Health And Dental Insurers Subject To Federal Antitrust Laws

Brief Background

The new law amends the McCarran-Ferguson Act of 1945, which has long exempted insurers from federal antitrust laws. The McCarran-Ferguson Act was passed in response to a Supreme Court decision in 1944 known as United States v. South-Eastern Underwriters Association. In that case, the Court held that the business of insurance, when conducted across state lines, was interstate commerce and could thus be regulated under the Commerce Clause. As a result, the federal Sherman Act, an antitrust law, applied to insurers. (An earlier Supreme Court decision from 1869, Paul v. Virginia, had reached the opposite conclusion on the Commerce Clause, leaving the regulation of insurance to the states.)

The year after South-Eastern Underwriters Association, Congress—urged on by the National Association of Insurance Commissioners (NAIC)—adopted the McCarran-Ferguson Act to essentially override the Court’s decision. The law affirmed that state officials are the primary regulators of insurance and ensured that federal statutes do not preempt state insurance law unless Congress makes clear that its legislation specifically relates to the business of insurance. The law also expressly exempted insurers from federal antitrust laws (such as the Sherman Act, the Clayton Act, and the Federal Trade Commission Act) so long as states regulate the business of insurance.

The New Law

The Competitive Health Insurance Reform Act maintains the McCarran-Ferguson Act but eliminates the federal antitrust exemption for health and dental insurers. In particular, the new law amends 15 U.S.C. § 1013 to state that nothing in the McCarran-Ferguson Act prevents federal antitrust laws from applying to the business of health insurance, which includes the business of dental insurance and limited-scope dental benefits. The bill does not apply to life insurance (including annuities), property or casualty insurance, or excepted benefits (which is defined by reference to current law and includes, for instance, workers’ compensation insurance, long-term care benefits, fixed indemnity coverage, or specified disease insurance).

With this exemption now gone, the Department of Justice and the Federal Trade Commission can more easily investigate antitrust concerns and enforce federal laws, even though antitrust regulation had previously been left to the states. The legislation makes clear that parts of the Federal Trade Commission Act apply to all health insurers, including those that are not for-profit companies. The bill is explicit on this point because the Federal Trade Commission Act defines “corporation” in a way that references profit-generating entities. The Competitive Health Insurance Reform Act effectively states that a health insurer’s for-profit status (or not) is irrelevant for purposes of applying the Federal Trade Commission Act, notwithstanding the definition of “corporation.”

The bill does include limited carveouts to allow health insurers and entities like trade associations to continue to collect and share information and data for regulatory purposes without violating federal antitrust laws. Under the new law, federal antitrust laws do not apply when insurers make a contract or work together to collect and share historical loss data, determine a loss development factor, perform actuarial services jointly (so long as there is no restraint of trade), or develop and disseminate a standard insurance policy form (so long as the goal is not mandatory use of the form).

The terms “historical loss data” and “loss development factor” are further defined in the legislation. For instance, historical loss data means information on claims paid or reserves held for claims reported. It is not clear to me how much of an impact this will have on operations for insurers and trade associations.

Stakeholder Cheering And Consternation

Enactment was cheered by organizations such as Consumer Reports and the American Dental Association. Proponents argue that the legislation does not disturb state regulation but merely allows federal oversight with respect to antitrust and abusive practices. The Department of Justice also welcomed the news, asserting that the McCarran-Ferguson Act’s exemption “has sometimes been interpreted by courts to allow a range of harmful anticompetitive conduct in health insurance markets.” The Department’s Antitrust Division will be more effective at addressing “a range of harmful anticompetitive conduct in health insurance markets” now that Congress narrowed this defense and clarified that most health insurer conduct is subject to federal antitrust laws. As of January 13, the Federal Trade Commission did not appear to have issued a similar statement.

In contrast, critics such as America’s Health Insurance Plans and the NAIC argue that the amendment will undermine state regulation, spur litigation, increase administrative costs, and create conflicts between state and federal oversight. The NAIC took issue with the “premise” of the legislation that states currently allow collusion by health insurers and that the long-standing exemption appropriately leaves oversight of health insurance to the states (rather than encouraging anticompetitive concerns).

Insurers’ arguments may not have been helped by a recent $2.67 billion antitrust settlement in a lawsuit brought by policyholders across the country; plaintiffs accused the Blue Cross Blue Shield Association (BCBSA) and its member plans of conspiring to limit competition and raise premiums for policyholders. Though BCBSA did not admit to any antitrust violations or anticompetitive activity, the association and members agreed to make operational changes and pay policyholders to settle the litigation that began in 2012. In addition to several other terms in the settlement that could lead to increased insurer competition and hopefully lower premiums, BCBSA agreed to a five-year monitoring period. One in three Americans are covered by a Blue Cross Blue Shield health plan.

Before that settlement, Anthem’s attempt to acquire Cigna was thwarted by a lawsuit brought by the Department of Justice, joined by 11 states and D.C., arguing that a merger between the two very large companies would substantially reduce competition in the health insurance industry. The district court agreed in a decision that was later upheld on appeal before the Court of Appeals for the D.C. Circuit.

Finally, Oscar Insurance Company sued Florida Blue, alleging that Florida Blue had engaged in anticompetitive conduct through exclusive agreements with insurance brokers. Oscar argued that Florida Blue’s actions violated the Sherman Act and Florida law; Florida Blue responded that the Sherman Act claims were barred by the McCarran-Ferguson Act. A district court agreed that the McCarran-Ferguson Act applied: Florida regulates insurance and can create exemptions from its own antitrust laws for this type of activity. Oscar appealed that decision to the Eleventh Circuit Court of Appeals, and oral argument was held on November 20, 2020. This is an example of a case where the outcome may have been different if the Competitive Health Insurance Reform Act were on the books.