Services.
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On September 16 and 17, 2009, Representative Dennis
Kucinich chaired a two-day hearing of the Domestic Policy
Subcommittee of the Committee on Oversight and Government
reform related to this issue. On the first day, the
Subcommittee heard from a number of doctors, patients, and
health policy experts about their treatment and experiences
with State-regulated health insurance companies and about the
policies and actions of State-regulated health insurers that
interfere with Americans' ability to obtain affordable health
care--even Americans with insurance coverage. Wendell Potter, a
former Cigna executive who has become a leading critic of
health insurance industry practices, also testified. On the
second day, executives from a number of the Nation's largest
insurers--United Healthcare, Wellpoint, Aetna, Humana, Cigna,
and Healthcare Service Corp.--testified regarding their
practices.
On October 8, 2009, the House Judiciary Committee held a
legislative hearing on H.R. 3596. Testimony was heard from
James D. Hurley, with the American Academy of Actuaries; Dr.
Peter Mandell, of the California Orthopaedic Association; Ilene
Knable Gotts, chair of the American Bar Association (ABA)
Section on Antitrust Law; and David Balto, with the Center for
American Progress. Ms. Gotts reiterated the ABA's long-held
view that the insurance industry should not be the beneficiary
of an antitrust exemption.
On October 14, 2009, the Senate Judiciary Committee held a
hearing titled ``Prohibiting Price Fixing and Other
Anticompetitive Conduct in the Health Insurance Industry.''
Senate Majority Leader Harry Reid and the Assistant Attorney
General for the Department of Justice's Antitrust Division,
Christine Varney, testified, as well as consumer advocate
Robert Hunter and law professor Lawrence Powell. Assistant
Attorney General Varney testified that the rationale for
McCarran-Ferguson had eroded--``There are strong indications
that possible justifications for the broad insurance antitrust
exemption in the McCarran-Ferguson Act when it was enacted in
1945 are no longer valid today''--and noted that ``the
Department of Justice generally supports the idea of repealing
antitrust exemptions.''\29\ Senator Reid urged support for the
Senate bill, of which he is a cosponsor.
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\29\Oct. 14, 2007, Prepared Testimony of Assistant Attorney General
Christine Varney before the Senate Judiciary Committee.
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In his October 17, 2009, radio address, President Barack
Obama criticized health insurance companies for ``earning
[large] profits and bonuses while enjoying a privileged
exemption from our antitrust laws, a matter that Congress is
rightfully reviewing.''\30\
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\30\Peter Baker, Obama Threatens Insurers' Anti-Trust Exemption,
N.Y. Times, Oct. 18, 2009.
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Hearings
The Subcommittee on Courts and Competition Policy,
Committee on the Judiciary, held one day of hearings on H.R.
3596 on October 8, 2009. Testimony was received from James D.
Hurley, a member of the Medical Professional Liability
Subcommittee of the American Academy of Actuaries, Peter J.
Mandell, former President of the California Orthopaedic
Association, Ilene Knable Gotts, Chair of the Section of
Antitrust Law, American Bar Association, and David Balto,
Senior Fellow at the Center for American Progress.
Committee Consideration
On October 21, 2009, the Committee met in open session to
consider the bill H.R. 3596. Representative Dan Lungren offered
an amendment to add safe harbors for collecting and
distributing historical loss data, developing a loss
development factor, and performing actuarial services that do
not involve a restraint of trade. These safe harbors were an
integral part of the bills the Judiciary Committee considered
in the 100th-103d Congresses. The amendment was agreed to by
voice vote. The Committee ordered the bill favorably reported,
as amended by the Lungren amendment, by a roll call vote of 20
to 9, a quorum being present.
Committee Votes
In compliance with clause 3(b) of rule XIII of the Rules of
the House of Representatives, the Committee advises that the
following recorded vote occurred during Committee consideration
of H.R. 3596:
1. Motion to report H.R. 3596 favorably as amended. Passed
20 to 9.
ROLLCALL NO. 1
----------------------------------------------------------------------------------------------------------------
Ayes Nays Present
----------------------------------------------------------------------------------------------------------------
Mr. Conyers, Jr., Chairman...................................... X
Mr. Berman......................................................
Mr. Boucher.....................................................
Mr. Nadler...................................................... X
Mr. Scott....................................................... X
Mr. Watt........................................................ X
Ms. Lofgren.....................................................
Ms. Jackson Lee.................................................
Ms. Waters...................................................... X
Mr. Delahunt....................................................
Mr. Wexler...................................................... X
Mr. Cohen....................................................... X
Mr. Johnson..................................................... X
Mr. Pierluisi................................................... X
Mr. Quigley..................................................... X
Ms. Chu......................................................... X
Mr. Gutierrez...................................................
Ms. Baldwin..................................................... X
Mr. Gonzalez.................................................... X
Mr. Weiner......................................................
Mr. Schiff...................................................... X
Ms. Sanchez..................................................... X
Ms. Wasserman Schultz........................................... X
Mr. Maffei...................................................... X
Mr. Smith, Ranking Member....................................... X
Mr. Sensenbrenner, Jr...........................................
Mr. Coble....................................................... X
Mr. Gallegly....................................................
Mr. Goodlatte................................................... X
Mr. Lungren..................................................... X
Mr. Issa........................................................
Mr. Forbes...................................................... X
Mr. King........................................................ X
Mr. Franks...................................................... X
Mr. Gohmert..................................................... X
Mr. Jordan...................................................... X
Mr. Poe.........................................................
Mr. Chaffetz.................................................... X
Mr. Rooney...................................................... X
Mr. Harper...................................................... X
-----------------------------------------------
Total....................................................... 20 9
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Committee Oversight Findings
In compliance with clause 3(c)(1) of rule XIII of the Rules
of the House of Representatives, the Committee advises that the
findings and recommendations of the Committee, based on
oversight activities under clause 2(b)(1) of rule X of the
Rules of the House of Representatives, are incorporated in the
descriptive portions of this report.
New Budget Authority and Tax Expenditures
Clause 3(c)(2) of rule XIII of the Rules of the House of
Representatives is inapplicable because this legislation does
not provide new budgetary authority or increased tax
expenditures.
Congressional Budget Office Cost Estimate
In compliance with clause 3(c)(3) of rule XIII of the Rules
of the House of Representatives, the Committee sets forth, with
respect to the bill, H.R. 985, the following estimate and
comparison prepared by the Director of the Congressional Budget
Office under section 402 of the Congressional Budget Act of
1974:
U.S. Congress,
Congressional Budget Office,
Washington, DC, October 23, 2009.
Hon. John Conyers, Jr., Chairman,
Committee on the Judiciary,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 3596, the Health
Insurance Industry Antitrust Enforcement Act of 2009.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Mark
Grabowicz, who can be reached at 226-2860.
Sincerely,
Douglas W. Elmendorf,
Director.
Enclosure
cc:
Honorable Lamar S. Smith.
Ranking Member
H.R. 3596--Health Insurance Industry Antitrust Enforcement Act of 2009.
CBO estimates that implementing H.R. 3596 would have no
significant cost to the Federal Government. Enacting the bill
could affect direct spending and revenues, but any such effects
would not be significant.
Companies that provide health and medical malpractice
insurance are currently exempt from the Federal antitrust laws
insofar as they are engaging in the business of insurance. H.R.
3596 would prohibit such companies from price fixing, bid
rigging, or allocating markets while providing coverage for
health insurance or medical malpractice claims. The bill's
restrictions would not apply to certain collaborative
activities involving actuarial services.
Because the bill would establish a new offense, the
government would be able to pursue cases that it otherwise
would not be able to prosecute. Based on information from the
Department of Justice and insurance industry experts, CBO
expects that H.R. 3596 would apply to a small number of
offenders, however, so any increase in costs for law
enforcement, court proceedings, or prison operations would not
be significant. Any such costs would be subject to the
availability of appropriated funds.
Because those prosecuted and convicted under H.R. 3596
could be subject to criminal fines, the Federal Government
might collect additional amounts if the legislation is enacted.
Criminal fines are recorded as revenues, deposited in the Crime
Victims Fund, and later spent. CBO estimates that any
additional revenues and direct spending would not be
significant because of the small number of cases likely to be
affected.
H.R. 3596 could affect the costs of and premiums charged by
private health insurance companies; whether premiums would
increase or decrease as a result is difficult to determine, but
in either case the magnitude of the effects is likely to be
quite small. To the extent that insurers would otherwise engage
in the prohibited practices and be prevented from doing so by
enactment of this bill, premiums might be lower. (That effect
is likely to be small because State laws already bar the
activities that would be prohibited under Federal law if this
bill was enacted.) To the extent that insurers would become
subject to additional litigation, their costs and thus their
premiums might increase. Based on information from the Justice
Department, the Federal Trade Commission, the National
Association of Insurance Commissioners, consumer groups, and
private attorneys, CBO estimates that both of those effects
would be very small, and thus that enacting the legislation
would have no significant effect on the premiums that private
insurers would charge for health insurance. Changes in those
premiums can affect Federal revenues because of the favorable
tax treatment that is accorded to employment-based coverage
under current law, but any such effects of the legislation
would be negligible in CBO's estimation.
H.R. 3596 contains no intergovernmental mandates as defined
in the Unfunded Mandates Reform Act and would not affect the
budgets of State, local, or tribal governments.
H.R. 3596 would impose a private-sector mandate, as defined
in UMRA, on issuers of health insurance and medical malpractice
insurance by partially repealing their exemptions from Federal
antitrust laws. According to State insurance regulators, State
laws already prohibit issuers of health insurance and medical
malpractice insurance from engaging in practices such as price
fixing, bid rigging, and market allocations. CBO estimates the
cost of this mandate would not exceed the annual threshold
established in UMRA for private-sector mandates ($139 million
in 2009, adjusted annually for inflation).
The CBO staff contacts for this estimate are Mark Grabowicz
(for Federal costs) and Patrick Bernhardt (for the private-
sector impact). The estimate was approved by Peter H. Fontaine,
Assistant Director for Budget Analysis.
Performance Goals and Objectives
The Committee states that pursuant to clause 3(c)(4) of
rule XIII of the Rules of the House of Representatives, H.R.
3596 is intended to eliminate the antitrust immunity provided
to the insurance industry under the McCarran-Ferguson Act in
instances of price fixing, bid rigging, and market allocation
by health or medical malpractice insurance issuers, and to
allow appropriate antitrust enforcement and private actions to
deter, arrest, and remedy such practices.
Constitutional Authority Statement
Pursuant to clause 3(d)(1) of rule XIII of the Rules of the
House of Representatives, the Committee finds the authority for
this legislation in article I, section 8, clauses 3 and 18 of
the Constitution.
Advisory on Earmarks
In accordance with clause 9 of rule XXI of the Rules of the
House of Representatives, H.R. 2102 does not contain any
congressional earmarks, limited tax benefits, or limited tariff
benefits as defined in clause 9(e), 9(f), or 9(g) of Rule XXI.
Section-by-Section Analysis
The following discussion describes the bill as reported by
the Committee:
Sec. 1. Short Title. This section designates the short
title of the bill as the ``Health Insurance Industry Antitrust
Enforcement Act of 2009.''
Sec. 2. Purpose. This section states that the purpose of
the bill is to prohibit price fixing, bid rigging, or market
allocation by issuers of health and medical malpractice
insurance and to allow government enforcement and private civil
actions to prevent and deter such conduct.
Sec. 3. Prohibition on Anti-Competitive Activities. This
section removes acts of price fixing, bid rigging, and market
allocation by health insurance issuers or medical malpractice
insurance issuers from the broad antitrust immunity provided to
the insurance industry under the McCarran-Ferguson Act.
Sec. 4. Application to Activities of State Commissions of
Insurance and Other State Insurance Regulatory Bodies. This
section preserves current antitrust treatment under McCarran of
information-gathering and rate-setting activities by any State
regulatory entity with authority to set insurance rates, such
as State insurance commissions.
Sec. 5. Exclusions. This section makes clear that the
current antitrust treatment under McCarran remains unchanged
for specified conduct involving compilation and dissemination
of historical loss data and development of a loss development
factor, as well as performance of actuarial services that do
not involve a restraint of trade.
Additional Views
We did not oppose H.R. 3596, the ``Health Insurance
Industry Antitrust Enforcement Act of 2009,'' because we think
that health insurers and medical malpractice insurers should be
allowed to fix prices, rig bids, or allocate markets. No
industry in America--including the insurance industry--should
be able to engage in those practices.
Rather, we opposed H.R. 3596 because we are concerned about
the unintended consequences of a federal ban on conduct that
existing state regulatory and antitrust law already prohibits.
We are also concerned about why this bill singles out a narrow
subset of insurers for McCarran-Ferguson repeal and what that
says for the future of state insurance regulation.
The McCarran-Ferguson Act's federal antitrust exemption
allows small and medium-sized insurers to aggregate information
for underwriting purposes so they can compete effectively
against larger national companies. In other words, McCarran-
Ferguson promotes competition by making small and medium-sized
underwriters viable.
McCarran-Ferguson is not intended to reduce competition
through price-fixing, bid-rigging, or market allocation.
Instead, the Act clarifies that insurers are regulated by the
states, which ensure that firms do not engage in these per se
antitrust violations, either through regulation or through
their own laws.
Antitrust exemptions should be rarely granted or created,
and if they are necessary, should be written in as limited a
way as necessary to meet a compelling public policy goal. That
said, when repealing an existing antitrust exemption, we must
be very careful of the unintended consequences of our actions.
This is a real concern. For more than 60 years, the states
have regulated the business of insurance and built a record
that provides guidance about permissible activity. In fact, the
National Association of Insurance Commissioners submitted a
letter for the record in which they stated, ``bid rigging,
price fixing and market allocation is of great concern to state
insurance regulators and . . . such practices are harmful to
consumers and cannot be tolerated. However, we want to assure
you that these activities are not permitted under the McCarran-
Ferguson Act and are not tolerated under state law. Indeed,
state insurance regulators actively enforce prohibitions in
these areas.'' By inviting federal intervention, this bill
creates a dual regulatory system that only confuses the health
insurance and medical malpractice industry.
That is particularly true given that many key terms in the
legislation, including ``issuers of medical malpractice
insurance,'' ``price fixing,'' ``bid rigging,'' and ``market
allocations'' are undefined. While the latter three phrases are
used as terms of art in antitrust litigation, there will be
significant litigation to define what they mean as a part of
this legislation. The amendment that the Committee adopted goes
some way toward addressing these concerns. However, other
legitimate activities may be punished or otherwise deterred in
the trial attorneys' efforts to collect treble damage awards
from the health insurance and medical malpractice insurance
companies.
According to news reports, Speaker Pelosi plans to fold
H.R. 3596 into a larger health care bill to be considered by
the House of Representatives next month. One hearing on the
subject and no subcommittee markup was not an adequate basis on
which to bring this bill to a Full Committee markup, much less
to the Floor as part of a larger package. In fact, what little
record has been established on this bill has shown that medical
malpractice should perhaps not be covered by it at all. That is
because many doctors choose to either self-insure or buy their
medical liability insurance through mutual companies made up of
other doctors. Why would these doctors try to fix prices, rig
bids, or allocate territories if the only impact of those
practices would be to pay higher medical malpractice premiums?
The short answer is that they would not, since they would only
be stealing from themselves. That was, in essence, the
testimony of the Majority's own witness, Dr. Peter J. Mandell,
who advocated eliminating medical malpractice insurers from the
bill.
It is unclear whether health insurers should be subject to
the bill either, given that no health insurance organization
testified at the lone hearing on the subject. What is clear is
that this legislation targets an industry that is highly
unpopular, both with the American people, but particularly with
this Administration. During his weekly radio address, President
Obama strongly chastised the health insurers for criticizing
his health reform plans and suggested that Congress was right
to consider repealing McCarran-Ferguson for health insurers.
But picking on an industry because they are unpopular or
because they disagree with you should not be the basis of
making laws that could affect not just the unpopular business,
but, ultimately, all insurers.
Health care reform is an important issue and the House
Judiciary Committee does have an important role to play in that
discussion. The better focus for our attention is on the
frivolous lawsuits against medical personnel that create real
problems and real costs. According to a study by the Harvard
School of Public Health, 40 percent of medical malpractice
suits filed in the United States are ``without merit.'' So
every doctor must purchase malpractice insurance at great
expense to protect against frivolous lawsuits.
A Department of Health and Human Services study found that
unlimited excessive damages add $70 billion to $126 billion
annually to health care costs. Doctors are so concerned about
frivolous lawsuits that they order unnecessary tests and
procedures that do not benefit the patient. HHS estimates the
national cost of defensive medicine is now more than $60
billion.
All these costs are then passed on to patients in the price
of health care.
A report released by the Congressional Budget Office just a
week before the Committee's consideration of H.R. 3596 found
that tort reforms would reduce health care spending by an
estimated $11 billion in 2009. The CBO also found that a
national tort reform package would reduce federal budget
deficits by roughly $54 billion over the next 10 years. Among
the reforms reviewed in the study, CBO considered a cap on pain
and suffering damages first on its list of tort reforms that
would lead to significant cost savings.
The Committee is rushing consideration of H.R. 3596. This
Committee has not established the record for the need for this
legislation. Nor has it adequately addressed its potential
unintended consequences. The Committee could have spent its
limited time investigating a more pressing problem in health
care: runaway medical malpractice costs caused by excessive
damage claims in often frivolous lawsuits. But it did not. The
American people deserve better.
Lamar Smith.
F. James Sensenbrenner, Jr.
Howard Coble.
Bob Goodlatte.
Gregg Harper.