There are some practices that insurance companies regularly engage in that seem to be less than legal. Employers who shop around for health insurance for their employees are required to tell the insurance company the price that the previous insurance company was charging them. This can be seen as a form of “price fixing”.
Health insurance is expensive. The majority of people who are able to afford health insurance can do so only because their employer is paying for part of the cost of the premiums. Businesses that offer employer sponsored health insurance are going to want to find ways to cut back on those expenses, in order to increase their profits.
One solution is to stop offering a health insurance plan to their employees. Another option is to shop around in order to find an insurance company that will sell health insurance to the business for a price that is lower than what the business is paying right now. This is not easy to do, mostly because a specific practice that insurers routinely engage in.
If a business wants to know what a new insurance company will charge for premiums, they will not get a straight answer right away. In order to get a quote, the insurer will tell the business owner to reveal what he or she is currently paying some other insurance company for their employer sponsored health insurance. If the business owner refuses to do so, then the new insurer frequently will refuse to give a quote, and will not sell insurance to that business.
Obviously, if the business says that they are currently paying a certain price for insurance, then there isn’t any real incentive for the new insurer to offer them a lower rate. The insurer already knows that the business is able, for the moment, to pay more. The business owner cannot truly shop around for a better price. This can be seen as a form of price fixing.
The Sherman Anti-Trust Act was created in 1890. The purpose of this law was to prevent companies (like, for example, insurance companies), from engaging in practices that would harm competition. It was to prevent a group of companies that all provide the same service from intentionally choosing to sell their service for no less than a specific amount, (or “fixing” the price to stay at a certain amount). The law is to protect consumers from being taken advantage of.
Insurance companies, on the other hand, will insist that requiring a business to tell them what their previous insurer charged them for health insurance premiums is “full disclosure”. Insurance companies are businesses, too, who are trying to maximize their own profits.
It can be argued that if insurers truly wanted “full disclosure” than they would ask questions about the health of the employees that they were being asked to cover. The rate they offer a business could, reasonably, be based on the amount of health care expenses that the insurer would be covering. This rate shouldn’t be based on what the last insurer charged the business.
Image by Anna Fox on Flickr