Limiting McCarran-Ferguson Act’s Antitrust Exemption for the “Business of Insurance”:Impact on Health Insurers and Issuers of Medical Malpractice Insurance

Janice E. Rubin
Legislative Attorney
Baird Webel
Specialist in Financial Economics


Narrowing or eliminating the 1945 McCarran-Ferguson Act's antitrust exemption for the "business of insurance" has been pursued for many years in many Congresses. In the 111th Congress, there are at least three measures—two stand-alone bills, and a provision in the House health care reform bill. Unlike prior legislation to eliminate the entire exemption—currently applicable generally to the extent such business is regulated by state law—however, the pending measures (H.R. 3596, S. 1681 (each titled the Health Insurance Industry Antitrust Enforcement Act of 2009); section 262 of H.R. 3962 (the Affordable Health Care for America Act)) are applicable only to the provision of health and medical malpractice insurance. The stand-alone bills would prohibit issuers of such insurance from engaging in "price fixing, bid rigging, or market allocations in connection with the conduct of the business of providing" health or medical malpractice insurance. Section 262 of H.R. 3962 does not specify particular, prohibited activities, mandating instead that nothing in McCarran-Ferguson shall prevent the application of "the antitrust laws to the business of health [or medical malpractice] insurance." 

H.R. 3596 was voted out of the House Judiciary Committee on October 21, 2009, with an amendment to permit the sharing of historical loss data or the "perform[ance of] actuarial services" if doing so "does not involve a restraint of trade." Hearings have been held on S. 1681, but the bill remains in the Senate Judiciary Committee; whether it will ultimately contain a provision concerning information-sharing is unknown, as is the likelihood that its substance will be inserted in any final health care reform bill. Section 262 of H.R. 3962 contains language similar to the information-sharing provision in H.R. 3596, including a section to define several of the terms used in granting that authority. There is not currently any provision in the Senate health care reform bill (H.R. 3590) as passed by the Senate on December 24, 2009. Due largely to the importance of information sharing to insurers, the insurance industry has cooperated in the past in a variety of ways, including sharing loss information, jointly developing policy forms and rates, operating residual market mechanisms, and participating in state guaranty funds. Some forms of cooperation, including publication of mandatory advisory rates, have already been curtailed because of antitrust concerns. 

Passage of any of the measures is likely to precipitate litigation to define the scope of the prohibition and/or any remaining exemption. The precise impact on the affected portion of the insurance industry will depend critically, therefore, on future court decisions. 

Notwithstanding any limitation imposed at the federal level on the McCarran-Ferguson antitrust exemption available to health and medical malpractice insurers, however, any activity that the subject insurance companies currently (or might in the future) undertake—including joint ratemaking or certain information-sharing—may nevertheless remain legally permissible. The "state action" doctrine in antitrust law immunizes from the federal antitrust laws: (1) all actions of state (but not necessarily, municipal) public entities and (2) those of private entities that are legislatively mandated or authorized and are "actively supervised" by the states. Currently, all states regulate the insurance industry. The issue, then, is whether and to what extent existing state mandates or authorizations, while adequate to meet the requirements of the McCarran-Ferguson exemption, would be adequate to meet the requirements of the antitrust "state action" doctrine, which dictates both that there be a "clear articulation" of state policy, and that a state engage in "active supervision" of the private activity that occurs in response to that articulation. This report will be updated as necessary. .


Date of Report: January 14, 2010
Number of Pages: 12
Order Number: R40968
Price: $29.95

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