Legislation & Regulation, Antitrust Litigation & Investigations

Longstanding Federal Antitrust Immunity for Health Insurers is Ending

States say repeal attempts to solve a problem that doesn’t exist.

Healthcare insurance companies, like other insurers, have enjoyed an exemption from U.S. antitrust laws since March 1945 when President Roosevelt signed the McCarran-Ferguson Act, one of his last major acts before his death one month later.

On Jan. 13, 2021, President Trump signed a bill repealing this immunity for health insurers. Titled the Competitive Health Insurance Reform Act of 2020 (CHIRA), the measure was passed by the House of Representatives on Sept. 21, 2020, and by the Senate on Dec. 22. The exemption remains in place for other lines of insurance, such as life, annuities, and property and casualty.

The measure declares that “nothing in the McCarran-Ferguson Act modifies, impairs, or supersedes the operation of antitrust laws with respect to the business of health insurance, including the business of dental insurance,” an official summary of the bill reads. “Prohibitions against unfair methods of competition apply to the business of health insurance without regard to whether the business is for profit,” it adds.

Data sharing among insurance companies helps them take advantage of industry-wide experience to better conduct business, but it also leaves the door open to anticompetitive conduct, proponents of the repeal believe. CHIRA will continue to allow data sharing but its language underscores that the practice is not without limits. It does not apply, the bill reads, to “a contract, combination or conspiracy 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.”

Under McCarran-Ferguson, the health insurance industry – which is regulated at the state level – was immune from federal scrutiny. That has now changed. Assistant Attorney General Makan Delrahim of the Department of Justice’s Antitrust Division hailed the action as strengthening the DOJ’s ability to investigate and prosecute anticompetitive behavior in this important sector. The repeal narrows the defense of anti-competitive conduct and clarifies that, “except for certain activities that improve health insurance services for consumers, the conduct of health insurers is subject to the federal antitrust laws,” Delrahim said, adding, “Americans deserve competition in health insurance markets just as they do in any other industry.”

But collusion is already illegal.

The states say repealing the antitrust immunity attempts to fix a problem that does not exist, and will accomplish the opposite of what repeal proponents hope for.

In a December 2020 letter to Senate leadership, the National Association of Insurance Commissioners (NAIC) said the premise of CHIRA is that “collusion among health insurance companies is permitted under state law” and that McCarran-Ferguson protected those practices. “This is not true,” the letter reads. “The McCarran-Ferguson antitrust exemption for health insurance does not allow or encourage conspiratorial behavior but simply leaves oversight of insurance, including health insurance, to the states – and state laws do not allow collusion.”

Bid rigging, price-fixing and market allocation are illegal under the states’ laws, which provide plenty of tools to fight anticompetitive conduct. “Adding a layer of federal review would only lead to increased costs, confusion, and possible conflicts in federal and state courts,” the NAIC letter reads.

Contrary to the criticism of cross-industry loss-data sharing, the NAIC says it “promotes healthy insurance markets by increasing the level and competence of the competition.” Permitting data sharing was not an oversight; it was “carefully considered and adopted for good reasons. These reasons still exist today ...”

The NAIC also says that removing the antitrust exemption does not address the reasons for increased health insurance premiums, arguing that it is the cost of health care and utilization that drive up insurance rates. CHIRA will have the opposite effect, they say; it will “lead to higher administrative costs, more confusion and uncertainty, and more instability in the health insurance markets and, therefore, higher premiums.”

Antitrust reform is certain to get more attention during the Biden administration, especially now that the Democrats control both houses of Congress. Many have voiced concern and introduced measures addressing anti-competitive environments in technology, e-commerce, social media, pharmaceutical, and agricultural sectors.

In addition to increased federal government oversight, CHIRA opens the door to private litigation, something that was unlikely to advance given the immunity granted by McCarran-Ferguson.

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