Oct. 23 (Bloomberg) -- A proposal by the U.S. Congress to limit health insurers’ 64-year-old antitrust exemption won’t increase competition, nor will it hurt business for WellPoint Inc. or Aetna Inc.

Democrats will add a ban on price-fixing and bid-rigging to broader legislation overhauling the health system, House Speaker Nancy Pelosi said yesterday. President Barack Obama endorsed the idea in an Oct. 17 radio address, saying insurers’ “privileged exception” from antitrust rules has stifled competition.

For Aetna, WellPoint and UnitedHealth Group Inc., the move will pose a “small inconvenience” at worst, said Robert Laszewski, an Alexandria, Virginia-based consultant to the industry. The exemption hasn’t stopped antitrust probes in Florida, New York and elsewhere, and removing it may help companies by streamlining regulations, he said.

“If the Democrats think this is a way to punish the insurance industry, then they’re shooting blanks,” Laszewski said by telephone. “Either the people who are proposing this are really naïve about how insurance is regulated, or they are just playing political games with the voters.”

The House Judiciary Committee voted 20-9 on Oct. 21 to narrow the exemption, approving language that forbids insurers from price fixing, bid rigging or colluding to carve up markets. The move will “open up our health insurance markets to real competition,” Representative John Conyers, a Michigan Democrat and the committee chairman, said in a statement.

Five Panels Vote

Three House committees and two Senate panels have passed legislation that would require Americans to buy insurance and require insurers to comply with new rules. Insurers oppose provisions in some of the bills that would tax expensive health plans and create a new government program to compete with private industry.

Congress passed the antitrust exemption in 1945, following a U.S. Supreme Court decision that ruled insurers could be regulated by the federal government. Lawmakers wanted to preserve states’ roles in governing the industry, said Thomas Greaney, a St. Louis University law professor and former Justice Department lawyer.

The exemption hasn’t kept prosecutors from going after the industry, because the Supreme Court has narrowed the reach of the antitrust protection in subsequent rulings, Greaney said in a telephone interview. The exemption protects insurers only in the way they set premiums and spread risk, the court said.

Open to Challenge

Other functions, such as how the industry sets rates for doctors, are already open to challenge, Greaney said.

Repealing the exemption is “not the silver bullet that I think some proponents are claiming,” said Greaney, who headed the Justice Department’s health-care antitrust unit in the 1980s. “It certainly is not going to make a big difference in terms of the competitiveness of the markets.”

The exemption’s impact has been exaggerated, said America’s Health Insurance Plans, the industry’s Washington trade group, in an Oct. 8 letter to Conyers. Overseen by state and federal agencies, “insurance is one of the most significantly regulated areas of the economy,” AHIP said.

“AHIP and our members stand on the side both of competition and of meaningful reform,” said Karen Ignagni, president of America’s Health Insurance Plans, in the letter. “We believe that the federal antitrust enforcement agencies can and do play a meaningful role in making health care markets more competitive, and we encourage initiatives to make them more effective in their mission.”

WellPoint spokeswoman Kristin Binns directed questions to AHIP, and a spokesman for UnitedHealth couldn’t immediately be reached for comment.

Starting in 1999, physicians filed a series of class-action lawsuits against insurers, claiming companies violated anti- racketeering laws to hold down rates. WellPoint, Aetna and Philadelphia-based Cigna Corp. agreed to settlements worth as much as $618 million. While UnitedHealth won a dismissal of its suit, the exemption didn’t block the cases, said Sheryl Skolnick, a Pali Capital LLC analyst in New York.

Group Investigated

The four companies were also among a group of insurers investigated by New York State Attorney General Andrew Cuomo last year, for allegedly manipulating a UnitedHealth-owned database used to set physicians’ rates. They agreed to more than $80 million in settlements.

WellPoint, based in Indianapolis, is the top U.S. insurer by enrollment. UnitedHealth, of Minnetonka, Minnesota, is second, followed by Aetna of Hartford, Connecticut.

Lifting the exemption “is not going to have any effect on the bottom line” of insurers, said Skolnick, an industry analyst for 21 years.

“If you know anything about the relationships, at least among the CEOs at the publicly traded companies, there’s no love lost,” said Skolnick. “Individually, they are all perfectly capable of raising prices and reducing benefits on their own. They don’t need to collude.”

Good Hedge

The Judiciary Committee measure may be a good hedge against future misbehavior by insurers, Skolnick and Greaney said. It may help the industry if it replaces the maze of state policies insurers have to face with one set of federal rules, said Laszewski, the Virginia consultant.

For politicians, it’s a chance to score political points against an industry with basement-level approval ratings, he said.

“I think it’s going to fizzle,” he said of the antitrust repeal. “They had themselves a couple of good days rattling sabers, but I think now their aides are going to be in their ears, whispering, ‘Hey, this doesn’t mean a whole lot.’”

To contact the reporter on this story: Alex Nussbaum in New York anussbaum1@bloomberg.net.

Last Updated: October 23, 2009 13:20 EDT