Senator Leahy proposes legislation to repeal antitrust exemption for health and medical malpractice insurance companies

On September 16, 2009 Senate Judiciary Committee Chairman Patrick Leahy, D-Vt. introduced the Health Insurance Industry Antitrust Enforcement Act, legislation intended to eliminate a federal antitrust exemption for health insurance and medical malpractice insurance companies. 

Specifically, the bill would repeal the antitrust exemption that was established in the 1945 McCarran-Ferguson Act.   The two key provisions of the Health Insurance Industry Antitrust Enforcement Act will repeal the federal antitrust exemption for health insurance and medical malpractice insurance companies for price-fixing, bid rigging, and market allocations.  Senator Leahy said his bill would “subject health insurers and medical malpractice insurers to the same good-competition laws that apply to virtually every other company doing business in the United States.”

Senator Leahy’s 2009 bill is a narrower version of H.R. 1583 (“Insurance Industry Competition Act of 2009”), introduced in March 2009 by Reps. Gene Taylor, D-Miss., and Peter DeFazio, D-Ore., and a bill introduced by Senator Leahy in 2008.  The House bill would apply to all insurance companies (life, health, and property-casualty).

Enacted in 1945, McCarran-Ferguson delegates to the states the authority to regulate and tax “the business of insurance,” and establishes that no federal law should be presumed to interfere with that authority. McCarran-Ferguson specifically exempts from government and private enforcement of the federal antitrust laws conduct that constitutes the “business of insurance,” as long as the conduct at issue is regulated by a state and is not an act of boycott, coercion, or intimidation.  Bid-rigging and other unfair trade practices are still illegal. Price discrimination on any basis other than expected cost is illegal.

In addition, McCarran exempts insurers from specific provisions in federal anti-trust acts (Sherman Act, Clayton Act, and Federal Trade Commission Act) on the condition that the domiciliary state has appropriate antitrust legislation.   McCarran-Ferguson’s limited exemption has permitted insurance companies and other market participants to engage in certain activities that might otherwise be prohibited under the federal antitrust laws. The activities have included sharing loss-experience data, standardizing policy forms, and creating joint underwriting associations.

The House and Senate bills would not change existing state regulation of insurance-related activity.

While it would seem that removing the McCarran-Ferguon exemption from health insurers is a logical extension of the current health care debate, it is not clear why medical malpractice insurers were included.   Additionally, the bill makes no distinction on how it is to be enforced on just the medical malpractice business of companies that sell this insurance as part of their overall portfolio.

Repeal of the anti-trust exemption of McCarran has been debated fiercely over the years, and the introduction of these bills will surely bring additional heated discussions on this subject, as well as the many different aspects being debated on federal vs. state regulation of the insurance industry.