Just before leaving office, former President Trump signed the Competitive Health Insurance Reform Act (CHIRA) on January 13, 2021. Among other things, CHIRA amends the McCarran-Ferguson Act to repeal the federal antitrust exemption for health and dental insurance companies, though some carveouts will ensure that some collaborative conduct and information exchanges remain lawful. Under CHIRA, certain practices by health and dental insurance companies that had previously been exempt from antitrust scrutiny may expose these companies to new antitrust risks.
The “Business of Insurance” Exemption
Prior to CHIRA, the McCarran-Ferguson Act exempted the “business of insurance” from federal antitrust law scrutiny if the challenged practice was otherwise subject to state regulation and did not amount to an “act of boycott, coercion, or intimidation.” 15 U.S.C. §§ 1012(b); 1013(b). While the “business of insurance” conceivably could encompass all actions taken by insurers in furtherance of their respective businesses, the Supreme Court has construed the “business of insurance” language narrowly to apply only to three general types of insurer business activities: practices that have “the effect of transferring or spreading a policyholder’s risk,” practices that are “an integral part of the policy relationship between the insurer and the insured” and practices that are “limited to entities within the insurance industry.” Union Labor Life Ins. Co. v. Pireno, 458 U.S. 119, 129 (1982). Courts assess challenged practices of insurers against these criteria as a threshold matter to determine if a challenged practice constitutes the “business of insurance” before deciding whether the Act’s antitrust exemption might otherwise apply.
Examples of conduct that have been found to constitute the “business of insurance,” and thus historically have been immune from federal antitrust scrutiny, include ratemaking, form standardization, joint underwriting, claims handling and reinsurance risk spreading.
Importantly, the Supreme Court has emphasized that the plain language of the McCarran-Ferguson Act “exempts the ‘business of insurance’ and not the ‘business of insurance companies,’” Group Life & Health Ins. Co. v. Royal Drug Co., 440 U.S. 205, 216–217 (1979), and most lower federal courts have been reluctant to extend the Act’s protections in light of the Supreme Court’s guidance.
That said, courts previously have construed the McCarran-Ferguson Act to protect a broader spectrum of health insurers’ conduct. Most recently, in September 2019, a federal district court in Florida dismissed an antitrust lawsuit brought by Oscar Insurance Co. against Blue Cross Blue Shield of Florida in which the plaintiff alleged the defendant violated the federal antitrust laws by including exclusivity provisions in its agent agreements, preventing new insurance entrants from gaining a foothold in the Orlando market. The judge in that case held that the broker rules constituted the “business of insurance” under McCarran-Ferguson, and that the defendant’s conduct was therefore exempt from federal antitrust scrutiny.
On appeal to the Eleventh Circuit, the DOJ filed an amicus brief supporting the plaintiff and argued that the district court had applied McCarran-Ferguson too broadly. Interestingly, the former chief of the DOJ Antitrust Division, Makan Delrahim, delivered the DOJ’s oral argument before the appellate court in November 2020 and argued that exclusivity agreements generally do not constitute the “business of insurance.” It is apparent from the DOJ’s involvement that the agency does not favor broad application of the exemption, and it may signal that the DOJ is interested in filing their own antitrust enforcement actions against health and dental insurers in the future.
The amendment adds the following language to the McCarran-Ferguson Act:
“Nothing contained in this Act shall modify, impair, or supersede the operation of any of the antitrust laws with respect to the business of health insurance (including the business of dental insurance and limited-scope dental benefits).”
The amended statute also includes several exceptions for conduct that will remain exempt from federal antitrust scrutiny. Specifically, for health and dental insurers, it will not be unlawful to form an agreement:
- To collect, compile, or disseminate historical loss data;
- To determine a loss development factor applicable to historical loss data;
- To perform actuarial services if such contract, combination, or conspiracy does not invoke a restraint of trade; or
- To develop or disseminate a standard insurance policy form (including a standard addendum to an insurance policy form and standard terminology in an insurance policy form) if such contract, combination, or conspiracy is not to adhere to such standard form or require adherence to such standard form.
For a variety of reasons, it seems possible that agencies and private plaintiffs may capitalize on the amendment to bring antitrust enforcement actions against health and dental insurance companies in the future. Shortly after former President Trump signed CHIRA, the DOJ issued a press release stating that, “limiting the scope of conduct exempt from the antitrust laws will strengthen the Antitrust Division’s ability to investigate and prosecute anticompetitive behavior.” In addition, the fact that the amendment enjoyed bipartisan support might provide incentive for federal and state enforcers to be more aggressive against health insurers.
Health and dental insurers should be aware that the expansion of potential antitrust liability under the amended statute, and the availability of treble damages, could encourage more litigation by private plaintiffs in the near-term as plaintiffs and defendants work through the courts to determine the exact contours of CHIRA and its exceptions.
Health insurance companies should be particularly cautious about “business of insurance” activities that were previously exempt from federal antitrust scrutiny under the Act but may now be outside the scope of the McCarran-Ferguson Act’s exemption. Depending on the facts and nature of the collaborations, these activities may include, for example, ratemaking activities, joint claims handling and reinsurance agreements. Additionally, while the above CHIRA exceptions protect some information exchanges, insurers should be cautious not to engage in any competitor exchanges or collaborations facilitating agreements which are now prohibited.
Importantly, while health insurers will no longer be able to argue that the McCarran-Ferguson Act exempts some activities from the federal antitrust laws, they may be able to continue relying on other long-standing antitrust exemptions, such as the state action and filed rate doctrines, which cover certain kinds of conduct and exchanges regulated and supervised by state law and/or governmental agencies. These exemptions will be particularly important where insurers’ joint agreements on pricing are compelled by state law or where insurers are required to file their premium rates with state regulatory bodies.
In addition, general antitrust compliance principles relating to procompetitive information exchanges and collaborations will continue to apply to health and dental insurers just like any other industry. There may be instances, for example, where procompetitive collaborations and associated information exchanges and agreements may be appropriate in order to bring new products to market that individual insurers could not offer themselves. Such collaborative activities should be reviewed by antitrust counsel in advance, and protective measures such as firewalls may be needed to ensure competitors do not exchange competitively sensitive information outside the scope of their collaboration or form unlawful anticompetitive agreements.
The antitrust laws are nuanced and complex, and their application depends on the unique facts and circumstances at play in each situation. Health and dental insurers who have questions about how the CHIRA amendment will impact their businesses are strongly encouraged to consult with antitrust counsel. In addition, the CHIRA amendment may have implications for health insurers beyond the scope of the antitrust laws, and companies should work with their attorneys to ensure they continue to meet all their legal obligations.