The United States House of Representatives and Senate recently passed the Competitive Health Insurance Reform Act (CHIRA) that, among other things, amends the McCarran-Ferguson Act to repeal the federal antitrust exemption only for health and dental insurance companies. CHIRA is expected to be signed into law by President Trump in the coming days, at which point certain collaborative practices by health and dental insurance companies that had previously been exempt from antitrust scrutiny may expose these companies to new antitrust risks.

The “Business of Insurance” Exemption

Prior to CHIRA, the McCarran-Ferguson Act exempted the “business of insurance” from federal antitrust law scrutiny if the challenged practice was otherwise subject to state regulation and did not amount to an “act of boycott, coercion, or intimidation.” 15 U.S.C. §§ 1012(b); 1013(b). While the “business of insurance” conceivably could encompass all actions taken by insurers in furtherance of their respective businesses, the Supreme Court has construed the “business of insurance” language narrowly to apply only to 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.” Union Labor Life Ins. Co. v. Pireno, 458 U.S. 119, 129 (1982). Courts assess challenged practices of insurers against these criteria as a threshold matter to determine if a challenged practice constitutes the “business of insurance” before deciding whether the Act’s antitrust exemption might otherwise apply.

Examples of conduct that have been found to constitute the “business of insurance,” and thus historically have been immune from federal antitrust scrutiny, include ratemaking, form standardization, joint underwriting, claims handling and reinsurance risk spreading.

Importantly, the Supreme Court has emphasized that the plain language of the McCarran-Ferguson Act “exempts the ‘business of insurance’ and not the ‘business of insurance companies,’” Group Life & Health Ins. Co. v. Royal Drug Co., 440 U.S. 205, 216–217 (1979), and most lower federal courts have been reluctant to extend the Act’s protections in light of the Supreme Court’s guidance.

That said, courts previously have construed the McCarran-Ferguson Act to protect a broader spectrum of health insurers’ conduct. Most recently, in September 2019, a federal district court in Florida dismissed an antitrust lawsuit brought by Oscar Insurance Co. against Blue Cross Blue Shield of Florida in which the plaintiff alleged the defendant violated the federal antitrust laws by including exclusivity provisions in its agent agreements, preventing new insurance entrants from gaining a foothold in the Orlando market. The judge in that case held that the broker rules constituted the “business of insurance” under McCarran-Ferguson, and that the defendant’s conduct was therefore exempt from federal antitrust scrutiny.

On appeal to the Eleventh Circuit, the DOJ filed an amicus brief supporting the plaintiff and argued that the district court had applied McCarran-Ferguson too broadly. Interestingly, the chief of the DOJ Antitrust Division, Makan Delrahim, delivered the DOJ’s oral argument before the appellate court in November 2020 and argued that exclusivity agreements generally do not constitute the “business of insurance.” While the Eleventh Circuit has not yet issued its ruling, it is apparent from the DOJ’s involvement that the agency does not favor broad application of the exemption, and it may signal that the DOJ is interested in filing their own antitrust enforcement actions against health insurers in the future, regardless of whether CHIRA becomes law.

The Amendment

Once CHIRA is signed by the president (as expected), the amendment will add the following language to the McCarran-Ferguson Act:

“Nothing contained in this Act shall modify, impair, or supersede the operation of any of the antitrust laws with respect to the business of health insurance (including the business of dental insurance and limited-scope dental benefits).”

For a variety of reasons, it seems possible that agencies and private plaintiffs may capitalize on the amendment to bring antitrust enforcement actions against health insurance companies in the future. The fact that the amendment enjoyed bipartisan support might provide incentive for any DOJ to be more aggressive against health insurers. Health insurance companies should be particularly cautious about “business of insurance” activities that were previously considered exempt from federal antitrust scrutiny but will be outside the scope of the McCarran-Ferguson Act’s exemption if CHIRA is enacted. These activities may include, for example, ratemaking activities (including the collection of historic and prospective loss data), use of standardized policy agreements, joint claims handling and reinsurance agreements.

Importantly, while health insurers will no longer be able to argue that the McCarran-Ferguson Act exempts them from the federal antitrust laws, they can continue to rely on general antitrust compliance principles relating to procompetitive information exchanges and collaborations, and those principles should apply to health insurers just like any other industry. There may be instances, for example, where procompetitive collaborations and associated information exchanges and agreements may be appropriate in order to bring a new product to market that individual insurers could not offer themselves. Such collaborative activities should be reviewed by antitrust counsel in advance, and protective measures such as firewalls may be needed to ensure competitors do not exchange competitively sensitive information outside the scope of their collaboration or form unlawful anticompetitive agreements.

The antitrust laws are nuanced and complex, and their application depends on the unique facts and circumstances at play in each situation. Health insurers who have questions about how the CHIRA amendment will impact their businesses are strongly encouraged to consult with antitrust counsel. In addition, the CHIRA amendment may have implications for health insurers beyond the scope of the antitrust laws, and companies should work with their attorneys to ensure they continue to meet all their legal obligations.