Alert > Antitrust and Trade Regulation
House Judiciary Committee Votes to Repeal Insurers’ Antitrust Immunity
For over 60 years the McCarran-Ferguson Act has provided broad antitrust immunity to the insurance industry. This has permitted insurers of all types to engage in a broad range of collaborative activity that might otherwise be forbidden under the antitrust laws. Scattered efforts to limit or repeal the Act over the years have been fiercely — and successfully — resisted by industry groups. However, on October 21, 2009, the House Judiciary Committee passed, by a vote of 20-9 (including three GOP members) a bill stripping health insurers and medical malpractice insurers of certain antitrust immunities, and the Senate is poised to move a parallel bill. Speaker Pelosi has indicated she expects the McCarran repeal provision to be part of the final overhaul passed by the House.
House and Senate leaders say they intend to move on this legislation quickly and the Obama administration has enthusiastically supported the repeal effort. The legislative effort could become sidetracked for political reasons as the healthcare reform effort nears completion, but if enacted it could have wide repercussions. If the somewhat cryptic language is interpreted to mean a broad antitrust immunity repeal, its impact would be felt immediately by healthcare and medical malpractice insurers, who are specifically targeted in the legislation. These bills bear close watching by the entire insurance industry because they may well become the template for wholesale repeal of McCarran.
The McCarran Ferguson Act
Passed by Congress in 1945, the McCarran-Ferguson Act exempts “the business of insurance” from federal antitrust scrutiny unless the challenged conduct amounts to “boycotts, intimidation or coercion.” Sheltered by McCarran’s federal antitrust immunity, for many decades the insurance industry has operated in a marketplace almost exclusively regulated by the states. As a result, most insurers have developed operational perspectives geared largely toward keeping their state regulators satisfied. These state insurance regulators have accepted many collaborative practices that the antitrust laws might otherwise constrain. For example, federal antitrust challenges to cooperative ratemaking, joint underwriting, sharing of actuarial data and the collective operation of residual market mechanisms have all been rebuffed under McCarran.
The Repeal Effort
Two identical bills, H.R. 3596 and S. 1681, repeal the McCarran-Ferguson Act to the extent needed to prohibit health insurers and medical malpractice insurers from engaging “in any form of price fixing, bid rigging or market allocation” in connection with providing health insurance coverage or coverage for medical malpractice claims. The only conduct these bills carve out for continuing antitrust immunity under the McCarran Act are the information-gathering and rate-setting activities of state insurance regulators.
Erasing all or part of McCarran is not a new idea, but previous repeal efforts have fizzled. Efforts to kill McCarran immunity date back at least to the Reagan administration, and the most recent effort failed in 2007. However, enthusiasm for the current bills rose rapidly after a health insurers’ trade association began a publicity campaign against the administration’s healthcare reform efforts. Then, President Obama began to highlight the industry’s “privileged exception to our antitrust laws,” and the top antitrust official at the Department of Justice, Christine Varney, went to the Hill to testify in general support of repeal efforts. Ms. Varney highlighted that under McCarran “the most egregiously anticompetitive claims, such as naked agreements fixing price or reducing coverage, are virtually always found immune.” “Repealing the McCarran-Ferguson Act,” Ms. Varney testified, “would allow competition to have a greater role in reforming health and medical malpractice insurance markets than would otherwise be the case.”
But would the bill actually repeal the McCarran-Ferguson Act to a meaningful degree? The answer is not clear, and there may be a message in the fact that Ms. Varney did not express an opinion on the particular language of this bill. “The specific acts for which the bill would remove antitrust immunity — price fixing, bid rigging or market allocation — are what the Department of Justice considers to be ‘hard core’ criminal offenses, prosecuted with fines and jail time,” notes Bingham partner Hill Wellford, a former DOJ attorney. “The Department and some courts would not use this language to describe the normal business of insurance, such as pooling actuarial data and developing common policy terms. So it’s an open question whether this bill would have any practical effect.”
A Post-McCarran World?
If McCarran is repealed for the healthcare and medical malpractice insurers, those companies would become subject to the federal antitrust laws, at least to some extent. Bingham partner Thane Scott notes that “what is on the table in Congress is the limited repeal for part of an industry of a conditional immunity for the entire industry from liability under laws that are highly fact-specific, so it’s hard to predict its real-world impact. More than 60 years of antitrust law have developed in other industries while the insurance business was sheltered by McCarran, so even a limited repeal would be a bit like opening a time capsule from 1945 and evaluating the contents using modern standards. Most of our modern antitrust thinking has yet to be applied in the insurance context, and there are bound to be surprises when it is,” Mr. Scott concludes.
Although the present repeal effort targets only the healthcare and medical malpractice carriers, successful efforts to repeal McCarran immunity would be unlikely to stop there. While the current political battles feature healthcare insurers in the front lines, it will be hard to maintain antitrust immunity for some in the insurance industry once others have been stripped of it. The logical endpoint of the process would be to repeal McCarran altogether, as the Department of Justice has urged for many years. Repeal proponents are already calling the healthcare initiative “a good first step.”
Companies in the insurance industry should watch this legislation very carefully. If it is enacted, prior to its effective date healthcare and medical malpractice insurers should seek expert guidance as to how these new standards will affect their operations and interests. All insurers should expect that if McCarran repeal occurs for healthcare and medical malpractice insurers, efforts to repeal McCarran industry-wide may soon follow.
This alert was authored by Bingham Antitrust and Trade Regulation partner Thane Scott. For more information about the subject matter of this alert, please contact any of the lawyers listed below:
Thane Scott, Partner, Antitrust and Trade Regulation
thane.scott@bingham.com, 617.951.8040
Daniel Savrin, Partner, Antitrust and Trade Regulation
daniel.savrin@bingham.com, 617.951.8674
Hill Wellford, Partner, Antitrust and Trade Regulation
hill.wellford@bingham.com, 202.373.6268
William Berkowitz, Co-chair, Antitrust and Trade Regulation
bill.berkowitz@bingham.com, 617.951.8375
Holly House, Co-chair, Antitrust and Trade Regulation
holly.house@bingham.com, 415.393.2535
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