Since 1945, the McCarran-Ferguson Act^[1] (MFA) has shielded the “business of insurance” from antitrust liability, so long as the challenged conduct is “regulated by State Law” and does not constitute “boycott, coercion, or intimidation.”^[2] This law, like the dozens of other statutory antitrust exemptions that still exist for other industries, has more or less always been controversial, and efforts to repeal it date back more than thirty years. Amid the past year’s intense congressional debate over health care reform legislation, a serious repeal effort was once again afoot, and even now it continues. Because they were linked all along to the overall health reform initiative, the repeal bills that have been considered would apply only to carriers in health insurance and medical malpractice insurance (MMI). In addition, depending on events that remain hard to predict, any of them that is adopted may apply to only some of those insurers’ conduct.

If there is consensus on any one issue in antitrust, it is that statutory exemptions are rarely justified and in most cases ought to be repealed. The courts disfavor them and read them narrowly,^[3] the enforcement agencies have long opposed them,^[4] and they have been criticized for years by the Antitrust Modernization Commission (AMC)^[5] and its many predecessors^[6] and by the American Bar Association (ABA) Section of Antitrust Law.^[7] Other nations generally have converged on similar views, and the European Commission now is preparing to narrow its block exemption for insurance.^[8] Criticism of the MFA itself has been vigorous. Calls for outright repeal from very eminent quarters have become routine.^[9]

Still, much doubt remains whether any repeal effort could succeed during the 111th Congress, and events continue to unfold very rapidly. Until January or February of 2010, the fate of MFA repeal had seemed inextricably entwined with health care reform overall, and it endured a wildly changing and unpredictable several months as a little noticed addendum to that larger fight. It now has been fully extracted from the larger reform bills and will rise or fall as separate, freestanding legislation. But, even now, the repeal effort cannot be understood apart from the history of overall health care reform.

Identical companion bills were introduced in September 2009, that would have repealed the MFA, but only as to health and MMI insurers, and only as to “price fixing, bid rigging, or market allocations.”^[10] The House bill was reported favorably out of committee and was included as a part of the comprehensive health reform bill adopted in early November by the full House (the “House Health Bill”).^[11] The insurance industry, however, voiced predictable opposition,^[12] and Senator Reid—though he cosponsored the Senate MFA repeal bill and defended it vehemently before the Senate Judiciary Committee—indicated in November that it was expendable if needed to secure political compromise on the overall health care reform effort.^[13] When the Senate’s comprehensive reform bill (the “Senate Health Bill”) was introduced on November 18, 2009, it did not contain MFA repeal or any other mention of antitrust, except for two miscellaneous savings clauses. The Senate MFA repeal’s principal sponsor, Senator Patrick Leahy, moved its inclusion as a floor amendment to the Senate Health Bill,^[14] and he had powerful outside support.^[15] That effort failed, though, and when the Senate Health Bill was adopted on Christmas Eve of 2009, it contained no MFA repealer.^[16] The only remaining hope for repeal seemed to be that the House provision might be included in a conference health bill, but that hope was slim indeed. Democratic Senator Ben Nelson, a former insurance executive and state insurance commissioner, publicaly had opposed MFA repeal. Winning his probably necessary vote for health care reform apparently called for keeping it out of the bill,^[17] and he claimed early in the debate to have “secured assurances” from Senator Reid that he would do so.^[18] One final reason that repeal’s future seemed not bright was the suggestion that Democrats pushed it less on its merits than as a tool to pressure insurance industry support for overall health care reform.^[19]

Since then, everything has changed. Republican Senator Scott Brown’s upset election in January forced Democrats to abandon any hope of securing a conference bill and instead to use a fairly risky and controversial budget reconciliation strategy.^[20] In some respects, the lack of conference negotiation improved the odds for MFA repeal. A free-standing MFA repealer would have much less opposition than the comprehensive health bills faced, and therefore the opposition of a handful of moderate Democrats to MFA repeal was no longer a meaningful issue. In fact, as of this writing, it is still not an unlikely outcome that free-standing repeal legislation will pass both chambers, possibly by significant majorities. If so, it will apply only to health insurers, but it will contain no exceptions; it will repeal their MFA immunity entirely. On February 22, 2010, after reconciliation had become a likely scenario, two freshmen Democrats and more than seventy cosponsors introduced H.R. 4626, a freestanding MFA repealer.^[21] Their bill would apply only to health insurers but would repeal the exemption as to them totally. Within two days the bill passed the House by an enormous margin.^[22] Although it remains to be seen whether MFA repeal will fit as well into the Senate leadership’s priorities, Senator Leahy and twenty-one cosignatories wrote to Senator Reid on March 3 to urge a Senate floor vote on the new House repealer,^[23] and Senator Leahy plainly intends to keep up the fight for a floor vote during this Congress.

This Essay asks two questions: (1) what consequences the pending repeal measures might have if one of them becomes law; and (2) what a close examination of this effort might teach us about the general business of MFA repeal and competition in insurance. Teasing out the consequences is a bit complex, because these industries are complex—health and MMI markets are actually quite different from one another—and because the existing law under the MFA is dense and somewhat unpredictable. In short, however, two points seem true. Any MFA repeal in whole or in part seems desirable, as insurance markets are riddled with competition problems, and whatever justification the MFA ever had expired long ago. But second, the qualifications and provisos with which the pending bills have been studded may generate disappointingly limited results, depending on which version of the language ultimately appears as law. By far the most stunning events in the legislative history so far were the very quiet, little-noticed manager’s amendment to the House Health Bill by which the original limitation to “price fixing, bid rigging, or market allocation” was removed completely,^[24] and the substantially similar repeal that would apply to health insurers under the adopted H.R. 4626. If such broad repeal language actually becomes law, it might represent a major and welcome change with positive competitive consequences. If not—if some version of MFA repeal survives, but Capitol Hill negotiators reinsert limits of the repeal to specific anticompetitive acts—repeal could well have little or no impact on these markets at all.

As to the larger problem of MFA repeal in general, i.e., repeal as to all conduct in all insurance markets, giving this matter close attention will repay the effort in several ways. The pending repeal bills, however much they may accomplish in and of themselves, have come closer to success than any prior repeal effort, notwithstanding that efforts began more than thirty years ago. Moreover, whether the pending repeal provisions succeed or not, they are an important prelude to the increasingly likely, or even inevitable, general repeal of the MFA. None of the broad antitrust exemptions, most of which date to the Progressive Era and New Deal years and none of which is now very popular, seems likely to endure. It stands to reason that the MFA will disappear eventually as well. This recent repeal effort, the rhetoric surrounding it, and an examination of the likely consequences of the proposed legislation present an excellent opportunity to explore what will work and what will not in the eventual reform.

Finally, repeal should be adopted even if the best, politically feasible option is a bill with exceptions or safe harbors. All else aside, passage would be symbolic. It would show the legislature’s commitment to the matter. It also would establish in effect a pilot program to show that exposure to antitrust will not hurt insurers’ ability to perform. But it should have even more concrete benefits. Passage effectively will direct the enforcement agencies to take insurance competition seriously, which they have not done for many years. In that respect, incidentally, the House Health Bill originally included an important restoration of the power of the Federal Trade Commission to undertake industry studies in insurance, complete with the full panoply of its investigatory powers under § 6 of the Federal Trade Commission Act.^[25]

This Essay proceeds in four Parts. Part I lays out useful background regarding the law of antitrust that currently applies to health and medical malpractice insurers, as well as to the current economic circumstances of their markets. Part I asks: (1) whether there is anything important about these markets that singles them out for special antitrust exemption; and (2) whether there is anything different enough about the two markets that dealing with them in the same way, in the same bill, might be somehow unwise (an argument insisted upon by industry lobbyists). Part II surveys in more detail the legislation that has been considered in the 111th Congress to set the stage for the substantive policy analysis that comprises Part III. A brief Conclusion then offers some broader thoughts about the general problem of repealing antitrust exemptions.

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Please click here to read the full Essay, or click the Attachment link below.

Stable PDF URL: http://yalelawandpolicy.org/sites/default/files/Sagers_28.pdf

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^[1]15 U.S.C. §§ 1011-1015 (2006).

^[2]Id. §§ 1012(b), 1013(b).

^[3]See, e.g., Union Labor Life Ins. Co. v. Pireno, 458 U.S. 119, 126 (1982) (narrowly construing the MFA); Fed. Mar. Comm’n v. Seatrain Lines, Inc., 411 U.S. 726, 733 (1973) (narrowly construing the Shipping Act of 1916); United States v. McKesson & Robbins, Inc., 351 U.S. 305, 316 (1956) (narrowly construing the Miller-Tydings and McGuire Act exemptions for resale price maintenance); Chi. Prof’l Sports Ltd. P’ship v. NBA, 961 F.2d 667, 671-72 (7th Cir. 1992) (observing that because “special interest legislation enshrines results rather than principles,” the “courts read exceptions to the antitrust laws narrowly, with beady eyes and green eyeshades”).

^[4]The Federal Trade Commission and the Justice Department’s Antitrust Division frequently have urged Congress to repeal or narrow existing exemptions and opposed adoption of new ones.

^[5]Antitrust Modernization Comm’n, Report and Recommendations 334-37 (2007), available at http://govinfo.library.unt.edu/amc/report_recommendation//amc_final_repo...

^[6]For histories of the many antitrust study commissions that preceded the AMC and their opposition to statutory exemptions, see Stephen Calkins, Antitrust Modernization: Looking Backwards, 31 J. Corp. L. 421 (2006); and Albert A. Foer, Putting the Antitrust Modernization Commission into Perspective, 51 Buff. L. Rev. 1029 (2003).

^[7]Over many years, the ABA Antitrust Section has made clear its near uniform opposition to all antitrust exemptions by providing testimony to Congress and in other public venues. For a sampling of such statements, see American Bar Association Section of Antitrust Law, Comments of the ABA Section of Antitrust Law, http://www.abanet.org/antitrust/at-comments/comments.shtml (last visited July 1, 2010).

^[8]E.g., Press Release, European Comm’n, Antitrust: Public Consultation on Revised Draft Block Exemption Regulation for Insurance Sector (Oct. 5, 2009), available at http://europa.eu/rapid/pressReleasesAction.do?reference=IP/09/1413&forma

^[9]The committee report accompanying the MFA repeal bill that passed the House this year nicely summarizes this criticism, collecting evidence from an influential 1977 Justice Department report, the President’s National Commission report of 1997, the National Association of Attorneys General, and the Antitrust Modernization Commission. See H.R. Rep. No. 111-322, at 4-5 (2009).

^[10]H.R. 3596, 111th Cong. § 2 (2009); S. 1681, 111th Cong. § 2 (2009). At least one other bill has been introduced in this session to repeal the MFA, and it would go much further than the health insurance bills. The Insurance Industry Competition Act of 2009, H.R. 1583, 111th Cong. § 2 (2009), would cause antitrust to apply to the insurance industry regardless of state regulation, subject only to the limit that Federal Trade Commission § 5 unfair competition enforcement would remain available only where the “business of insurance” is not “regulated by State law.” H.R. 1583’s sponsors introduced the same bill in the prior Congress. See H.R. 1081, 110th Cong. (2007). Despite the fact that the bill has never received Committee consideration, it appears to have been incorporated partly into the comprehensive House health reform bill by manager’s amendment. See infra note 24 and accompanying text.

^[11]See Affordable Health Care for America Act, H.R. 3962, 111th Cong. § 262 (2009).
The House Health Bill passed the House on November 7, 2009.

^[12]See, e.g., Press Release, Am. Ins. Ass’n, Health Care Bill Wrongly Targets P/C Insurers Threatening Business Model and Competition (Nov. 9, 2009), available at http://www.aiadc.org/aiadotnet/docHandler.aspx?DocID=329202 (stating industry concerns and including a copy of a November 6 letter sent to House members).

^[13]See Prescriptions, http://prescriptions.blogs.nytimes.com/2009/11/08/if-anythingthe-senates... (Nov. 8, 2009, 16:33 EST) (“Mr. Reid strongly supports the provision, but has said he will set it aside to win [Senator Ben] Nelson’s support.”).

^[14]Press Release, Senator Patrick Leahy, Leahy To File Antitrust Repeal Amendment on Today (Dec. 1, 2009).

^[15]See, e.g., Jesse A. Hamilton, Ten State Attorneys General Side Against Health Insurers on Antitrust Issue, A.M. Best Bestwire, Nov. 18, 2009.

^[16]See Patient Protection and Affordable Care Act, H.R. 3590, 111th Cong. (2009). For parliamentary reasons, the vehicle for Senate consideration of health care reform was introduced with a House bill number.

^[17]See supra note 13.

^[18]Kristin Jensen, Senate ‘Horse Trading’ Begins as Democrats Take Up Health Bill, Bloomberg, Nov. 30, 2009, http://www.bloomberg.com/apps/news?pid=20670001&sid_ahNn8gDZiDqY

^[19]That argument seems to come in part from the industry, as part of its opposition effort—the argument being that MFA repeal is simply a mean-spirited reprisal for the industry’s opposition to overall health reform. See, e.g., Hamilton, supra note 15. But it has been mentioned by others as well. See Ryan Grim, Insurance Industry Antitrust Fight Headed to Conference Committee, Huffington Post, Nov. 24, 2009, http://www.huffingtonpost.com/2009/11/24/insurance-industry-antitrust ; David Welna, Democrats Push To End Insurers’ Antitrust Exemption, National Public Radio, Oct. 23, 2009, http://www.npr.org/templates/story/story.php?storyId=114063950

^[20]After months of debate over procedure, it became clear that congressional leadership would use the budget reconciliation process to avoid likely filibuster of a conference bill. Although comprehensive health care reform bills had passed both chambers—and passed in the Senate by a filibuster-proof sixty votes—the two bills sharply diverged on a number of hotly debated issues. Conference negotiations surely would have been contentious, and the Democratic leadership had hoped those discussions would be completed before the State of the Union address in late January. See Shailagh Murray & Paul Kane, Senate Democrats Vote To Bring Health Bill to Floor for Debate, Wash. Post, Nov. 22, 2009, at A01. Passage of any conference bill, however, seemed surely impossible after Republican Senator Scott Brown won a special election to fill the unexpired term of the late Senator Ted Kennedy. Instead, Democrats argued that conflicts between the bills could be resolved by budget reconciliation—requiring only a simple Senate majority—so long as the discrepancies related only to issues with significant budgetary impacts. As a result of parliamentary ruling, the House was required to pass the Senate bill verbatim, subject to reconciliation corrections, but Democratic leaders believed they had the necessary votes in the House do to so. See Robert Pear, Democrats Struggle To Finish Health Bill, N.Y. Times, Mar. 12, 2010, at A17; Patrick O’Connor, Pelosi: ‘The Choice Has To Be Made,’ Politico, Mar. 11, 2010, http://www.politico.com/news/stories/0310/34294_Page3.html

^[21]Health Insurance Industry Fair Competition Act, H.R. 4626, 111th Cong. (2010). The bill was introduced by Representative Tom Perriello of Virginia and (initially) Representative Betsy Markey of Colorado. Cosponsors included the original sponsors of earlier repeal bills, notably Representative Peter DeFazio. See infra note 24.

^[22]The floor vote in the House was 406 for and 19 against. Interestingly, the floor vote on the bill was taken only after a Republican motion to return it to committee, presumably for inclusion of exceptions or safe harbors of the kind that had been included in the earlier House bills. Representative Dan Lungren, who all along had been the chief advocate for safe harbors, also attempted to amend the bill to include safe harbors while it was before the House Rules Committee. See Press Release, Representative Dan Lungren, Lungren Fights for Bipartisan Protection for Health Care Consumers, available at http://lungren.house.gov/index.php?option=com_content&task=view&id=594&I...

^[23]Letter from Senator Patrick Leahy et al., to Senator Harry Reid (Mar. 3, 2010), available at http://judiciary.senate.gov/resources/documents/111thCongress/upload/030...

^[24]The provision as it appears in the final House Health Bill would repeal MFA as to “the business of health insurance [and] the business of medical malpractice insurance.” How exactly this happened remains mysterious. Representative Peter DeFazio, Democrat of Oregon who sponsored a different MFA repeal bill, issued a press release shortly before the House Health Bill was adopted that essentially took full credit for the amendment, implying that the DeFazio bill itself had been incorporated rather than H.R. 3596. See Press Release, Peter DeFazio, DeFazio Language To Repeal Health Insurance Anti-Trust Exemption Included in Health Reform Bill (Nov. 4, 2009), available at http://www.defazio.house.gov/index.php?option=com_content&view=article&i... That claim would be quite misleading, but it is probably fair to say that elements of DeFazio’s bill were used to modify the language of H.R. 3596, which forms the core of the repeal provision of the House Health Bill. One can only imagine there was some sort of disagreement among bill proponents and House leadership, and this compromise therefore was reached.

^[25]See infra notes 83-86 and accompanying text.