If the bill is passed, insurance carriers might be subject to challenges under both state and federal antitrust laws, including the Sherman Act, the Clayton Act and the Federal Trade Commission Act.
On March 22, the U.S. House of Representatives passed the Competitive Health Insurance Reform Act of 2017,1 which would repeal the current limited federal antitrust immunity for health insurers. The bill would amend the McCarran-Ferguson Act,2 which has granted a limited, but important, antitrust exemption to insurers for the last 70 years. This repeal measure reflects a heightened concern by the House of Representatives about high concentration and potential anticompetitive conduct in the health insurance industry, and could be used to fill the gap in states with weak antitrust or consumer protection laws. Following the overwhelming 416-7 House vote, the bill will now go to the Senate.
Federal Antitrust Exemption Under the McCarran-Ferguson Act
The McCarran-Ferguson Act gives states the power to regulate the “business of insurance,” granting insurers a limited exemption from federal antitrust scrutiny. Historically, the business of insurance had not been viewed as falling within interstate commerce and thus was subject to state, not federal, legislation.3 But in 1944, the U.S. Supreme Court in United States v. South-Eastern Underwriters Ass’n, ruled that insurance transactions affect interstate commerce and are subject to federal antitrust law.4 States and insurers decried the change, and, in 1945, Congress passed the McCarran-Ferguson Act, creating a limited exemption from federal antitrust laws for activity that constitutes the “business of insurance” to “the extent it is regulated by state law.”5
To determine whether conduct constitutes the “business of insurance” under the McCarran-Ferguson Act, courts consider (1) whether the activity has the effect of transferring a policyholder’s risk; (2) whether the activity is an integral part of the policy relationship between the insurer and a policyholder; and (3) whether the activity is limited to entities within the insurance industry.6 The exemption has covered cooperative ratemaking and related functions among insurers,7 as well as activities involving the relationship between the insurer and the insured.8 Under the exemption, insurers may be able to meet and share information with each other without the risk of federal antitrust liability. For example, insurance carriers could collect and pool claims data from different companies to allow insurers to predict possible payment amounts to customers.9 This information is helpful to smaller insurers that would otherwise lack a pool of information to assess risk and compete effectively.10
A wide range of activity is not covered by the exemption, including health insurance mergers that are reviewed by federal antitrust agencies and bid rigging. The exemption does not prevent state attorneys general and state insurance agencies from scrutinizing health insurer activities under state antitrust, consumer protection or trade practices laws.
The McCarran-Ferguson Act exemption has withstood many repeal efforts since at least the 1980s, but none was successful until the legislative battle over replacement of the Affordable Care Act.
Implications of the Competitive Health Insurance Reform Act of 2017
It is unclear what impact the McCarran-Ferguson exemption has had in the health insurance industry to date. Opponents of the Competitive Health Insurance Reform Act contend that the McCarran-Ferguson antitrust exemption is narrow and already requires the industry to comply with state antitrust laws and state insurance regulations. The Congressional Budget Office has estimated that repealing the antitrust exemption for health insurers would have no significant effects on premiums that private insurers have charged for health insurance.11 Proponents of the bill believe the exemption has contributed to market concentration in the health insurance industry and argue that repeal is necessary to encourage competition among insurers and reduce high health care costs for consumers.
If the Senate passes the bill, insurance carriers might be subject to challenges under both state and federal antitrust laws, including the Sherman Act, the Clayton Act and the Federal Trade Commission Act. The repeal also could have the effect of gap-filling where states have weak or nonexistent state antitrust laws. Depending on the outcome, insurance companies should consider updating their antitrust compliance policies and practices.
Endnotes
1 H.R. 372.
2 15 U.S.C. 1013.
3 Hooper v. California, 155 U.S. 648, 658–59 (1895); Paul v. Virginia, 75 U.S. (8 Wall.) 168, 183 (1868) (finding that “[i]ssuing a policy of insurance is not a transaction of [interstate] commerce.”).
4 United States v. Se. Underwriters Ass’n, 322 U.S. 533 (1944).
5 15 U.S.C. § 1012.
6 Union Labor Life Ins. Co. v. Pireno, 458 U.S. 119, 129 (1982).
7 Cal. League of Indep. Ins. Prods. v. Aetna Cas. & Sur. Co., 175 F. Supp. 857, 860 (N.D. Cal. 1959).
8 SEC v. Nat’l Sec., Inc., 393 U.S. 453, 459-60 (1969).
9 See Janice E. Rubin & Baird Webel, Congressional Research Service, “Limiting McCarran-Ferguson Act’s Antitrust Exemption for the ‘Business of Insurance’: Impact on Health Insurers and Issuers of Medical Malpractice Insurance,” at 5 (Jan, 14, 2010).
10 Id.
11 Cost Estimate for H.R. 3596, Health Insurance Industry Antitrust Enforcement Act of 2009, Congressional Budget Office (October 23, 2009); see also H.R. Rep. No. 115-36, at 10 (2017) (“[The effect of lower premiums] would probably be small because the range of insurer practices that fall under the antitrust exemption is narrow and such practices are subject to state regulation.”).
