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Assistant Attorney General Christine Varney

Democrats have opened a new front on the health care reform battle: antitrust exemptions for insurance companies.

The Senate Judiciary Committee on Wednesday held a hearing on a measure to repeal the 1946 McCarran-Ferguson Act, which put regulation of  the health insurance industry in the hands of individual states.

Democrats complain that lax oversight has allowed the insurers to concentrate their market power. They argue that more competition in the health-insurance market would lower prices for consumers.

The Department of Justice says it supports reform, though it stopped short of endorsing any legislation. Assistant Attorney General for the Antitrust Division Christine Varney said the Department of Justice “is generally opposed to exemptions from the antitrust laws, whether they be industry-specific or general, in the absence of a strong showing of a compelling need.”

Quoting President Obama, Varney said health insurance reform would benefit both the American people and the American economy, said the Department of Justice looked forward to “working with you and your colleagues in achieving our common objectives.”

Varney at the hearing called the McCarran-Ferguson act a product of a different age in American business. The 1945 legislation reversed a 1944 Supreme Court decision that said health insurance should be regulated on the federal level.

McCarran-Ferguson created a broad antitrust exemption for insurance companies regulated by state law, rendering them immune from challenge as long as they’re not engaged in an activity deemed “boycott, coercion, or intimidation,” Varney said.

The justifications that led to McCarran-Ferguson’s passage “are no longer valid today,” she said. “It’s no longer necessary.”

She added: “The antitrust laws reflect our society’s belief that competition enhances consumer welfare and promotes our economic and political freedoms,” Varney said.

“Nobody’s above the law,” Leahy said. “I don’t know anyone who can say with a straight face that they shouldn’t be subject to the same antitrust laws.”

Sen. Orrin Hatch (R-Utah) argued against making insurance agencies subject to antitrust laws, saying he saw “little evidence to justify a complete repeal.”

Democrats, by contrast, saw much evidence to repeal McCarran-Ferguson.

Sen. Dick Durbin (D-Ill.) said, Monday’s threats by insurance companies that if health reform passed, insurance rates would go up, was evidence that health insurance companies could do just that. “When insurance agencies said on Monday night ‘we’re raising rates, they’re going up,” Durbin said, “they could get together, and fix prices; they wouldn’t be able to do that if they were subject to prosecution, would they?”

“They would not,” Varney responded.

“The health insurance agencies have thrown down the gauntlet,” Durbin replied.

Democrats say the the health insurance markets are generally dominated by one or two providers, sometimes with a single insurance provider controlling up to 90 percent of the market. With these kinds of monopolies or duopolies, the Democrats said, the insurance companies have been free to charge whatever they could.

Sen. Dianne Feinstein (D-Calif.) said: “Healthcare and medical insurance should be nonprofits.” She said insurers’ profits rose 428 percent from 2000 to 2007, while “premiums have escalated dramatically.”She called Leahy’s bill “one small step to a very loud signal” to the insurance companies.

Sens. Sheldon Whitehouse (D-R.I.) and Al Franken (D-Minn.) painted a picture of the kind of market domination insurance agencies have. Whitehouse noted that in 39 states, two health insurers cover 50 percent of the market, and in nine states, only one company covers 75 percent of the market.

In Maine, Franken noted, an insurance company took the unprecedented move of suing a state to guarantee they make enough money. Anthem Blue Cross/Blue Shield sued the state, in what Franken called a “brazen” move, to guarantee a 3 percent profit margin that would raise insurance costs on subscribers 18.5 percent.

Hatch was not the only one to argue for keeping McCarran-Ferguson in place. Panelist Lawrence Powell, who represented the Physician Insurers of Association of America, said repealing the law would make little difference, leading to at best, the “status quo.”

“Market concentration is not always indicative of competition,” Powell said. “Another company controls 10 percent.”

This article has been corrected to reflect that the Justice Department has not taken a position on the legislation to repeal the McCarran-Ferguson Act.