Limiting McCarran-Ferguson Act’s Antitrust Exemption for the “Business of Insurance”: Impact on Health Insurers and Issuers of Medical Malpractice Insurance

Summary

Narrowing or eliminating the 1945 McCarran-Ferguson Act’s antitrust exemption for the “business of insurance” has been pursued for many years in many Congresses, and in the 111th Congress, there have been at least four measures—three stand-alone bills, and a provision in the House health care reform bill. Unlike prior legislation to eliminate the entire exemption—currently applicable generally to the extent such business is regulated by state law—however, three of the current measures (H.R. 3596, S. 1681, and section 262 of H.R. 3962 (the House-passed health care reform bill)) are applicable only to the provision of health and medical malpractice insurance; H.R. 4626, as introduced, and as passed by the House on February 24, 2010, is applicable only to health insurance. Two of the stand-alone bills, H.R. 3596 and S. 1681, would prohibit issuers of such insurance from engaging in “price fixing, bid rigging, or market allocations in connection with the conduct of the business of providing” health or medical malpractice insurance. H.R. 4626, like Section 262 of H.R. 3962, does not specify particular, prohibited activities, mandating instead that nothing in McCarran-Ferguson shall prevent the application of the antitrust laws to the business of health [or medical malpractice] insurance.

H.R. 3596 as voted out of the House Judiciary Committee on October 21, 2009, was amended to permit the sharing of historical loss data or the “perform[ance of] actuarial services” if doing so “does not involve a restraint of trade.” H.R. 4626 contains no information-sharing provisions. Hearings have been held on S. 1681, but the bill remains in the Senate Judiciary Committee; whether it will ultimately be amended to contain a provision concerning information sharing is unknown, as is the likelihood that its substance will be inserted in a final health care reform bill. Section 262 of H.R. 3962 contains language similar to the information-sharing provision in H.R. 3596, including a section to define several of the terms used. There is not currently any provision addressing McCarran-Ferguson in the Senate health care reform bill (H.R. 3590), passed on December 24, 2009. Due largely to the importance of information sharing to insurers, the insurance industry has cooperated in the past in a variety of ways, including sharing loss information, jointly developing policy forms and rates, operating residual market mechanisms, and participating in state guaranty funds. Some forms of cooperation, including publication of mandatory advisory rates, have already been curtailed because of antitrust concerns.

Passage of any of the measures is likely to precipitate litigation to define the scope of the prohibition and/or any remaining exemption. The precise impact on the affected portion of the insurance industry will depend critically, therefore, on future court decisions.

Notwithstanding any limitation imposed at the federal level on the McCarran-Ferguson antitrust exemption available to health and medical malpractice insurers, however, any activity that the subject insurance companies currently (or might in the future) undertake—including joint ratemaking or certain information sharing—may nevertheless remain legally permissible. The “state action” doctrine in antitrust law immunizes from the federal antitrust laws: (1) all actions of state (but not necessarily, municipal) public entities and (2) those of private entities that are “clearly articulated” and legislatively (or otherwise) mandated or authorized and are “actively supervised” by the states. Currently, all states regulate the insurance industry. The “state action” issue, then, is whether and to what extent existing state mandates or authorizations, while adequate to meet the requirements of the McCarran-Ferguson exemption, would be adequate to meet the requirements of the antitrust “state action” doctrine, which dictates both that there be a “clear articulation” of state policy, and that a state engage in “active supervision” of the private activity that occurs in response to that articulation. This report will be updated as necessary.