McCarran-Ferguson Act Amended to Repeal Long-Standing Federal Antitrust Exemption for the “Business of Health Insurance”

CHIRA does not repeal entirely the McCarran-Ferguson exemption for health insurers. It preserves exemptions for “making a contract, or engaging in a combination or conspiracy” (1) to collect, compile, or disseminate historical loss data; (2) to determine a loss development factor for historical loss data; (3) to perform actuarial services if such contract, combination, or conspiracy does not involve a restraint of trade; or (4) to develop or disseminate a standard insurance policy form so long as adherence to such form is not required.⁵ 

Below we discuss the scope of the McCarran-Ferguson exemption, the effect of CHIRA on the scope of antitrust immunity for health insurers, the likely impact of CHIRA on health insurers, and the key questions and takeaways from the new legislation.

The McCarran-Ferguson Act’s Traditional Exemption for the “Business of Insurance”

Since 1945, McCarran-Ferguson has afforded insurers and other entities operating in the insurance industry an exemption from the federal antitrust laws if (1) the challenged practice constitutes the “business of insurance”⁶ and (2) the practice is “regulated by State law.”⁷ Acts of “boycott, coercion, or intimidation” are not protected.⁸

McCarran-Ferguson does not protect all activities of insurance companies.⁹ Instead, the Supreme Court construes McCarran-Ferguson’s exemption narrowly and applies a tripartite test to determine whether a particular activity qualifies as the business of insurance: (1) The practice must have the effect of transferring or spreading a policyholder’s risk; (2) the practice must play an integral part of the policy relationship between the insurer and the insured; and (3) the practice must be limited to entities within the insurance industry.¹⁰ Even if an activity meets the three elements of this test and qualifies as the business of insurance, a court must then determine whether the activity at issue is subject to state regulation.¹¹ Examples of conduct that traditionally has met the standards set forth in McCarran-Ferguson — and thus, historically, has been immune from federal antitrust scrutiny — include ratemaking, form standardization, joint underwriting, claims handling, and reinsurance risk spreading.

In addition to the courts, U.S. antitrust agencies have narrowly interpreted the exemption. Indeed, the Antitrust Division of the Department of Justice (the Antitrust Division) has recently advocated for the courts to take an even more restrictive view of the exemption.¹²

Practical Implications of CHIRA: Potentially Disruptive but Limited in Scope

CHIRA’s amendment to McCarran-Ferguson will affect mainly health insurers and not providers of other forms of insurance such as life, automobile, and casualty lines. For health insurers, however, the changes significantly increase their antitrust exposure to both government investigations and private litigation, as discussed in detail below.

What Likely Changes Under CHIRA?

• Health insurers and other entities in the health insurance industry should prepare for an uptick in antitrust enforcement actions from federal antitrust regulators to prosecute conduct that now qualifies as the business of health insurance under CHIRA and no longer receives immunity under McCarran-Ferguson. The Antitrust Division, in particular, which traditionally has maintained subject-matter jurisdiction over the insurance industry, has become increasingly aggressive in challenging anticompetitive behavior in health insurance markets.¹³ On the day of CHIRA’s passage into law, the Antitrust Division issued a press release stating that CHIRA “will assist the Antitrust Division in its mission to enforce the antitrust laws by narrowing [McCarran-Ferguson’s] defense and clarifying that, except for certain activities that improve health insurance services for consumers, the conduct of health insurers is subject to the federal antitrust laws.”¹⁴
• Health insurers and other entities in the health insurance industry also should be braced for an increase in litigation by private plaintiffs such as hospitals and other payors, which likely will view CHIRA’s passage as an opportunity to challenge activity that once enjoyed protection under McCarran-Ferguson’s exemption for the business of insurance.

What Remains Unchanged Under CHIRA?

• CHIRA explicitly carves out certain activities from its partial repeal of McCarran-Ferguson and maintains immunity for entities such as health insurers to (1) collect, compile, or disseminate historical loss data; (2) determine a loss development factor for historical loss data; (3) perform actuarial services; or (4) develop or disseminate a standard insurance policy form if adherence to the form is not required.¹⁵  For example, smaller insurers, which otherwise would have internal data that is too limited to develop fair and accurate actuary rates, may continue to access broader data that will enable them to generate rates that are more competitive with larger insurers who have access to larger pools of internal data. This type of information exchange may fall under CHIRA’s carveouts and therefore may continue to be protected under McCarran-Ferguson’s exemption.
• Conduct that was never within McCarran-Ferguson’s definition of the business of insurance, such as mergers and acquisitions, will continue to be subject to antitrust scrutiny. Similarly, McCarran-Ferguson never protected conduct such as price fixing, collusion, and monopolization; such conduct will continue to be actively investigated and challenged by regulators and private plaintiffs alike.
• While entities such as health insurers will no longer be able to argue that McCarran-Ferguson requires dismissal of allegations of federal antitrust violations relating to the business of health insurance, CHIRA does not create new violations of antitrust laws for any activities relating to the business of health insurance. Instead, most conduct that qualifies as the business of health insurance under CHIRA is likely to be subject to a rule of reason analysis. As such, entities facing new allegations of antitrust violations under CHIRA can continue to rely on general antitrust principles that require a careful analysis and weighing of the procompetitive benefits and anticompetitive effects of challenged conduct before a violation is established.

Key Open Questions Under CHIRA

• A significant question that CHIRA raises for health insurers is the retroactive effect of the law. Though courts typically apply a presumption against the retroactive effect of legislation, only days after CHIRA came into effect, the Antitrust Division filed a letter brief in Oscar Insurance Company of Florida v. Blue Cross & Blue Shield of Florida, which is pending before the Eleventh Circuit, arguing that the statute applies retroactively when the plaintiff is seeking prospective relief.¹⁶
• It is also unclear how courts will interpret the scope of CHIRA’s carveouts. Plaintiffs and the federal enforcement agencies will argue for a narrow interpretation of those activities that remain exempt under CHIRA, and health insurers should follow cases addressing this question closely.

Practice Points and Takeaways from CHIRA

Health insurers should consider taking the following steps in light of CHIRA’s passage into law:

• Review antitrust compliance policies as soon as possible, and revise them to account for CHIRA’s changes to McCarran-Ferguson.
• Provide training to employees who could run afoul of the antitrust laws to make sure they are sensitized to the new regulatory environment under CHIRA.
• Review current contractual or other arrangements that previously might have been exempt from antitrust scrutiny but now might be exposed to antitrust review, investigation, or litigation under CHIRA.

It is too soon to determine the full scope of risk that CHIRA may pose for health insurers, so health insurers should pay close attention to the actions and statements from federal enforcement agencies, as well as court decisions that interpret the new legislation, beginning with the Eleventh Circuit’s opinion in Oscar Insurance,¹⁷ which is likely to be issued later this year.

Please contact us if you have any questions regarding CHIRA and its implications for your business.

¹ 15 U.S.C. §§ 1011 15.

² Christine A. Varney, Assistant Attorney General, Antitrust Division, U.S. Department of Justice, Remarks as prepared for the American Antitrust Institute’s 11th Annual Conference: Public and Private: Are the Boundaries in Transition? (June 24, 2010), available at https://www.justice.gov/atr/speech/antitrust-immunities (calling for the abolishment of McCarran-Ferguson); see also Christopher L. Sagers, Much Ado About Possibly Pretty Little: McCarran-Ferguson Repeal in the Health Care Reform Effort, 28 YALE L. & POL’Y REV. 325 (2010).

³ Competitive Health Insurance Reform Act of 2020, Pub. L. No. 116-327 § 2 (2020).

⁴ Id. CHIRA expressly excludes from “the business of health insurance” (1) the business of life insurance (including annuities) and (2) the business or property or casualty insurance. Id.

⁵ Id.

⁶ 15 U.S.C. § 1011.

⁷ Id. at § 1012.

⁸ Id. at § 1013(b).

⁹ SEC v. Nat’l Sec., Inc., 393 U.S. 453, 459 (1969).

¹⁰ Labor Life Ins. v. Pireno, 458 U.S. 119, 129 (1982Group Life & Health Ins. Co. v. Royal Drug Co.); see also , 440 U.S. 205 (1979).

¹¹ See Autry v. Northwest Premium Servs., Inc., 144 F.3d 1037, 1043 (7th Cir. 1998). To answer this question, a court must determine not only whether the activity is “regulated by state law” but whether the state regulation was enacted for the purpose of regulating the “business of insurance.” Id.

¹² See, e.g., Brief for the United States as Amicus Curiae Supporting Plaintiff-Appellant, Oscar Ins. Co. of Fla. v. Blue Cross & Blue Shield of Fla., Inc., No. 19-14096 (11th Cir. Jan. 6, 2020) available at https://www.justice.gov/atr/case-document/file/1232461/download.

¹³ See, e.g., Statement of Interest of the United States of America, Oscar Ins., No. 19-14096 (11th Cir. Apr. 24, 2019), available at https://www.justice.gov/atr/case-document/file/1158296/download.

¹⁴ Press Release, Justice Department Welcomes Passage of The Competitive Health Insurance Reform Act of 2020 (Jan. 13, 2021), available at https://www.justice.gov/opa/pr/justice-department-welcomes-passage-competitive-health-insurance-reform-act-2020.

¹⁵ Competitive Health Insurance Reform Act of 2020, Pub. L. No. 116-327 § 2.

¹⁶ Notice of Supplemental Authority, Oscar Ins., No. 19-14096 (11th Cir. Jan. 15, 2021) (“When the intervening statute authorizes or affects the propriety of prospective relief, application of the new provision is not retroactive.”) (citing Landraf v. USI Film Prods., 511 U.S. 244, 273 (1994)).