In 1944, the U.S. Supreme Court ruled in United States v. South-Eastern Underwriters Ass'n, that the insurance business was interstate commerce and subject to the federal antitrust laws. The following year, Congress passed the McCarran-Ferguson Act, which exempted the "business of insurance" from scrutiny under the Sherman and Clayton Acts to the extent "regulated by state law." Agreements to boycott, coerce, or intimidate were expressly excluded from the exemption, and state antitrust laws continued to apply to the extent not exempted by state law.
The U.S. Supreme Court has to date considered the application of the McCarran-Ferguson Act exemption very narrowly, emphasizing that the exemption does not apply to the "business of insurance companies," but only to "the business of insurance." Accordingly, the Court essentially has confined antitrust immunity to three practices: when the conduct has "the effect of transferring or spreading a policyholder's risk," concerns "an integral part of the relationship between the insurer and the insured," and involves only "entities within the insurance industry." Thus, for example, the Supreme Court has ruled that agreements between insurance companies and third parties for the supply of goods and services are not within the "business of insurance" exemption. The practices that generally have been subject to the exemption have been quite limited, encompassing rate fixing and ratemaking, licensing companies and their agents, controlling the type of policies issued, and the interpretation and enforcement of those policies.
The CHIRA health insurance McCarran-Ferguson repeal
While numerous efforts to repeal all or part of the McCarran-Ferguson Act "business of insurance" federal antitrust exemption failed over the years, CHIRA was a Pandemic bipartisan Congressional effort spearheaded by its sponsors, Senators Steve Daines (R-Montana) and Patrick Leahy (D-Vermont). On the House side, it was introduced by Reps. Peter DeFazio (D-Oregon) and Paul Gosar (R-Arizona). Supporters had claimed that the "business of insurance" federal antitrust exemption had immunized artificially high insurance premiums and long-time anticompetitive trade practices from antitrust liability. CHIRA Co-sponsor Senator Leahy declared that "multi-billion dollar health insurance companies are boasting record-high profits," and "it makes little sense that these powerful actors should also benefit from an antiquated" antitrust exemption. Rep. Jerrold Nadler (D-NY), who also led the House of Representatives effort, described CHIRA's passage as a "major win" for Americans, adding that the exemption had for decades shielded the health insurance industry from serious antitrust violations, including price fixing, bid-rigging and market allocations.
CHIRA's express purpose is to "restore the application of the Federal antitrust laws to the business of health insurance to protect competition and consumers." The text of CHIRA actually is quite short. It provides quite simply that: "nothing contained in [the McCarran-Ferguson 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." However, CHIRA carves out some health insurance industry practices that retain their McCarran-Ferguson antitrust exemption. These specifically include collaborative conduct to: "(1) collect, compile, or disseminate historical loss data; (2) determine a loss development factor for historical loss data; (3) perform actuarial services if the collaboration does not involve a restraint of trade; or (4) develop or disseminate a standard insurance policy form if adherence to the form is not required."
Notwithstanding the limited reach of CHIRA, its passage was lauded by the U.S. Department of Justice Antitrust Division, declaring in a statement: "Limiting the scope of conduct exempt from the antitrust laws will strengthen the Antitrust Division's ability to investigate and prosecute anticompetitive behavior." The Division Head added: "Americans deserve competition in health insurance markets just as they do in any other market."
The antitrust future for "the business of insurance"
Despite passage of CHIRA, insurance such as life insurance and property and casualty insurance remain shielded from the federal antitrust laws by the McCarran-Ferguson Act exemption to the extent that the conduct meets the definition of "the business of Insurance."
Of course, CHIRA does not affect the authority of states to regulate insurance as they deem it desirable, including coverage by their own antitrust statutes, and the continuation of various state law exemptions. Moreover, the judicially created "state action" doctrine can protect concerted conduct in the insurance industry, including price and rate fixing, so long as the conduct is within a "clearly articulated" state policy that is "actively supervised" by the state.
In sum, repeal of their antitrust exemption now subjects health insurers to possible increased scrutiny by the Department of Justice Antitrust Division. Additionally, private parties may now have a stronger incentive to bring antitrust treble damage claims challenging anticompetitive practices in the health care insurance industry, including by way of costly and protracted class actions. This suggests that health insurers should exercise caution in the future and carefully examine any collaborative business practices. Indeed, it may be prudent at this time for health insurance companies to re-examine their antitrust compliance policies.