testing one two three testing one two three you got  antitrust system for the twenty first century five years ago the judiciary committee created a bipartisan committee the antitrust modernization commission to evaluate nation's antitrust laws and also recommendations for updating and improving them one of their recommendations was to repeal the mccarran ferguson act mccarron ferguson was passed by congress in hundred forty five and largely exempts insurance companies from the federal antitrust laws you know it's funny how for profit insurance companies work they want their premiums as high as possible and they want to pay out as little of it as possible it's in their shareholders interest to cover the healthiest people and the sickest the insurance companies will tell us that they need this anti trust exemption because it really makes the industry more competitive oh really insurance for profits growing nearly six fo in the past decade as more than forty million americans go without insurance yes and this is their idea of a competitive market the only thing these companies are competing for the people who need them bill east premiums have increased eighty seven percent in the past six years where is this vigorous competition in the industry last month  get joined our colleagues in the senate to introduce the legislation before you h r thirty five ninety six the bill says that mccarran fergusson can no longer be used by health and medical malpractise insurance as a shield for price fixing bad raking or market allocation with more and more people having to choose between having health insurance or having food on the table i'm very curious to hear what if any justification scan be offered for why the insurance industry continues to need protection from the antitrust laws i now judiciary committee and the health care debate that has been actively involved it watched it for the past few months these are important issues for the american people and i have not ruled out mr chairman sure it's reform as it aster to as part of that legislation congress gave a limited exemption exemption to the federal antitrust law for short companies on the grounds that their activities would be regulated by state entities the states have  in addition to the state sure it's commission admitted state attorneys general have the authority to break antitrust suits against yours under state antitrust laws to bother the state regulator or have done a good job of protecting the consumers in their respective states the chairman i know that the bill is targeted only at the health care and medical malpractise insurance markets however i'm concerned as are many of my friends that it may be the beginning of a broad scale to repeal obamacare and ferguson for all insurance providers i'm not sure that the record supports such a broad scale would further i'm gentleman for his statement and other members opening statements will be included in the record i'm now pleased to introduce the witnesses for today's hearing as you know the health insurance trade association or a help has has been invited to come before congress and explain why health insurance companies need immunity from the antitrust laws although they declined to provide a witness they have submitted a statement which will be introduced into the record i don't want to ruin the suspense for anyone but they end up saying that they don't like our bill our first witness is mr jim hurley on behalf of the american association of actuaries mr curly excuse me mr hurley has over thirty years of industry experience with twenty five of them in medical malpractise mr hurley is the former chairperson of aaa is subcommittee on medical professional liability welcome mr hurley  chair of the american bar association's section of antitrust law misc got worked formally as a staff attorney in the federal trade commission's bureau of competition she's currently working as a partner with the law firm of watch ill lipton rosen and katz welcome scott and finally we have david balto senior fellow with the center for american progress he has over twenty five years of experience as an antitrust attorney in the private sector the antitrust division of the department of justice and the federal trade commission welcome mr bulteel thank you all for your willingness to participate in today's hearing without objection your written statement will be placed into the record and we would ask that you limit your oral remarks to five minutes you will know that we have a lighting system that starts with a green light at four minutes it turns to yellow then read it five minutes after each witness has presented his or her testimony so committee members will be permitted to ask questions subject to the five minute limit today my name is jim hurley i'm a consulting actuary with the firm towers parent i'm an associate of the casual society and a member of the american academy of actuaries my work is primarily in the medical professional liability area as an actuary and my comments will be from that perspective rather than from the health insurance perspective before providing my comments it is important to recognize the unique characteristics of medical professional liability coverage in comparison to other lines of insurance medical professional liability is a low frequency hi severity long tail of coverage meaning on average there is an extended period of time between occurrence of an have an event the report of a claim related to the event and the ultimate resolution of the claim from a statistical standpoint this estimation of losses and premium rates is more uncertain than for other lines of insurance this is most types of health insurance the time allowed i'd like to comment on the bill language and interpretations of it more extensive comments are available in my submitted engage in cruise price fixing bid rigging or market allocation however possible interpretation of the words in any form potential issues and consequences in particular it is possible that the words any form is contained in the proposal could preclude the collection aggregation and analysis of data across companies currently such analyses are permitted in accordance with the provisions of mccarren ferguson and with the oversight of state of state regulators results of these analyses can be provided to companies that participate in the data collection or perhaps other entities that may be given the opportunity to purchase that information analyses of aggregated data serve several purposes which align with the original intent of the mccarran for it's an act and assist state regulators charged with overseeing the pricing of insurance coverage a few of these purposes are one the analysis provide more credible data upon which to base loss estimates and premium rates in the absence of this information companies are self insured entities will be forced to rely on their own more limited data to make a loss or terminations reduced access to data could increase the volatility of these determinations from year to year to these analyses also serve to enhance competition without access to industry information existing companies may be less willing to provide products in new markets or to cover different types of exposure because of the greater on certainty associated with the turning loss estimates and premium rates as for other sports competition industry information is particular importance to newly formed companies or self insurers looking to begin covering medical professional liability exposure absent the use of information from the industry they may be reluctant to assume retain this exposure their decision not to provide coverage reduces competitive alternatives in the marketplace such industry analyses service guidance for companies self insurers and regulators in reducing the likelihood of insolvencies both the long term and recent concerns through the review of the industry data these entities are better able to evaluate of too little is being charged or not enough is being set aside and reserves for a given exposure situation these data aggregation serve the purposes outlined particularly for medical professional liability which has characteristic to make it a statistically challenging exposure for companies and self insure a couple of examples may help illustrate some of the challenges when examples in history analyses can provide guidance to companies and self insurers regarding reasonable charges for higher limits of coverage for insurance the experience of an individual company or self insured is probably not sufficient estimate losses of ten million or twenty million limits of coverage additionally a single entity data would really be sufficient to determine the appropriate differentials among types of exposure for example what would be an equitable loss cost differential among a family practice best physician a general surgeon or an obstetrician there are a number of possible consequences of not having credible information to assist in making laws because determinations insurance companies and self insurers in the interest of preserving their viability will be more cautious if not i'm willing to assume exposure given the risk of the coverage thus at the end of the end result relating to medical professional go to insurance companies is likely to be reduced availability with fewer willing insurers less vigorous competition among those who do write the coverage and higher cost to the consumer self likely be less willing to retain exposure reducing their risk financing options and possibly increasing their costs as well is my understanding that one stated purpose of the proposed legislation is that to reduce medical professional liability premiums in my opinion this change will not accomplish that purpose in fact is more likely to have the opposite effect for the reasons i've outlined additionally medical professional ability losses and rates have been flat or declining the last two to three years without the influence of this proposed change attached to the written version of my testimony as an exhibit displaying rate change activity for the last three years showing approximately thirty percent of the observations reflect rate reductions these trends occurred following the implementation of and debate about tort reforms in many states as well as the growing impact of risk management and patient safety initiatives i thank you for this time and this opportunity to come comment on the proposed legislation i will be happy to answer any questions you have about these comments  support the subcommittees interest in this issue however i respectfully we do raise some concerns about h r thirty five ninety six and i'll briefly outline those for you the handouts will go into greater detail we've consulted already trust experts and have failed to find any cases where commercial health insurers have been charged with price they exceed collusion or market allocation in fact we believe that commercial health insurers move past that business model many years ago and have little need to fix prices or allocate markets because they've done things in other ways like consolidating to gain a larger share of the insurance market as you know in the last decade there have been over four hundred healthcare mergers health insurance mergers the pair market has become more concentrated less diverse and payers have enjoyed substantial negotiating leverage over patients and providers in most markets the most recent data indicates the two largest insurance companies actually control about thirty six percent of the market and sixty seven million lives and control is pretty much the right word for that in terms of their health care instead of price fixing we believe the larger problem is the virtual monopolies that commercial health insurers have in many areas of the country there may be only one or two carriers there's no effective competition physicians are told to take it or leave it with the contract they're offered and there's no and except below market reimbursement patient coverage is are also rescinded when they become ill inappropriate activities and decisions have been well documented in the media and also in these halls of congress the power garnered by health insurance through rapid large scale consolidation has not been used to the advantage of patients premiums have soared and many employers have stopped providing coverage substantially limited or reduce the scope of benefits or ask employees to pay higher shares of their premiums  as as far as we can say that the federal trade commission and the department of justice has shown little interest in restricting additional mergers and no interest in addressing complaints of monopolization by dominate health insure we would urge that the subcommittee consider some real enforcement of merger laws and even break up the commercial insurers who have this virtual monopoly in addition repeal of the antitrust protections afforded to commercial insurers mccarran ferguson could have some negative impact on health care cooperatives such as those being discussed now in this congress  as a as a way of developing more care delivery more care to the two individuals new companies would likely benefit from the antitrust protections under the act repealing the carrier's protections will make it more difficult for the small companies to gain  and easier for the large companies to doblin up once they are formed and finally we asked the subcommittee to reconsider the inclusion of medical liability carriers in this bill and california many of the medical liability carries we from ms got thank you mr chairman mr chairman and members of the subcommittee my name is eileen gotz and i am the chair of the section of antitrust law of the american bar association and a partner at the law firm of walked  i appreciate the opportunity to present the views of the american bar association on h r thirty five ninety six i'm appearing on behalf of the american bar association today and my testimony here reflects the position of the american bar association with respect to this legislation i'd like to state from the outset that my testimony today is limited to this legislation i am not addressing any of the larger health care issues and health care legislation currently before congress notwithstanding that this particular legislation is to some extent related to these broader issues the antitrust section of the a b a and the american bar association have repeatedly embraced the view that industry insurance industry remained principally the province of the state the sherman act has served this nation well for nearly one hundred twenty years because it is simple and very flexible it states what the competent competition policy is and is interpreted by the courts based on the facts and circumstances presented in each particular case this flexibility eliminates in most cases the need for industry specific exemptions moreover the benefits of exemptions rarely outweigh the potential harm imposed open society by the lost of competition resulting from sauce is engines and are often not necessary to limit the risk of deterring pro competitive conduct and short the objectives and goals of these exemptions frequently can be achieved in a manner consistent with the stablish antitrust principles and enforcement policy thus rendering exemptions unnecessary consistent with these general principles the american bar association for over twenty years has supported that  for the entire industry and instead replaced with a series of safe harbor protections for certain forms of collective insured conduct that were unlikely to cause anti gun period of harm to consumers to the extent that h r thirty five ninety six constitutes a first step in this direction by repealing the antitrust exemption for these two types of insurance the american bar association with support such legislation but only if it were amended to provide safe harbors for certain pro competitive conduct as set forth in the a b a policy that is attached to my written statement the safe harbors are not designed to alter the existing antitrust policy rather they are to deter private litigation that my post exemption challenges conduct that in the unique circumstances of the insurance industry may actually promote competition they have been included in several other mccarran repeal proposals over the years but are not contained in h r thirty five ninety six and the american bar association believes it is necessary to at the safe harbor provisions ex clarifying amendments to the legislation please note that i am recommending that the insurance industry should not be subject to and i trust exemption the a b a is not suggesting that the industry be subject to a more rigorous anti trust standard than the rest of american industry we do not believe that is the intention of the legislation but the broad prohibitions on price fixing bid rigging and market allocations could potentially be read to condemn activity that would otherwise be permissible under the antitrust laws the terms have very specific meanings in the existing case for interpret ing the sherman act and it should clearly not be the intent of this pleasure legislation to place a greater burden on the insurance industry then on other industries the safe harbors we support helped to insure against this result but further clarification on this point would also be beneficial finally i would like to thank you for the opportunity to appear here today to present the views of the american bar association the american bar association believes strongly in competition in the insurance industry can be enhanced consistent with necessary joint activities to benefit all segments of our society and i will be happy to answer any questions that you may have thank you thank you today about health insurance markets and competition i know from my experience as an antitrust room for sort of representative of public interest groups on competition issues there are three things for a market to function properly transparency choice and a lack of conflicts of interest all of these elements are lacking in the health insurance markets few markets are concentrated opaque and complex and subject to rampant and i competitive and deceptive practices my simple message is as the health care debate continues many may advocate for limited reform of the insurance system their belief is that the it's a fundamentally sound market with a little dose of additional regulation everything will be cured they could not be more wrong my testimony briefly summarized is from both a competition and consumer protection mark perspective if you markets are as dysfunctional as the health insurance market profits are increasing rapidly the number of venture uninsured are increasing significantly it's not surprising the wall street calls the tune for these health insurers they have no choice but to try to be a priest profit as much as possible and engaging in deceptive or fraudulent conduct doesn't stop them from doing that unfortunately as dr mandell has pointed out we've been in an eight year period of regulatory in the collapse you're talking about and statutory and i trust exemption but from the perspective of the federal antitrust and consumer protection agencies health insurance has enjoyed another and i trust exemption they've brought zero cases against anti competitive practices by health insurers they've brought zero cases against consumer protection violations by health insurers hundreds of motorists have been approved with only minor restructuring of two of them where the important dollars been spent going after doctors now there's no evidence in the world that doctors were a major source of escalating health care costs the bush administration brought over thirty  against doctors and zero cases against insurance companies members of this committee that makes no sense the most effective means of addressing this problem is the establishment of the public plan and the house deserve tremendous credit for the committees and the acting that what you need to restructure this market is to create an entity that doesn't play to the tune of wall street but plays to the public interest the public plan will have the clout to go and bring competition to the markets the public plan will not engage in these practices because it has to serve the public interest and in that fashion other insurance companies will have to compete not by discriminating and cutting services but by improving services in any case this record of regular terry nichols act must be reversed there must be significant regulatory reforms to attempt to begin to grapple with the broken health insurance market what do i suggest first congress has been doing it right your oversight function is tremendously important and the work of various committees in congress to look at the and i competitive any preaches practices of the health insurance industry must continue you should adopt thirty five ninety to create a separate division for health insurance consumer protection and force might fit both agencies should look at and i competitive practices by health insurers fit the f t c and d o j should do a retrospective on some of the mergers that organization there is tremendous mischief going on the boat with both of those intermediaries fortunately h r two hundred thirty two hundred addresses that partially for people that should also go on and address it for group purchasing organizations we face a daunting task here in trying to bring competition back to a market that severely broken we need a tremendous effort in terms of not only a public plan but really a realignment of the forstmann efforts so that we can start to bring  industry this industry in line so that consumers don't suffer from deceptive practice practices i welcome your questions thank you and with that we will begin with  continue the installation of insurance companies from the antitrust laws what was the reason that the was initially put into place was a supreme court case which stands and a restriction on the ability of states to regulate insurance and it was based on the interstate commerce clause that was to make clear that there could be a scheme of state regulation and that should definitely continue on behalf of the american bar association i'm not here today to try to justify the continuation of the  so you're not going to hear that of my mouth and anyway instead what i would suggest to you that in the last sixty five years what we've seen is american antitrust jurisprudence really advanced today we have a through case for much more recognition of the efficiency pro comparative justifications that can go into joint activity today we also have certain checks and balances on point of bringing frivolous suits with twamley having come out supreme court this also just and the general view over time has been for the last fifteen years where we've seen exemptions going by the wayside that the sherman act is really what should apply but for clarification purposes because we would be doing this see change want to make clear that activities that are specified in their safe harbors which  there is little chance that they will be anti competitive activities are recognized and are protected so what mr hurley talks about and the sharing of information is used in order to be able to keep rates down that that can be permitted but the same time the antitrust laws can be enforced so the position of the american bar association it is has been clearly for the last twenty years to get rid of mccarren for a kiss and replace it with just the safe harbors and with full recognition that the antitrust laws apply thank you  doctors it is a fairly vibrant market the prices are fairly low the service is high the reason i think we have this is partly because of things that go on at the state level but also because of the and there are states where one of the reasons we had our change in california in one thousand nine hundred five was everybody left the state insurance carriers left the state we had no insurance and so people had to put it together and doctors project future prices for insurance premiums should enjoy special protection under the antitrust laws i have not the a b a has not studied in detail how the pricing mechanisms would work i would state that the way the state harbor is now being proposed that's in our written statement i think we get the right balance which would be for very limited but  pro competitive sharing of information be permitted and the others would be subject to the antitrust laws so if they do have an anti competitive purpose there would be a way of challenging  the issue of trending i think it's got a saying that the collection of data the aggregation of data behind the issue of training is essentially analysis of the data in some sense and in the absence of  analysis of that data the relatively smaller newer companies or the self insure who might otherwise be able to use the results of that analysis which incidentally creates loss costs not rates it doesn't necessarily translate into a premium it translates into an interpretation of losses so someone can estimate what a loss cost is for a particular base class position or for an acute care bed that sort of thing translates into some it's relationships would allow which allows you to determine what higher limits of richard cost these things are highly technical they require generally the work of an actuary many smaller newer companies getting into the business would have difficulty in having that kind of who provide this coverage would have to take those loss cost interpret them and then adjust them such that they would make it into rates that are appropriate for their underwriting standards and their expense levels but then answer the question thank you mr hurley  if lawsuits alleging price fixing by insurance companies have been thrown out because of mccarren ferguson and if we don't have a vigorous  regulatory environment by state government how can we say that there is no  price fixing going on in the industry and also what is it that justifies the antitrust exemption for insurance and last you mentioned about in your statement we have consulted with scuse me dr dale mentioned in his statement that we have consulted antitrust experts and have failed to find any on to say that there is little need to collude on pricing of the insurance companies have consolidated and been able to control a larger part of the health insurance market and  the forces of competition just like there are regulated states companies will compete for business whether the regulation is harsh or tighter or looser as you would as me so i think that the competition does exist their companies will compete for business in some sense harsh and tighter regulatory environments sometimes make it tougher to compete because you have to get rates through the insurance departments before you're able to implement them the companies will involve those types of regulatory environments in my opinion the second one i don't know that i can recollect let me touch on the issue of consolidation most folks who would evaluate the marketplace would say that there are enough companies in most jurisdictions to provide a competitive marketplace in other words there are probably three or four or five insurers who are willing to participate in this business i would supplement that by saying tail nature of it and so there are fewer companies are willing to write it a lot of the company specialize in it and that's why there are fewer of them because they actually specialize in that line of business and the reason why they specialize in many of them are in malpractise insurance rates it is a given state i guess is a good time to ask that question because we just through a period of time where a number of reforms were passed in the that there are a number of dynamics that affect the medical reforms that changes in the economy and things like that however it's hard to deny the coincidence of lower frequency of claims that have occurred has occurred since the implementation of reform in  states where reforms were path where passed the coincidence of timing of lower frequency of claims therefore lower costs driving rates coincidental with the implementation of those reforms the lower ask you this is your pages should the federal trade commission and the department of justice revise their healthcare guidelines to reflect modern practice of medicine i believe the answer is yes but  what i was really referring to in this statement is their treatment of health insurers and how they are consolidating and how they are using that consolidated power to i guess the best word i can think of bully patients and doctors into accepting things that are not ideal not high value and the reason we think that that happens is because insurance companies have become so big so powerful so insurance companies would they commit now to all i'm sorry they cut it because she had forgotten to put on her on her application that she had acne at one time or something completely unrelated and the  in that room asked the insurance c e o s would you commit right now to not doing any more sure you can dump people if they lied to you but for something like that you know get real and they would do it we have to follow the state laws and this is what the state will say so that is something that needs to change are you aware of any policy just for separating out held the shortage our medical medical k that they should more vigorously look at the company and if they are doing things which in effect bad for patients take appropriate action so they ok i got y committee which explains how the lack of resources and ability of state insurance commissioners to effectively police health insurance markets and i'd be glad to provide the committee with documentation that shows that if you're in a big state like new york in california you're much more likely to have an activist insurance commissioner can really protect you so as the committee considers whether or not state insurance commission in forstmann is an adequate substitute for federal such that you don't need to amend the statute you should recognize that the vast majority of states have extraordinarily limited resources to actively go after this kind of thank you all thank you mr chairman i yield back thank you  without objection members will have five legislative days to submit any additional written questions which we will forward to the witnesses and ask that you will answer is properly as you can  so that they can be made a part of the record without objection the record will remain open for five legislative days for the submission of any additional material you today's hearing raised a number of important issues as we consider the legislation before us the question we must ask ourselves is are consumers better off when they health insurance and medical malpractise insurance