BARBARA P. BILLAUER, Foundation for Law and Science Centers, Inc., Institute of World Politics
Email: omniscience@starpower.net

In the course developing a Health Care Reform package, some have advocated a provision for legally required and universal coverage as part of the solution, citing the mechanism of required automobile liability coverage as a basis. The proffered rationale for this provision is the ostensible lowered costs which surely would result, enabling insurance companies to charge lower rates, while still retaining respectable profit margins. This article demonstrates that inapplicability of the automobile liability paradigm as a model for addressing the health care problem. It also suggests that other than for catastrophic injury or disease or unexpected health costs, universal coverage cannot address the problems of universal health care.

MARY L. HEEN, University of Richmond - School of Law
Email: HEEN@UOFRLAW.RICHMOND.EDU

This article tells the story of the rise and fall of explicit race-based pricing practices as American life insurance companies responded to changes in the social, economic, and legal status of former slaves and their descendants. The role of law in that story, from the Civil War to the beginning of this century, illustrates the complex interaction between civil rights reform and private commercial markets. Despite early laws prohibiting race-based life insurance rates, they persisted in various forms for over a century due to the strength of the underlying racial ideologies, the rhetorical power of actuarial language, and the structure and regulation of insurance markets. Life insurance companies reinforced prevailing American assumptions about race by adopting explicit race-based pricing categories after Reconstruction, and later, by prospectively abandoning them beginning after World War II. Earlier this century, regulatory investigations and litigation under post-Civil War federal civil rights statutes brought relief to those harmed by the continuing effects of dual rate structures in race-segmented markets. Civil rights law thus served primarily as prologue, by provoking company adaptation, and as epilogue, by providing retrospective relief, to the central story of that transformation.

SANG V. NGUYEN, U.S. Census Bureau
Email: sgnuyen@ces.census.gov
ALICE M. ZAWACKI, U.S. Census Bureau - Center for Economic Studies
Email: alice.m.zawacki@census.gov

This paper examines the relationship between employer-sponsored offers of health insurance and establishments’ labor productivity. Our empirical work is based on unique plant level data that links the 1997 and 2002 Medical Expenditure Panel Survey-Insurance Component with the 1992, 1997, and 2002 Census of Manufactures. These linked data provide information on employer-provided insurance and productivity. We find that health insurance offers are positively associated with levels of establishments’ labor productivity. These findings hold for all manufacturers as well as those with fewer than 100 employees. Our preliminary results also show a drop in health care costs from the 75th to the 25th percentile would increase the probability of a plant offering insurance by 1.5-2.0 percent in both 1997 and 2002. The results from this paper provide encouraging and new empirical evidence on the benefits employers may reap by offering health insurance to workers.

HERBERT J. HOVENKAMP, University of Iowa - College of Law
Email: herbert-hovenkamp@uiowa.edu

The 1945 McCarran-Ferguson Act provides that federal legislation generally, including the antitrust laws, is “applicable to the business of insurance [only] to the extent that such business is not regulated by State law.” The statute was enacted after United States v. South Eastern Underwriters Assn. (1944), held that insurance transactions were “interstate commerce” and thus subject to the antitrust laws. That case had in turn undermined the traditional view expressed in Paul v. Virginia (1868), that insurance was not interstate commerce, but strictly local transactions. The South Eastern case followed in turn upon the Supreme Court's decision in Wickard v. Filburn (1942), which had greatly expanded the reach to relatively local activities of federal statutes passed under the Commerce Clause. Under the McCarran-Ferguson Act Congress thus relinquished its power to regulate to the states, provided that the states did at least a modicum of regulation themselves. The immunity applies equally to all federal statutes not intended to regulate the insurance industry, including the Federal Trade Commission (FTC) Act.

As a matter of history, the jurisdictional rationales for McCarran-Ferguson are obsolete. Today insurance is a national rather than statewide industry and numerous companies write insurance in nearly every state. Economically, however, the immunity may continue to serve a purpose. Most but not all portions of insurance industry are characterized by a large number of firms and low entry barriers. Further, the industry depends critically on shared information, including statistical loss data and common coverage, or standardized forms. As a result, many practices that might be misunderstood as collusive are in fact quite procompetitive. Further, as this paper demonstrates, the case law has tended to find the immunity in cases that involve true anticompetitive practices, and they have tended not to find it with respect to vertical relationships, product provision, or other areas where competition was not threatened.

FLORIAN HEISS, CESifo Group
Email: florian.heiss@lrz.uni-muenchen.de
DANIEL L. MCFADDEN, University of California, Berkeley - Department of Economics, National Bureau of Economic Research (NBER)
Email: mcfadden@econ.berkeley.edu
JOACHIM K. WINTER, University of Munich
Email: jkwinter@web.de

We study the Medicare Part D prescription drug insurance program as a bellwether for designs of private, non-mandatory health insurance markets that control adverse selection and assure adequate access and coverage. We model Part D enrollment and plan choice assuming a discrete dynamic decision process that maximizes life-cycle expected utility, and perform counterfactual policy simulations of the effect of market design on participation and plan viability. Our model correctly predicts high Part D enrollment rates among the currently healthy, but also strong adverse selection in choice of level of coverage. We analyze alternative designs that preserve plan variety.