McCarron-Ferguson Act Repeal Upends 75 Years of Exemptions for Health Insurers and Sets New Antitrust Enforcement Expectations

By Paul J. Giancola, Colin P. Ahler and Mary Colleen Fowler

Since 1945, the McCarran-Ferguson Act (Act) provided insurance companies a limited exemption from federal antitrust laws, exempting certain state-regulated activities that qualified as the “business of insurance.”¹ The Act traditionally applied to such activities as insurer data-sharing agreements, claims handling, form standardization, ratemaking, reinsurance risk spreading, and joint underwriting.

Lawmakers have attempted numerous repeals of the Act in some way or form for years without success—until recently. On January 13, 2021, President Trump signed the Competitive Health Insurance Reform Act of 2020 (CHIRA) into law. CHIRA amends the Act by repealing certain exemptions related to the “business of health insurance.” The courts have traditionally understood the “business of health insurance” to include three general types of insurer business activities: practices that have “the effect of transferring or spreading a policyholder’s risk,” practices that are “an integral part of the policy relationship between the insurer and the insured” and practices that are “limited to entities within the insurance industry.”² With this law, some of the insurance-related activities discussed above could face new antitrust scrutiny.

There are important limits, however, to the scope of CHIRA. First, CHIRA does not repeal exemptions for other types of insurance, such as life insurance or automobile insurance.³ Additionally, CHIRA retains antitrust exemptions for health insurers with respect to the following activities: compilation and dissemination of historical loss data; the determination of loss development factors; performance of actuarial services as long as they do not restrain trade, and; development of standard insurance policy forms.⁴

CHIRA also gives the Department of Justice (DOJ) and the Federal Trade Commission (FTC) expanded authority to bring antitrust enforcement actions against health insurers. Of note, the DOJ issued a statement welcoming the passage of CHIRA, citing its track record of successful antitrust law enforcements against health insurers, and noting that the CHIRA “will end distracting arguments about when health insurers qualify for the McCarran-Ferguson exemption”⁵ and assist in the Antitrust Division’s successful track record of “enforcing the antitrust laws against health insurers.” As such, health insurers can and should expect increased scrutiny from federal antitrust authorities.

Additionally, CHIRA could also lead to increased litigation from private plaintiffs, such as hospitals, against health insurers. Previously, the Act’s broader scope limited the type of suits that could be brought against health insurers under federal antitrust law. For example, the Act served as an important impediment against challenges to insurer data sharing agreements used for developing premiums.

With that roadblock removed, it will be important for health insurers to ensure that their activities fall with the current exemptions contained within CHIRA. Other steps that should be considered by health insurers, in light of CHIRA, include the review and possible updating of antitrust compliance policies, providing training to employees on the modified regulatory environment, and reviewing contracts formerly exempt from antitrust scrutiny that now may be subject to investigation or litigation.