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HEALTH INSURANCE INDUSTRY ENFORCEMENT 

ACT OF 2009 

HEARING 

BEFORE THE

SUBCOMMITTEE ON COURTS AND 

COMPETITION POLICY 

OF THE

COMMITTEE ON THE JUDICIARY 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

ON

H.R. 3596 

OCTOBER 8, 2009 

Serial No. 111–120 

Printed for the use of the Committee on the Judiciary 

( 

Available via the World Wide Web: http://judiciary.house.gov 

(II) 

COMMITTEE ON THE JUDICIARY 

JOHN CONYERS, JR., Michigan, Chairman 

HOWARD L. BERMAN, California 

RICK BOUCHER, Virginia 

JERROLD NADLER, New York 

ROBERT C. ‘‘BOBBY’’ SCOTT, Virginia 

MELVIN L. WATT, North Carolina 

ZOE LOFGREN, California 

SHEILA JACKSON LEE, Texas 

MAXINE WATERS, California 

WILLIAM D. DELAHUNT, Massachusetts 

ROBERT WEXLER, Florida 

STEVE COHEN, Tennessee 

HENRY C. ‘‘HANK’’ JOHNSON, JR., 

Georgia 

PEDRO PIERLUISI, Puerto Rico 

MIKE QUIGLEY, Illinois 

LUIS V. GUTIERREZ, Illinois 

BRAD SHERMAN, California 

TAMMY BALDWIN, Wisconsin 

CHARLES A. GONZALEZ, Texas 

ANTHONY D. WEINER, New York 

ADAM B. SCHIFF, California 

LINDA T. SA ́ NCHEZ, California 

DEBBIE WASSERMAN SCHULTZ, Florida 

DANIEL MAFFEI, New York 

LAMAR SMITH, Texas 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

HOWARD COBLE, North Carolina 

ELTON GALLEGLY, California 

BOB GOODLATTE, Virginia 

DANIEL E. LUNGREN, California 

DARRELL E. ISSA, California 

J. RANDY FORBES, Virginia 

STEVE KING, Iowa 

TRENT FRANKS, Arizona 

LOUIE GOHMERT, Texas 

JIM JORDAN, Ohio 

TED POE, Texas 

JASON CHAFFETZ, Utah 

TOM ROONEY, Florida 

GREGG HARPER, Mississippi 

PERRY APELBAUM, Majority Staff Director and Chief Counsel 

SEAN MCLAUGHLIN, Minority Chief of Staff and General Counsel 

SUBCOMMITTEE ON COURTS AND COMPETITION POLICY

HENRY C. ‘‘HANK’’ JOHNSON, JR., Georgia, Chairman 

JOHN CONYERS, JR., Michigan 

RICK BOUCHER, Virginia 

ROBERT WEXLER, Florida 

CHARLES A. GONZALEZ, Texas 

SHEILA JACKSON LEE, Texas 

MELVIN L. WATT, North Carolina 

BRAD SHERMAN, California 

MIKE QUIGLEY, Illinois 

HOWARD COBLE, North Carolina 

JASON CHAFFETZ, Utah 

BOB GOODLATTE, Virginia 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

DARRELL ISSA, California 

GREGG HARPER, Mississippi 

CHRISTAL SHEPPARD, Chief Counsel 

BLAINE MERRITT, Minority Counsel 

(III) 

C O N T E N T S 

OCTOBER 8, 2009 

Page 

THE BILL 

H.R. 3596, the ‘‘Health Insurance Industry Antitrust Enforcement Act of 

2009’’ ..................................................................................................................... 3 

OPENING STATEMENTS 

The Honorable Henry C. ‘‘Hank’’ Johnson, Jr., a Representative in Congress 

from the State of Georgia, and Chairman, Subcommittee on Courts and 

Competition Policy ............................................................................................... 1 

The Honorable Howard Coble, a Representative in Congress from the State 

of North Carolina, and Ranking Member, Subcommittee on Courts and 

Competition Policy ............................................................................................... 5 

WITNESSES 

Mr. James D. Hurley, Member, Medical Professional Liability Subcommittee, 

American Academy of Actuaries, Washington, DC 

Oral Testimony ..................................................................................................... 26 

Prepared Statement ............................................................................................. 30 

Dr. Peter J. Mandell, former President, California Orthopaedic Association, 

Burlingame, CA 

Oral Testimony ..................................................................................................... 35 

Prepared Statement ............................................................................................. 38 

Ms. Ilene Knable Gotts, Chair, Section of Antitrust Law, American Bar Association, Washington, DC 

Oral Testimony ..................................................................................................... 105 

Prepared Statement ............................................................................................. 107 

Mr. David Balto, Senior Fellow, Center for American Progress, Washington, 

DC 

Oral Testimony ..................................................................................................... 116 

Prepared Statement ............................................................................................. 118 

APPENDIX 

MATERIAL SUBMITTED FOR THE HEARING RECORD

Prepared Statement of the American Dental Association (ADA) ........................ 147 

(1) 

HEALTH INSURANCE INDUSTRY 

ENFORCEMENT ACT OF 2009 

THURSDAY, OCTOBER 8, 2009 

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON COURTS AND

COMPETITION POLICY

COMMITTEE ON THE JUDICIARY, 

Washington, DC. 

The Subcommittee met, pursuant to notice, at 12:23 p.m., in 

room 2237, Rayburn House Office Building, the Honorable Henry 

C. ‘‘Hank’’ Johnson, Jr. (Chairman of the Subcommittee) presiding. 

Present: Representatives Johnson, Quigley, and Coble. 

Also present: Representative DeGette. 

Staff present: (Majority) Christal Sheppard, Subcommittee Chief 

Counsel; Anant Raut, Counsel; Elisabeth Stein, Counsel; Rosalind 

Jackson, Professional Staff Member; and Stewart Jeffries, Minority 

Counsel. 

Mr. JOHNSON. This is the hearing of the Committee on the Judiciary, the Subcommittee on Courts and Competition Policy. It will 

now come to order. 

Without objection, the Chair is authorized to declare a recess. 

Today, I begin the first in a series of hearings I call ‘‘An Antitrust 

System for the 21st Century.’’ 

Five years ago, the Judiciary Committee created a bipartisan 

Committee, the Antitrust Modernization Commission, to evaluate 

the Nation’s antitrust laws and offer recommendations for updating 

and improving them. 

One of their recommendations was to repeal the McCarran-Ferguson Act. McCarran-Ferguson was passed by Congress in 1945 

and largely exempts insurance companies from the Federal antitrust laws. 

You know, it is 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 is in their shareholders’ interest 

to cover the healthiest people and dump the sickest. 

The insurance companies will tell us that they need this antitrust exemption because it really make the industry more competitive. Oh, really? Insurance profits have grown nearly sixfold in the 

past decade, while more than 40 million Americans go without insurance—and this is their idea of a competitive market. 

The only thing these companies are competing for are the people 

who need them the least. Premiums have increased 87 percent in 

2 

the past 6 years. Where is this vigorous competition in the industry? 

Last month I, Chairman Conyers and Representative DeGette 

joined our colleagues in the Senate to introduce the legislation before you, H.R. 3596. The bill says that McCarran-Ferguson can no 

longer be used by health and medical malpractice insurers as a 

shield for price fixing, bid rigging or market allocation. 

With more and more people having to choose between having 

health insurance or having food on the table, I am very curious to 

hear what, if any, justifications can be offered for why the insurance industry continues to need protection from the antitrust laws. 

[The bill, H.R. 3596, follows:] 

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Mr. JOHNSON. I now recognize my colleague, Howard Coble, the 

distinguished Ranking Member of the Subcommittee, for his opening remarks. 

Mr. COBLE. Thank you, Mr. Chairman. 

And I will apologize to you and to the audience for my raspy 

throat. I have come down with my annual autumn cold, so it 

doesn’t sound good, but I will—we will work through it. 

Thank you, Mr. Chairman, for calling this hearing on the Courts 

and Competition Policy Subcommittee. I appreciate your willingness to involve the House Judiciary Committee in the health care 

debate that has been actively involved on—in Washington for the 

past few months. 

These are important issues for the American people, and I have 

not ruled out, Mr. Chairman, insurance reform as an answer to 

America’s health care problems, and I am having a little difficulty 

in embracing the bill before us, and I look forward to seeing what 

is—what sort of illumination is forthcoming for me. 

The McCarran-Ferguson, as you pointed out, Mr. Chairman, was 

Congress’ response to a 1944 Supreme Court decision holding that 

the business of insurance was interstate commerce. McCarran-Ferguson Act—Congress decided to keep regulation of insurance at the 

state level. 

As part of that legislation, Congress gave a limited exemption to 

the Federal antitrust laws for insurance companies on the grounds 

that their activities would be regulated by state entities. 

The states have, in fact, continued to rigorously regulate the insurance industry. Those regulators can and do guarantee that insurers do not collude to set price, rig bids or divide territories. 

In addition to the state insurance commissioners, many state attorneys general have the authority to bring antitrust suits against 

insurers under state antitrust laws. To my mind, these state regulators have done a good job of protecting the consumers in their respective states. 

Mr. Chairman, I know that the bill is targeted only at the health 

care and medical malpractice insurance markets. However, I am 

concerned, as are many of my friends, that it may mean the beginning of a broad scale to repeal McCarran-Ferguson for all insurance providers. I am not sure that the record supports such a 

broad-scale repeal. 

Further, I am concerned that many key terms in the legislation, 

including issuers of medical malpractice insurance, price fixing, bid 

rigging and market allocation are undefined. While the latter three 

phrases are used in—as terms of art in antitrust litigation, there 

may be significant litigation to define what they mean as part of 

this legislation. 

Mr. Chairman, this legislation raises a lot of questions, and I am 

glad that we have such a distinguished panel of experts before us 

to help us understand them all. 

And with that, Mr. Chairman, I yield back the balance of my 

time. And without objection, I would like to submit for the record 

a statement from Lamar Smith, the distinguished Ranking Member of the full Committee; the testimony of the Property Casualty 

Insurers Association; the Insurers of Physicians Association; the 

6 

American Insurance Association; and the Americans Health Insurance Plans, if I may introduce those for the record. 

Mr. JOHNSON. Without objection, it is so ordered. 

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Mr. COBLE. And I yield back. 

Mr. JOHNSON. I thank the gentleman for his statement. 

And other Members’ opening statements will be included in the 

record. 

I am now pleased to introduce the witnesses for today’s hearing. 

As you know, the health insurance trade association, or AHIP, 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. Hurley has over 30 years of industry 

experience, with 25 of them in medical malpractice. Mr. Hurley is 

the former chairperson of AAA’s subcommittee on medical professional liability. 

Welcome, Mr. Hurley. 

Our next witness will be Dr. Peter Mandell, former president of 

the California Orthopaedic Association. Dr. Mandell has practiced 

orthopedic surgery in the Bay Area for almost 30 years. 

Welcome, Dr. Mandell. 

Dr. MANDELL. Thank you, Mr. Chairman. 

Mr. JOHNSON. Next, we have Ilene Knable Gotts, Chair of the 

American Bar Association’s section of antitrust law. Ms. Gotts 

worked formerly as a staff attorney in the Federal Trade Commission’s Bureau of Competition. She is currently working as a partner 

with the law firm of Wachtell Lipton Rosen & Katz. 

Welcome, Ms. Gotts. 

And finally, we have David Balto, Senior Fellow with the Center 

for American Progress. He has over 25 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. Balto. 

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 

5 minutes. 

You will note that we have a lighting system that starts with a 

green light. At 4 minutes, it turns to yellow, then red at 5 minutes. 

After each witness has presented his or her testimony, Subcommittee Members will be permitted to ask questions subject to 

the 5-minute limit. 

And, Mr. Hurley, would you begin your testimony? 

TESTIMONY OF JAMES D. HURLEY, MEMBER, MEDICAL PROFESSIONAL LIABILITY SUBCOMMITTEE, AMERICAN ACADEMY OF ACTUARIES, WASHINGTON, DC 

Mr. HURLEY. Thank you, Mr. Chairman. 

Chairman Johnson, Ranking Member Coble and distinguished 

Members of the Subcommittee, thank you for inviting me to testify 

today. My name is Jim Hurley. I am a consulting actuary with the 

firm Towers Perrin. I am an associate of the Casualty Actuarial Society and a member of the American Academy of Actuaries. 

27 

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, high-severity, long-tailed coverage, 

meaning, on average, there is an extended period of time between 

the occurrence of an event, the report of a claim related to the 

event, and the ultimate resolution of the claim. 

From a statistical standpoint, this makes the estimation of losses 

and premium rates is more uncertain than for other lines of insurance, such as most types of health insurance. 

In the time allowed, I would like to comment on the bill’s language and interpretations of it. More extensive comments are available in my submitted testimony. 

The explicitly stated impact of the legislation would seem a nonevent on its face. The proposal states, in part, that nothing in the 

McCarran-Ferguson Act shall be construed to permit issuers of 

medical malpractice insurance to engage in any form of price fixing, bid rigging or market allocations. 

My understanding is that engaging in these acts in the context 

of the proposed legislation is illegal pursuant to state laws enacted 

after implementation of the McCarran-Ferguson Act. And as such, 

in my experience, companies do not engage in collusive price fixing, 

bid rigging, or market allocation. 

However, possible interpretations of the words ‘‘in any form’’ 

raise potential issues and consequences. In particular, it is possible 

that the words ‘‘in any form’’ as 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 McCarran-Ferguson and with the oversight of state 

regulators. 

Results of these analyses can be provided to companies that participate in the data collection or, perhaps, to 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-Ferguson Act and assist 

state regulators charged with overseeing the pricing of insurance 

coverage. 

A few of these purposes are, one, these analyses provide more 

credible data upon which to base loss estimates and premium 

rates. 

In the absence of this information, companies or self-insured entities would be forced to rely on their own more limited data to 

make loss or rate determinations. Reduced access to data could increase the volatility of these determinations from year to year. 

Two, 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 uncertainty associated with determining loss estimates and premium rates. 

28 

As further supports competition, industry information is of 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 or retain this exposure. Their decision not to provide coverage reduces competitive alternatives in the marketplace. 

Such industry analyses serve as guidance for companies, self-insurers and regulators in reducing the likelihood of insolvencies, 

both a long-term and recent concern. 

Through the review of the industry data, these entities are better 

able to evaluate if too little is being charged or not enough is being 

set aside in reserves for a given exposure situation. 

These data aggregations serve the purposes outlined, particularly 

for medical professional liability, which has characteristics that 

make it a statistically challenging exposure for companies and selfinsurers. 

A couple of examples may help illustrate some of the challenges. 

One example is industry analyses can provide guidance to companies and self-insurers regarding reasonable charges for higher limits of coverage. 

For instance, the experience of an individual company or self-in- surer is probably not sufficient to estimate losses at $10 million or 

$20 million limits of coverage. 

Additionally, a single entity’s data would rarely 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 physician, a general surgeon or an obstetrician? 

There are a number of possible consequences of not having credible information to assist in making loss cost determinations. Insurance companies and self-insurers, in the interest of preserving 

their viability, would be more cautious, if not unwilling, to assume 

exposure given the risk of the coverage. 

Thus, at the end of the—the end result relating to medical professional liability insurance companies is likely to be reduced availability with fewer willing insurers, less vigorous competition among 

those who do write the coverage, and higher costs to the consumer. 

Self-insurers are likely to be less willing to retain exposure, reducing their risk financing options and possibly increasing their 

costs as well. 

It is my understanding that one stated purpose of the proposed 

legislation is to reduce medical professional liability premiums. In 

my opinion, this change will not accomplish that purpose. In fact, 

it is more likely to have the opposite effect for the reasons I have 

outlined. 

Additionally, medical professional liability losses and rates have 

been flat or declining in the last 2 to 3 years without the influence 

of this proposed change. 

Attached to the written version of my testimony is an exhibit displaying rate change activity for the last 3 years, showing approximately 30 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. 

29 

I thank you for this time and this opportunity to comment on the 

proposed legislation. I will be happy to answer any questions you 

have about these comments. Thank you. 

[The prepared statement of Mr. Hurley follows:] 

30 

PREPARED STATEMENT OF JAMES D. HURLEY


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Mr. JOHNSON. Thank you, Mr. Hurley. 

Dr. Mandell, please begin. 

TESTIMONY OF PETER J. MANDELL, FORMER PRESIDENT, 

CALIFORNIA ORTHOPAEDIC ASSOCIATION, BURLINGAME, CA 

Dr. MANDELL. Thank you, Mr. Chairman and Ranking Member 

Coble and the distinguished Members of the Committee. 


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The California Orthopaedic Association appreciates this opportunity to submit testimony to the Committee about H.R. 3596. We 

appreciate and support the Subcommittee’s interest in this issue. 

However, respectfully, we do raise some concerns about H.R. 

3596, and I will briefly outline those for you. The handouts will go 

into greater detail. 

We have consulted our antitrust experts and have failed to find 

any cases where commercial health insurers have been charged 

with price fixing, collusion or market allocation. 

In fact, we believe the commercial health insurers moved past 

that business model many years ago and have little need to fix 

prices or allocate markets because they have done things in other 

ways, like consolidated to gain a larger share of the insurance market. 

As you know, in the last decade, there have been over 400 health 

care mergers—health insurance mergers. The Payor market has 

become more concentrated, less divers. And payors have enjoyed 

substantial negotiating leverage over patients and providers in 

most markets. 

The most recent data indicates that the two largest insurance 

companies actually control about 36 percent of the market and 67 

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 

is no effective competition. 

Physicians are told to take it or leave it with the contracts they 

are offered, and there is no—and accept below-market reimbursement. Patient coverages are also rescinded when they become ill. 

These inappropriate activities and decisions have been well documented in the media and also in these halls of Congress. 

The power garnered by health insurers 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 reduced the scope of benefits, or 

asked employees to pay higher shares of the premiums. 

As far as we can see, the Federal Trade Commission and the Department of Justice have shown little interest in restricting additional mergers and no interest in addressing complaints of monopolization by dominant health insurers. 

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 under McCarran-Ferguson could have some negative impact on health care cooperatives such as those being discussed now in this Congress as a way of developing more care— 

delivering more care to individuals. 

New companies would likely benefit from the antitrust protections under the act. Repealing the carriers’ protections will make 

it more difficult for these small companies to gain market share 

and easier for the large companies to gobble them up once they are 

formed. 

37 

And finally, we ask the Subcommittee to reconsider the inclusion 

of medical liability carriers in this bill. In California, many of the 

medical liability carriers we currently have were created in the mid 

1970’s when we had our medical liability crisis. Many of them were 

doctor-formed. 

In our opinion, they achieved the goals of availability, affordability and stability. We see no evidence that the medical liability 

carriers in our state share data or drop physicians from coverage. 

We would urge the medical liability carriers be excluded from this 

bill. 

We thank you for this opportunity to talk to the Subcommittee 

today, and we appreciate your consideration of our comments and 

hope that we will be able to work with you and your staff further 

as this important effort continues. 

[The prepared statement of Dr. Mandell follows:] 

38 

PREPARED STATEMENT OF PETER J. MANDELL


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Mr. JOHNSON. Thank you, Dr. Mandell. 

Next we will hear from Ms. Gotts. 

TESTIMONY OF ILENE KNABLE GOTTS, CHAIR, SECTION OF 

ANTITRUST LAW, AMERICAN BAR ASSOCIATION, WASHINGTON, DC 

Ms. GOTTS. Thank you, Mr. Chairman. 

Mr. Chairman and Members of the Subcommittee, my name is 

Ilene Gotts and I am the chair of the section of antitrust law of the 

American Bar Association and a partner at the law firm of 

Wachtell Lipton Rosen & Katz. 

I appreciate the opportunity to present the views of the American 

Bar Association on H.R. 3596. I am 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 would 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 ABA and the American Bar Association have repeatedly embraced the view that industry-specific exemptions from the antitrust laws are rarely justified. 

McCarran-Ferguson dates back to another era of antitrust jurisprudence. It was enacted in 1945 to ensure that the regulation of 

the insurance industry remained principally the province of the 

states. 

The Sherman Act has served this Nation well for nearly 120 

years, because it is simple and very flexible. It states what the 

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 on society by the loss of competition resulting 

from such exemptions and are often not necessary to limit the risk 

of deterring pro-competitive conduct. 

In short, the objectives and goals of these exemptions frequently 

can be achieved in a manner consistent with established antitrust 

principles and enforcement policy, thus rendering exemptions unnecessary. 

Consistent with these general principles, the American Bar Association, for over 20 years, has supported that McCarran-Ferguson 

reform occur for the entire industry and be instead replaced with 

a series of safe harbor protections for certain forms of collective insurer conduct that were unlikely to cause anticompetitive harm to 

consumers. 

To the extent that H.R. 3596 constitutes a first step in this direction by repealing the antitrust exemption for these two types of insurance, the American Bar Association would support such legislation, but only if it were amended to provide safe harbors for certain 

pro-competitive conduct as set forth in the ABA policy that is attached to my written statement. 

106 

These safe harbors are not designed to alter the existing antitrust policy. Rather, they are to deter private litigation that might, 

post-exemption, challenge 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. 3596, and the 

American Bar Association believes it is necessary to add these safe 

harbor provisions as clarifying amendments to the legislation. 

Please note that in recommending that the insurance industry 

should not be subject to an antitrust exemption, the ABA is not 

suggesting that the industry be subject to a more rigorous antitrust 

standard than the rest of American industry. 

We do not believe that it 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 law 

interpreting the Sherman Act, and it should clearly not be the intent of this legislation to place a greater burden on the insurance 

industry than on other industries. 

The safe harbors that we support help to ensure 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. 

[The prepared statement of Ms. Gotts follows:] 

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PREPARED STATEMENT OF ILENE KNABLE GOTTS


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Mr. JOHNSON. Thank you, Ms. Gotts. 

And now we turn to Mr. Balto for your testimony. 


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TESTIMONY OF DAVID BALTO, SENIOR FELLOW, 

CENTER FOR AMERICAN PROGRESS, WASHINGTON, DC 

Mr. BALTO. Thank you, Chairman Johnson, Ranking Member 

Coble and the other distinguished Members of the Committee. 

Thank you for the privilege of testifying before you today about 

health insurance markets and competition. 

I know, from my experience as an antitrust enforcer and a 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 as concentrated, opaque and complex, and subject to rampant anticompetitive 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 it is 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 perspective. Few markets are as dysfunctional as the health insurance market. 

Profits are increasing rapidly. The number of uninsured are increasing significantly. It is not surprising Wall Street calls the tune 

for these health insurers. They have no choice but to try to increase 

profits 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 have been in 

an 8-year period of regulatory neglect. You are talking about a statutory antitrust exemption. 

But from the perspective of the Federal antitrust and consumer 

protection agencies, health insurance has enjoyed another antitrust 

exemption. They have brought zero cases against anticompetitive 

practices by health insurance. They have brought zero cases 

against consumer protection violations by health insurers. 

Hundreds of mergers have been approved with only minor restructuring of two of them. Where have the enforcement dollars 

been spent? Going after doctors. 

Now, there is no evidence in the world that doctors were a major 

source of escalating health care costs. The Bush administration 

brought over 30 cases 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 deserves tremendous 

credit for the Committees enacting 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 

service but by improving service. 

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In any case, this record of regulatory neglect must be reversed. 

There must be significant regulatory reforms to attempt to begin 

to grapple with the broken health insurance markets. 

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 anticompetitive and 

egregious practices of the health insurance industry must continue. 

You should adopt 3596, but you should go further. There is uncertainty created by the McCarran-Ferguson Act about whether the 

FTC can go after anticompetitive or deceptive conduct by health insurers. Let’s clarify that so that we can use the FTC to go after 

these practices. 

Third, the Obama administration should marshal its enforcement 

resources to go after the egregious conduct by health insurers, not 

the conduct of small-town doctors. 

Fourth, the FTC should create a separate division for health insurance consumer production enforcement. 

Fifth, both agencies should look at anticompetitive practices by 

health insurers. 

Sixth, the FTC and DOJ should do a retrospective on some of the 

mergers that Dr. Mandell has complained about. And if those 

mergers are anticompetitive, let’s unwind them and break them up. 

Finally, Congress should require the transparency of all health 

insurer intermediaries—not only insurers, but PBMs and group 

purchasing organizations. There is tremendous mischief going on 

in—with both of those intermediaries. Fortunately, H.R. 3200 addresses that partially for PBMs. It 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 is severely broken. We need a tremendous effort 

in terms of not only the public plan but, really, a realignment of 

enforcement efforts so that we can start to bring these industries— 

this industry in line so that consumers don’t suffer from these egregious and deceptive practices. 

I welcome your questions. 

[The prepared statement of Mr. Balto follows:] 

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PREPARED STATEMENT OF DAVID BALTO


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Mr. JOHNSON. Thank you. 

And with that, we will begin with questions. 

Ms. Gotts, what was the justification 64 years ago for passing 

McCarran-Ferguson? And what, if anything, has changed since 

then that would merit continued insulation of insurance companies 

from the antitrust laws? 


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Ms. GOTTS. What was the reason that the exemption was initially put into place was a Supreme Court case which found a restriction on the ability of states to regulate insurance, and it was 

based on the interstate commerce clause, so it 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 am not here today 

to try to justify the continuation of the McCarran-Ferguson exemption as it is written, so you are not going to hear that out of my 

mouth in any way. 

Instead, what I would suggest to you—that in the last 65 years, 

what we have seen is antitrust jurisprudence really advance. Today 

we have, through case law, much more recognition of the efficiency, 

pro-competitive justifications that can go into joint activity. 

Today we also have certain checks and balances on plaintiffs 

bringing frivolous suits with Twombly having come out—the Supreme Court. 

This all suggests—and the general view over time has been for 

the last 15 years where we have 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 

sea change, we would want to make clear that activities that are 

specified under safe harbors, which we believe there is little chance 

that there would be anticompetitive activity, are recognized and 

are protected, so that what Mr. Hurley talks about in the sharing 

of information that is used in order to be able to keep rates down— 

that that can be permitted, but at the same time the antitrust laws 

can be enforced. 

So the position of the American Bar Association has been clearly 

for the last 20 years to get rid of McCarran-Ferguson and replace 

it with just these safe harbors and with full recognition that the 

antitrust laws apply. 

Mr. JOHNSON. Thank you. 

Dr. Mandell and Mr. Balto, in Mr. Hurley’s written testimony, he 

says that eliminating McCarran-Ferguson will result in less vigorous competition. 

Dr. Mandell, Mr. Balto, when you look at the insurance market, 

do you see vibrant competition? 

Mr. BALTO. The AMA study of documents, I think quite clearly, 

that the vast majority of markets are highly concentrated. 

The report by Health Care for Americans Now documents how 

almost every state is dominated by one or, at most, two insurers. 

That doesn’t sound like a competitive market to me. 

Dr. MANDELL. Your question was about medical liability insurance, or health care? I am sorry. 

Mr. JOHNSON. Health care, and medical liability—the same question would apply on liability insurance as well. 

Dr. MANDELL. Well, let me take medical liability. In my state, 

there are at least four or five companies that I can think of that 

are vying for the—the customers like me, the orthopedic surgeons 

and other doctors. 

And 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 

137 

of things that go on at the state level, but also because of the overall micro reforms that were put down in 1975. 

Mr. JOHNSON. What happens if the states don’t have a vigorous 

regulatory bent of mind? 

Dr. MANDELL. Well, there are states where—one of the reasons 

we had our change in California in 1975 is everybody left the state. 

The insurance carriers left the state. We had no insurance. And so 

people had to put it together, and doctors put it together, and small 

groups put it together, and that sort of thing. 

There are still states, at least a year or two ago when I last 

looked at this—Pennsylvania, for one—where insurance premiums 

for medical liability are so high that very few carriers are willing 

to write. 

So depending on, you know, whether you have these micro-type 

reforms, you can have a situation where I am presuming the insurance companies can make a profit or they are not going to stick 

around. 

Mr. JOHNSON. Thank you, sir. 

Ms. Gotts and Mr. Hurley—Ms. Gotts, can you think of any reason that the process of trending, in which industry data 

aggregators project future prices for insurance premiums, should 

enjoy a special protection under the antitrust laws? 

Ms. GOTTS. The ABA has not studied in detail how the pricing 

mechanisms would work. 

I would state, though, that the way the safe harbor is now being 

proposed that is in our written statement, I think we get the right 

balance, which would be for very limited but pro-competitive sharing of information would be permitted, and the others will be subject to the antitrust laws. 

So if they do have an anticompetitive purpose, there would be a 

way of challenging it. 

Mr. JOHNSON. Mr. Hurley? 

Mr. HURLEY. The issue of trending—I think Ms. Gotts is saying 

that collection of data—the aggregation of data is fine. The issue 

of trending 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-insurers 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 physician or 

for an acute care bid—that sort of thing. It translates into increased limits relationships would allow—which allows you to determine what higher limits of coverage should 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 expertise 

or having access to that kind of expertise. 

So this is an interim step before the establishment of rates. It 

is not actually establishing a rate. It is establishing what a loss 

cost is. So there is an intervening step. 

Companies ultimately who provide this coverage would have to 

take those loss costs, interpret them, and then adjust them such 

138 

that they would make it into rates that are appropriate for their 

underwriting standards and their expense level. Hope that answers 

the question. 

Mr. JOHNSON. Thank you. 

Mr. Hurley, if lawsuits alleging price fixing by insurance companies have been thrown out because of McCarran-Ferguson, and if 

we don’t have a vigorous regulatory environment by state governments, how can we say that there is no price fixing going on in the 

industry? 

And also, what is it that justifies antitrust exemption for insurers? 

And last but not least, you mention about—in your statement— 

we have consulted—excuse me, Dr. Mandell mentioned in his statement that we have consulted antitrust experts and have failed to 

find any cases where the commercial health insurers have been 

charged with price fixing or collusion in sharing of price information. 

And the doctor goes on to see—to say that there is little need to 

collude on pricing as they have—the insurance companies have 

consolidated and been able to control a larger part of the health insurance market. 

And I would like to know whether or not that is a positive or a 

negative trend. 

Mr. HURLEY. Well, I think I heard three questions there, and I 

know you will help me if I don’t get to one of them. 

Mr. JOHNSON. I will try. 

Mr. HURLEY. Start from the beginning. You mentioned the issue 

of price fixing in lightly regulated states. That is essentially one of 

the concerns. 

Mr. JOHNSON. Yes. 

Mr. HURLEY. I think what I can say is that the actual act of price 

fixing, colluding to fix prices, is—it just, in my experience, does not 

happen, as I said in my testimony. 

In a lightly regulated state, I think there is the forces of competition, just like there are in regulated states. Companies will compete for business whether the regulation is harsher, I guess, tighter, or looser, as you were asking. 

So I think that the competition does exist there. Companies will 

compete for business. 

In fact, in some sense, harsher and tighter regulatory environments sometimes make it tougher to compete because you have to 

get rates through the insurance departments before you are able to 

implement them. But companies will compete in both of those types 

of regulatory environments, in my opinion. 

The second one—I don’t know that I can recollect, but let me 

touch on the issue of consolidation. It is true, I think, that in medical professional liability that there probably aren’t as many medical professional liability insurers offering coverage as there are 

automobile insurance companies. 

However, I think that most folks who would evaluate the marketplace would say that there is—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. 

139 

I would supplement that by saying that this—as Dr. Mandell 

suggested, this is a tough line of business. It is a line of business 

where most commercial insurers do not find or have the appetite 

to write the business because of the things I mentioned—the unpredictability of it, the uncertainty of it, the long-tail nature of it. 

And so there are fewer companies that are willing to write it. A 

lot of the companies that do write it specialize in it. And that is 

why there, perhaps, are fewer of them, because they actually specialize in that line of business. 

And the reason why they specialize in it—and many of them are, 

in fact, owned by the physicians they insure. They are mutual companies. 

So they are in there for the reason, the reason that they want 

to provide available coverage at the most reasonably economic, affordable price that makes sense financially, fiscal sense. So they 

are trying to do that. 

And I apologize. I think I missed your middle question. 

Mr. JOHNSON. That is okay. It is time for us to move on to our 

Ranking Member, Mr. Coble. Thank you all for your responses to 

my questions. 

Mr. COBLE. Thank you, Mr. Chairman. 

Thank the panelists for being with us today as well. 

Mr. Hurley, let me bring you in on this. We discussed it earlier, 

but—less clear for me as to the relationship between medical malpractice liability reform and medical malpractice insurance rates in 

any given state. 

Mr. HURLEY. Well, I guess this is a good time to ask that question, because we have just been through a period of time when a 

number of reforms were passed in the last few years in a number 

of the states. 

It is hard for me as an actuary to make a cause and effect relationship between medical reforms—tort reforms and rates. However, I would say that there are a number of dynamics that affect 

that. It is the medical reforms, it is changes in the economy and 

things like that. 

However, it is hard to deny the coincidence of lower frequency of 

claims that has occurred since the implementation of reform, and 

in states where reforms were passed, the coincidence of timing of 

lower frequency of claims, therefore lower costs driving rates, coincidental with the implementation of those reforms. 

Mr. COBLE. The lower cost—you mean lower premium payments? 

Mr. HURLEY. Lower costs will ultimately result in lower premiums. 

Mr. COBLE. I got you. Thank you, sir. 

Dr. Mandell, you mentioned that you would like to see some clarification to the application of antitrust laws to the practice of medicine. Elaborate a little bit on that. 

And let me ask you this. In your opinion, should the Federal 

Trade Commission and the Department of Justice revise their 

health care guidelines to reflect modern practice of medicine? 

Dr. MANDELL. I believe the answer is yes, but—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 think of 

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is 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 profitable that they 

feel they can get away with just about anything. 

I am sure you—and perhaps you were in the room when somewhere in Congress they were interviewing a woman from Texas 

who had had breast cancer, and they cut—the insurance company 

cut their—her treatment in the middle of her course, and that 

caused things to get worse and all this kind of thing. 

And later on, somebody asked the CEOs of the two or three insurance companies would they commit now to—oh, I am sorry, they 

cut it because she had forgotten to put on her application that she 

had acne at one time, or something completely unrelated. 

And the folks in that room asked the insurance CEOs, ‘‘Would 

you commit right now to not doing that anymore? Sure, you can 

dump people if they lie to you, but for something like that, you 

know, get real.’’ And they wouldn’t do it. You know, they said, ‘‘We 

have to follow the state laws, and this is what the state laws say.’’ 

So that is something that needs to change. 

Mr. COBLE. Ms. Gotts, are you aware of any policy justification 

for separating out health insurance or medical malpractice insurance from other types of insurance? 

Ms. GOTTS. I am not aware of any, and the ABA to date has not 

taken a position. We saw this as a good first step. 

Mr. COBLE. Thank you. 

Doctor, I don’t believe you touched on my question regarding the 

Federal Trade Commission and the Justice Department. Should 

they make any revisions? 

Dr. MANDELL. Well, yeah. That was what I was trying to say—— 

Mr. COBLE. Okay. I am—— 

Dr. MANDELL [continuing]. Apparently not very well. They should 

more vigorously look at these companies, and if they are doing 

things which, in effect, are bad for patients, take appropriate action 

so—— 

Mr. COBLE. Okay. I got you. 

Mr. Balto, I don’t want you to escape without recognition. Your 

written testimony, Mr. Balto, essentially accuses state insurance 

commissioners of some regulatory neglect. 

In your opinion, does this apply to all forms of insurance, or are 

health insurance and medical malpractice insurance markets particularly dysfunctional? 

Mr. BALTO. Let me clarify my statement. I certainly would never 

accuse the diligent and under—the underfunded state insurance 

commissioners of regulatory neglect. 

The problem here is that state insurance commissioners face a 

very daunting task. There is testimony by Georgetown professor 

Karen Pollitz which—before the Senate Commerce Committee 

which explains how—the lack of resources and ability of state insurance commissioners to effectively police health insurance markets. 

And I would be glad to provide the Committee with documentation that shows that if you are in a big state like New York and 

141 

California, you are much more likely to have an activist insurance 

commissioner who can really protect you. 

So as the Committee considers whether or not state insurance 

commission enforcement is an adequate substitute for Federal enforcement such that you don’t need to amend the statute, you 

should recognize that the vast majority of states have extraordinarily limited resources to effectively go after this conduct. 

Mr. COBLE. I thank you, sir. 

Thank you all. 

Thank you, Mr. Chairman. I yield back. 

Mr. JOHNSON. Thank you, Mr. Ranking Member. 

I would be remiss by not introducing or recognizing my colleague 

from the Energy and Commerce Committee, Ms. Diana DeGette. 

Welcome today. 

And although she is not able to ask any questions because she 

is not assigned to this Committee, she is certainly eligible to sit 

with us as we listen to the testimony. 

I will say that for the record she wants us to know that it was 

not their intention in drafting this bill to prohibit appropriate procompetitive information-sharing. 

And we are certainly willing to look at that recommendation of 

the ABA and others with regards to this issue. And I did want to— 

to say that for the record on behalf of Congresswoman DeGette. 

If there are no other questions—— 

Mr. BALTO. Mr. Chairman, could I just make one additional comment? You know, there is some question in the discussion about 

whether or not this is really necessary, this—and I think you need 

to take a dynamic look. Don’t only look at the way the markets are 

today. 

But if we turn to using a health care exchange, doesn’t the existence of the health care exchange offer a greater number of opportunities for the kinds of collusion that might be protected under the 

current McCarran-Ferguson Act? And isn’t that a reason to go and 

amend the act to sort of protect ourselves against that kind of collusion? 

Mr. JOHNSON. Well, I love rhetorical questions, and with that 

we—— 

Mr. COBLE. Mr. Chairman? 

Mr. JOHNSON. Yes. 

Mr. COBLE. If I may, Congressman Harper would—requested 

that his statement be made a part of the record. I would like to 

introduce that, if I may. 

Mr. JOHNSON. Okay. All right. Without objection, so ordered. 

[The information referred to follows:] 

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Mr. JOHNSON. I would like to thank all of the witnesses for their 

testimony today. And without objection, Members will have 5 legislative days to submit any additional written questions, which we 

will forward to the witnesses and ask that you all answer as 

promptly as you can so that they can be made a part of the record. 

Without objection, the record will remain open for 5 legislative 

days for the submission of any additional materials. 

Mr. COBLE. May I, Mr. Chairman? 

Mr. Balto, you indicated that you might make available to us regarding my question concerning the various and sundry studies— 

if you can do that. 

Mr. BALTO. Yes. 

Mr. COBLE. Mr. Chairman, I think that would be in order. 

Mr. JOHNSON. All right. Certainly. 

Mr. BALTO. I will be glad to. Thank you. 

Mr. JOHNSON. 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 their health 

insurance and medical malpractice insurance companies are exempted from antitrust laws. 

And with that, this hearing on the Subcommittee on Courts and 

Competition Policy is adjourned. 

[Whereupon, at 12:23 p.m., the Subcommittee was adjourned.] 

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