Antitrust a bust for premium costs

March 14, 2010
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According to the latest report from the Kaiser Family Foundation and the Health Research and Education Trust, the average cost last year of an employer-sponsored family health insurance policy was $13,375.

That price represented a 5 percent increase in 2009 from 2008, even though the Consumer Price Index was a negative four-tenths of a percent for 2009.

The study’s average employer paid $9,860 toward that premium total last year, while the average employee contributed $3,515 to that cost. Those payments marked an increase of 131 percent for employers and 128 percent for workers when compared to what both groups paid for coverage a decade earlier.

Since 1999, employee wages have gone up by 38 percent and inflation has risen by 28 percent. So the cost for premiums has risen three times faster than workers’ salaries and four times faster than inflation over the last decade.

“When health care costs continue to rise so much faster than overall inflation in a bad recession, workers and employers really feel the pain. That’s why we are having a health reform debate,” said Kaiser President and CEO Drew Altman.

A portion of that debate has been about revoking the antitrust exemption the insurance industry has had since 1945 when Congress approved the McCarran-Ferguson Act. It freed the industry from the oversights of the Sherman and Clayton Antitrust acts of 1890 and 1914, respectively, and gave states the power to regulate all insurers — and not just those who sell health coverage.

But a lengthy and continuous rise in health insurance premiums and profits, including the $12.2 billion profit the nation’s five largest insurers earned last year, has driven some Democrats in Congress to call for repealing the industry’s exemption because they believe such an action would stabilize and possibly lower costs. The U.S. House revoked the exemption last month by a vote of 406 to 19, an overwhelming tally that crossed party lines. The U.S. Senate still has to act.

Bruce Courtade, a partner at Rhoades McKee, said the bottom-line purpose of the antitrust laws is to increase competition within an industry and prevent an industry’s leaders from agreeing to artificially increase prices.

“We’re going to now apply the rules regarding bid rigging and price fixing and other nefarious conducts to the insurance industry, and by doing that we will be able to control their rates and minimize the price increases,” he said of the House’s action.

But is there any evidence that removing the antitrust exemption would restrain rising health insurance costs for employers and their workers?

“In truth, it’s not going to impact (prices) or just have a very negligible impact. In fact, last fall when they were introducing this bill and having hearings about it, the Congressional Budget Office studied it and said that the cost of repealing the exemption would be negligible,” said Courtade.

“This is a quote from the report: ‘The 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,’” he added.

In addition, a precedent doesn’t exist. Only the insurance industry and major league baseball are exempted from antitrust laws. Seeing neither has had its exemption lifted, there isn’t a previous example that shows that when an exception is removed, prices come under control.

“There’s no precedent. In fact, the best indicator that we have as to the effect is that Congressional Budget Office study,” said Courtade.

There was some good news for employers in the health benefits report. The premiums for individual policies didn’t rise from 2008 to 2009: The average annual cost stayed at $4,824.

Sixty percent of the 2,054 companies surveyed offered insurance plans last year, which was constant with previous studies. But 21 percent reduced a plan’s coverage in 2009 and 15 percent raised the employee contribution. As for this year, 21 percent of employers said they are “very likely” to raise their workers’ share of the premium cost, while 16 percent said they are “very likely” to raise the deductible amounts.

“As in the past, we’re seeing many businesses struggling with ways to curb health care costs, including offering high-deductible plans for workers,” said Gary Claxton, Kaiser vice president and lead author of the study, “though relatively few expect to drop health benefits altogether.”

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