In the Crosshairs: Defending Market-Allocation in the Blue Cross Blue Shield Conspiracy

Posted by Social Science Research Network

In the Crosshairs: Defending Market-Allocation in the Blue Cross Blue Shield Conspiracy – David W. Fuchs (Saint Louis University – School of Law)

ABSTRACT: Insurance has long been governed by the states, which has led to a general hands-off approach by the federal government, but with costs rising faster than inflation over the past decade Washington was recently intervened. Recent legislation may have championed regulatory competition policy, but questions remain as to whether the new regulations will effectively correct a failing market.

Certainly, the conventional practice of health insurance is partially to blame for rising costs, even absent anticompetitive practices; however when insurance companies are circumventing antitrust laws to set prices or define markets, consumers are forced take to the courts to rectify the abuse.

Presently, two groups of plaintiffs have adopted such an approach. Suspicious of the longstanding operations of the Blue Cross Blue Shield Association (BCBSA) and its members, consumers and health care providers alike recently filed comparative complaints against the Blues. Plaintiffs of both the Provider Track Complaint and the Subscriber Track Complaint allege that Blue Cross Blue Shield members are engaging in concerted action to divide the market geographically, thus resulting in reduced competition, lower reimbursement rates for providers, and higher rates charged to subscribers.

The concerted action in question comes in the form of licensing agreements between Blue Cross Blue Shield Association and aligned “Blue” insurers. Plaintiffs allege these agreements to be a blatant, per se violation of Section 1 of the Sherman Act. Further, the Plaintiffs believe that the agreements present unreasonable restraints of trade, the effects of which are emphasized by the dominant market power of each licensed insure, as well as the diminishing payments to providers and increasing cost to consumers for fewer benefits.

The fundamental reasons for defending conglomerate insurer activity like the Blues exhibit is that in order to do battle with such large controlling providers, an insurer must also be large and dominate; a clash of titans, battling over costs and coverage. The argument for massive insurers continues: large insurers mean larger insurer pools and thus larger cost sharing among insureds. But at what point does an insurer become so dominant that it hurts consumers and providers alike, providing and paving less respectively, all in the name of a larger profit? Further, does it allow insurers to split up territory in a manner that essentially allocates regions to a single provider powerhouse?