Seven decades of antitrust immunity for the health insurance industry has just ended. That startling but not unexpected action should prompt insurers, health care providers and suppliers to carefully assess the competitive and antitrust implications of their payor relationships.
The goal of federal antitrust laws is to promote and protect competition in the marketplace for the benefit of the public. However, the insurance industry has been immunized from antitrust scrutiny for more than three-quarters of a century pursuant to a World War II-era statute. Signed into law by President Trump on January 13, 2021, the Competitive Health Insurance Reform Act of 2020 constitutes a major change by removing that immunity for the health insurance business.
The McCarran-Ferguson Act (15 USC 1011-1013), enacted in 1945, authorized the states to regulate the business of insurance and provided immunity from federal antitrust laws for the “business of insurance” (15 USC 1013 ), with exceptions for agreements or acts to boycott, coerce or intimidate.
The scope and extent of the insurance antitrust exemption evolved significantly over time. Numerous court decisions have interpreted key terms of the exemption, especially what constitutes the “business of insurance.” In recent decades the U.S. Supreme Court has narrowed the “business of insurance” using three factors:
- Whether the relevant practice has the effect of transferring or spreading an insurance policyholder’s risk
- Whether the relevant practice is an integral part of the policy relationship between insurer and insured
- Whether the practice is unique to entities in the insurance industry.
As a result, the exemption protected insurers from federal antitrust liability for a narrower but still important range of practices.
Pressure has grown in recent decades to address structural issues in the health care industry, including perceived dysfunctional competition caused in no small part by the power of health insurers. Congress, regulatory agencies, the Federal Trade Commission and the Department of Justice have all attempted in various ways to address these issues, only to be frustrated by McCarran-Ferguson. Insurer immunity often barred effective antitrust challenges, and increasing frustration finally sparked moves to repeal immunity.
Several previous attempts to repeal the McCarran-Ferguson exemption were unsuccessful, including the Competitive Health Insurance Reform Act of 2017, which passed overwhelmingly in the House of Representatives, but never received a vote in the Senate. The Competitive Health Insurance Reform Act of 2020 again contained a repeal of the exemption. It was passed by the House in September 2020, and despite insurance industry opposition, was passed by the Senate on December 22, 2020 and was recently signed into law. The pending legislation does not repeal McCarran-Ferguson antitrust immunity for all insurance business, only for the “business of health insurance.” Importantly, health insurers are still generally immune from federal antitrust liability for activities that are part of the usual underwriting process, including cooperatively (a) collecting and sharing historical loss data and determining loss development factors, (b) performing actuarial services, and/or (c) developing a standard insurance policy form.
Competition in health insurance has tremendous potential impact on the cost and availability of health care in the United States. The repeal of antitrust immunity will likely encourage the FTC and DOJ to focus more sharply on health insurance transactions, such as network provider contracts, division of markets, cooperative negotiation by providers and/or insurers, or information sharing among competitors. Private litigants may also feel empowered to launch new antitrust claims against insurers. Without broad immunity from federal antitrust law, antitrust challenges by regulators, competitors or health care providers will be subjected to the traditional antitrust “rule of reason” and “per se” analyses, in potentially onerous enforcement efforts or expensive, complex litigation. In addition, health insurance remains subject to state regulation and antitrust law.