[House Report 111-322]
[From the U.S. Government Publishing Office]


111th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 1st Session                                                    111-322

======================================================================



 
      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.
---------------------------------------------------------------------------
    \1\15 U.S.C. Sec. Sec. 1011-1015.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \2\H.R. Rep. No. 103-853 (1994).
---------------------------------------------------------------------------

                         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.
---------------------------------------------------------------------------
    \3\322 U.S. 533 (1944).
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \4\8 Wall. 168 (1868).
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \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).
---------------------------------------------------------------------------
    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:
---------------------------------------------------------------------------
    \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).
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \8\374 F. Supp. 564 (E.D. Pa. 1974).
---------------------------------------------------------------------------
    In Steingart v. Equitable Life Assurance Society,\9\ the 
court dismissed a suit by policyholders alleging price fixing 
by mutual life insurance companies.\10\
---------------------------------------------------------------------------
    \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).
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \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).
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \13\692 F. Supp. 52 (D.R.I.1988), aff'd, 883 F.2d 1101 (1st Cir. 
1989).
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \14\714 F.2d 928 (9th Cir. 1983).
---------------------------------------------------------------------------

               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.
---------------------------------------------------------------------------
    \15\91 Cong. Rec. 1443 (1945).
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \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).
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------

        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.
---------------------------------------------------------------------------
    \25\S. 618, 110th (2007); H.R. 1081, 110th (2007)
    \26\H.R. 1583 (2009).
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \27\Sens. Cantwell, Durbin, Feingold, Feinstein, Reid, Schumer, and 
Specter.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \29\Oct. 14, 2007, Prepared Testimony of Assistant Attorney General 
Christine Varney before the Senate Judiciary Committee.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \30\Peter Baker, Obama Threatens Insurers' Anti-Trust Exemption, 
N.Y. Times, Oct. 18, 2009.
---------------------------------------------------------------------------

                                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
----------------------------------------------------------------------------------------------------------------

                      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.

                                 
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