U.S. and State of Michigan sue Michigan Blue Cross for illegal rate setting

The State of Michigan joined in a federal government lawsuit against Blue Cross Blue Shield of Michigan, accusing it of using predatory pricing practices to exclude other health insurers from various in-state markets.  Blue Cross insures more than 60% of the families in Michigan who have health insurance, amounting to approximately three million commercially insured persons and four million insureds, total.  It grossed approximately 10 billion dollars in income in 2009 (because it is a "non-profit," profits go to management rather than to ownership/ governance).  It is nine times larger than its nearest competitor, leading to concerns about monopolistic practices.

In the instant lawsuit, the governmental authorities argue that Blue Cross uses "most favored nation" provisions in its contracts with providers to escalate the medical costs to its competitors, driving them out of particular markets.  The authorities claim, for example, that in Saginaw, Blue Cross required two hospitals in the area to charge most other insurers at least 39 percent more than they charged Blue Cross and allegedly it agreed to pay the hospitals "extra" to induce them to agree to this term.  The Justice Department claims that in the Detroit area, Blue Cross requires providers to charge its competitors at least 25 percent more than Blue Cross agrees to pay. 

These insurers have been exempt from federal anti-trust law since 1945, however, in a 1979 case, the U.S. Supreme Court held that this exemption does not apply outside the core underwriting business of insurance, and that insurer's contracts for the purchase of goods and services are not exempt because they are "legally indistinguishable from countless other business arrangements."  One wonders why they should be exempt in the first place, in any context.  Certainly they would not be, if they did not enjoy immense lobbying power and financial clout.