What dentists need to know about insurance exemption

Recently the New York Times reported that President Obama is threatening to strip the insurance industries’ exemption to the antitrust laws because the insurance industry is using “deceptive and dishonest” advertisements to derail his health insurance reform. At the same time, the Senate Judiciary Committee is conducting hearings on the antitrust exemption for insurance companies. Senate Bill S.1681 has been introduced in the Senate to prevent insurance industry price fixing, bid rigging and market allocation. 

Antitrust laws defined

Trusts and monopolies are concentrations of wealth in the hands of a few. Trusts and monopolies are considered harmful restraints of trade which alter normal marketplace competition, and yield undesirable price controls. To prevent trusts from creating restraints on trade or commerce and reducing competition, Congress passed the Sherman Antitrust Act in 1890.

Many dentists, physicians and other health care professionals believe insurance companies have been treated more favorably under the antitrust laws. The reason for the alleged better treatment is the insurance industry has an exemption from the antitrust laws whereas dentists, physicians and other health care professionals do not enjoy any such exemption. Thus, certain activities that may be considered anticompetitive undertaken by dentists, physicians and other healthcare professionals would subject them to prosecution. At the present time similar activities by insurance companies, because of their insurance exemption, would not subject them to prosecution.

The exemption for insurance companies is found in legislation known as the McCarran-Ferguson Act. This provided that the federal antitrust laws will apply to the “business of insurance” only to the extent that such business of insurance is not regulated by state law…” The Act further provides that the “business of insurance and every person engaged therein shall be subject to the laws of the several states which relate to the regulation or taxation of such business.”

This language was clearly intended to preserve the extensive state regulation of the insurance industry, and consequently, exempt the insurance companies from federal antitrust laws. The “business of insurance” has been the subject of many court decisions including decisions by the United States Supreme Court. The Supreme Court has observed that the “business of insurance” should include the following: whether the practice has the effect of transferring or spreading a policyholder’s risk, whether the practice is an inherent part of the policy relationship between the policyholder and the insured and that the practice is limited to the insurance industry.

As a result, if the practice fell within this definition it was exempt from the antitrust laws. This means that except for certain egregious acts such as boycotts and intimidation, the insurance companies have enjoyed a robust exemption to the antitrust laws.

Because few businesses have an exemption to antitrust laws, Congress bills have been introduced almost every year to eliminate the insurance exemption. Year after year, the lobbyists for the insurance industry have defeated this legislation. However, at the present time, the Democrats in Congress along with the President may be able to overcome the lobbyists to eliminate insurance company exemption. If eliminated, there may be more competition within the insurance industry that in turn could level the playing field between the insurance companies and dentists, physicians and other healthcare professionals.  

Peter M. Sfikas was formerly the general counsel of the American Dental Association, and is a Fellow of the American College of Trial Lawyers. He practices law in Chicago and serves as the general counsel of the Chicago Dental Society. He has written, taught and lectured on dental law issues. If you have any comments or questions about the article he can be contacted at petersfi@comcast.net.