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August 26, 2004


david giacalone

Hello, again, George (it's more fun meeting you over In the Forest). I wanted to respond "quickly" to a few questions you have raised.

Is there evidence of med-mal insurers colluding? Of course, collusion is always one possible explanation when prices seem high. My Comment at your prior post, in response to Prof. Grace, focuses on this issue:

With the M-FA exemption stopping federal enforcers from investigating, it's a little hard to have evidence in hand of collusion. However, collusion exists in every other industry, despite the applicability of the antitrust laws. It is far from illogical to believe that it might also take place in an industry that (1) has historically colluded; (2) could be tempted to jointly stabilize or manage prices, or allocate markets, because it "goes through boom and bust cycles, with premiums ebbing and flowing as companies enter and exit the market and investment income rises and falls;" (3) already does far more information-sharing and has more publicly-declared prices than other industries; and (4) has had a federal antitrust exemption for half a century, so has less fear of consequences from collusion.

Are federal antitrust enforcers better than state proscutors? We certainly thought so during the decade that I was at the FTC, but I'll leave this for others to argue. Suffice it to say, a lot of state AGs have little experience in major antitrust litigation, and inadequate resources available to fight major companies.

Is federal antitrust enforcement jurisdiction better? It surely is when multi-state insurers are involved and the alleged conspiracies exist across state lines.

Why just focus on med-mal insurance? It's smart politics to take on a small part of the industry first (especially an unpopular part), even though the same proponents have indeed recommended industry-wide repeal for many years. Have you ever seen what happens when the entire insurance industry feels threatened? [e.g., the McCarran-Fergson Act gets passed virtually overnight.] In fact, twenty five years ago, the FTC angered just one powerful sector, when it wanted to require life insurers to disclose the annual rate of interest earned on whole life policies. It faced a lobbying firestorm that nearly closed down the entire agency, and severely restricted its rule-making powers.

Lifting the med-mal insurer antitrust exemption can be thought of as a pilot project. It can reassure those who fear collusion exists, while showing that antitrust enforcement will not interfere with proper insurer activities.

david giacalone

Hmmm: "I'm tired, but it's a good tired." That reminds me of a quip of my own, after pulling an all-nighter to meet a court deadline:

"There's only one good reason to be this tired, and this isn't it."

Scott McMillan

Whether it be by "information sharing" or by the use of the same "consultants," other than for concerted political activity, there should be no allowance for any sort of collusion in business decision making between competitors. The exemptions allowed to insurance companies make little sense in the broad scheme of antitrust policy.

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