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Big Health Insurers are Ma Bell

Posted by Michael Zahara on Nov 11, 2009

In 1974, The USDOJ filed an antitrust lawsuit against then monopoly phone company, AT&T—known then as Ma Bell—to break up the ‘Bell Family’ of companies.

For the benefit of some of our younger readers, at that time, we really did only have one phone company and 8 year olds didn’t have their own cell phones! AT&T controlled everything from installation in your home, to making the phones, each state had its own ’Bell’ company—they were amongst the safest of blue-chip stocks to own.bell

They were also fat, bloated, arrogant, inefficient, and enjoying all of the benefits and perqs of having a government protected monopoly—just like today’s health insurers! AT&T fought tooth and nail against divestiture for 12 whole years!

Finally, 12 years after filing the antitrust suit, the break-up, or ‘divestiture’, became reality in 1984 and the world changed, virtually overnight!

The company was split up into 7 ‘Baby Bells’, and then later the ‘Babies’ began to buy each other up and AT&T is once again a major player, but has many, many competitors around the globe.  Remember the long distance wars between AT&T and MCI? That changed exorbitant residential & business phone rates forever.

Rates plummeted, capital was freed up, it was a time of industry convulsion that moved innovation front and center.  Those that would embrace satellites and cellphones, for instance, were far ahead of the curve.

What was left of the old AT&T struggled for years being a dinosaur, refusing to adjust;  25 years later, they’ve fully recovered though.

It was very turbulent time; many lost their jobs, or had to relinquish ancient contracts, any company could now make phones, you didn’t have to have a ‘Bell’ guy come into your home—you could install your own phone—prices dropped, and real competition ensued.

Shouldn’t that be the real goal of health insurance ‘reform’ too?

In the Community High School district that I attended, we had one of three of AT&T’s gigantic Western Electric plants that was more than 1.5 miles long and a half mile wide.  It wasn’t a smokestack-type, dirty plant; it was an elegant brick structure, and right across the street began the modest bedroom communities that supported the plant.  There, they made every single phone ever used in America, all the cords, wires, jacks, cables…At it’s height after World War II, it employed 60,000 working around the clock.

towerThe tower is all that’s left of Western Electric’s Hawthorne Works where every phone in America was once made


It survived from 1905 until 1995 when it was closed, torn down, and replaced by a series of shopping centers and an incubator business park.  Western Electric’s tech successor is Lucent Technologies nestled in the green campus setting of suburban Chicago 30 miles west of the original WE plant; you almost certainly have used Lucent phones & switchboards at your workplaces.  Their equipment is now made in China; a negative result of Western Electric’s closing was that high-tech remained here, the low tech that employed tens of thousands, did not.

But the point is that we and the company survived divestiture, and the world is more connected than ever before.

What the breakup did was foster whole new companies, new technologies, and innovations that made that cell-phone in your pocket today, a reality.


This is the most frustrating aspect of all for me in the healthcare ‘reform’ effort—it’s not doing anything to foster competition like the ‘Ma Bell’ breakup did. Of course that was a legal case and not a legislative one, but shouldn’t we be asking why the current effort is so punitive on insurers, instead of unshackling them to force them into real competition?kk

The current Democratic effort is nothing but beginning a ‘public option’ instead of reforming the entirety of healthcare across the country.

I’m no fan on insurers, but they do have a point in their opposition—but Dems aren’t calling their bluff either; another indicator that Dems don’t want reform, they just want a ‘public option’.

paperIt took me ten days to read all 1990 pages of the House bill, and I have 153 legal pad pages of notes—which are basically all unanswered questions—that’s too much for our little blog.

Basically, the US House barely voted it to give members the ability to tell their constituents that they voted for it.  The House bill is dead-as-a-doornail in the US Senate and I’d still be surprised if this even gets to the President’s desk at this point.

In Sunday’s piece we will deal with repealing McCarran-Ferguson antitrust exemption, but for just for healthcare insurers as I believe any public commission would do the same.

Ideally, I want to see all insurers able to cover all 50 states to drive down costs like the AT&T breakup did 25 years ago.  The current ‘exchanges’ concept are nothing but a protection racket for the insurance industry.

There are literally trillions of private dollars invested in the entirety of insurance products, and I’d like to see some of the causality companies come into healthcare to broaden the pool of providers, for instance.

I think any appointed commission would see the same value; Congress will not see this value because each of its 535 members has taken money from some aspect of the healthcare industry.

The current House bill is atrocious; one of the very worst efforts I have ever read, and unfortunately for Congress and my own party, I do know how to read these things that they deliberately write so that ‘regular people’ can’t understand a damn thing they’re writing.

And guess what? The final stage of any reform effort will absolutely include a ‘public option. Some of my lefty friends consider me hostile to a public option, but I’m not, nor would any proposed independent commission be either.BurgerStakeholdersTable1

It would be just part of ‘reform’ not the means to reform.

Nor would or should it be the very first thing to be done; in theory and in practice, it should be the final piece of the ‘reform’ puzzle.

You have all asked some really good questions and brought up some really good points; I feel like I’m doing a thesis.  From abortion, to actuaries, to Medicare Advantage, to flu shots; you’re all thinking, you all know that we have a problem.

But, we are 305 million people with 305 million different views on exactly what ‘reform’ is and should be.

As with AT&T, no one knew what was ahead, but American ingenuity and innovation grabbed the bucking bronco of new markets and concepts, and ran with it.

There are scores of issues that haven’t yet been addressed, but the GOP’s alternative bill is laughable, if not ridiculous; it also does nothing to ‘reform’ anything! The only thing I liked about it was its length; only a couple of hundred pages!

Again, everyone is lying to us; no one is pure here, and we need an appointed commission to sort it all out.

Sunday, we’ll get into what a commission’s mission should be and how they’d go about their duties and what their goals should be.

Mike Zahara Siganture

Mike Zahara