House Judiciary Committee Issues Report on Competitive Health Insurance Reform Act
Excerpts of the report follow:
Purpose and Summary
In 1945,
115 U.S.C. Sec. Sec. 1011-1015.
Background and Need for the Legislation
A. Brief Overview of Insurance Regulation and the McCarran-Ferguson Act Historically, the business of insurance was viewed as not falling within interstate commerce and thus was subject to state, not Federal, regulation.2 In 1944, the
2Paul v. Virginia, 75 U.S. (8 Wall.) 168, 183 (1868) (find that "[i]ssuing a policy of insurance is not a transaction of [interstate] commerce.").
3United States v. South-Eastern Underwriters Ass'n,
415 U.S.C. Sec. Sec. 1011-1015.
515 U.S.C. Sec. 1012.
615 U.S.C. Sec. 1013(b).
In determining whether conduct constitutes the "business of insurance" under McCarran-Ferguson, courts consider: (1) whether the activity has the effect of transferring a policyholder's risk; (2) whether the activity is an integral part of the policy relationship between the insurer and a policyholder; and (3) whether the activity is limited to entities within the insurance industry.7 It should be noted that a wide range of practices of health insurers do not constitute the business of insurance under this test. As evidenced by the
7Union Labor Life Ins. Co. v. Pireno,
8Bid-rigging also has been held not to constitute the business of insurance and thus not within the exemption. See In re Ins. Brokerage Antitrust Litig., 2006 WL 2850607, MDL No. 1663 (D.N.J.
As a direct result of McCarran-Ferguson, every state has its own regulations and regulatory agency to protect consumers and competition in the insurance market. These regulations include bans on the types of anticompetitive conduct by insurers that the Federal antitrust laws would reach if they applied.9 The
9Congressional Budget Office, Cost Estimate: H.R. 3596 Health Insurance Industry Antitrust Enforcement Act of 2009,
10Id.
B. Narrow Exemption
A review of cases addressing what constitutes the "business of insurance" shows that the McCarran-Ferguson exemption has been judicially narrowed in the 70 years since its enactment. The cases are highly specific. However, certain general conclusions can be drawn:
LActivities among insurers involving cooperative ratemaking and related functions constitute the business of insurance.11 Insurers may enter into agreements or arrangements that do not involve such matters, but the more arrangements involve functions that are not unique to the insurance business, or the primary impact of which is not on the insurance market, the less likely courts are to apply the exemption.12
11California
12See, e.g.,
Activities involving the relationship between the insurer and the insured constitute the business of insurance.13 If the activity does not involve risk- spreading, however, or if its primary impact on competition is not in the insurance industry, courts are less likely to apply the exemption.14
13SEC v.
14See, e.g.,
Activities involving arrangements between insurers and third-party providers of non-insurance goods and service do not constitute the business of insurance.15
15See, e.g., Union Labor Life Ins. Co. v. Pireno,
DOJ testified to
16Hearing on the Quality Health Care Coalition Act of 1999 Before the H. Comm. On the Judiciary (1999) (statement of
17Hearing on Prohibiting Price Fixing and Other Anticompetitive Conduct in the Health Insurance Industry Before
C. Data Aggregation and Standardized Forms In addition to protecting state primacy in insurance regulation, the McCarran-Ferguson Act also gives states the flexibility to allow some types of regulated coordination between insurance companies that actually improve competition. To be competitive, an insurer needs accurate and comprehensive actuarial data so it can gauge the risk associated with its policies and set premiums accordingly.18 For this reason, state insurance regulators have historically allowed insurance companies to share actuarial and loss information, often through a ratings bureau, so that they can more accurately estimate risk and price their policies.19 At the most basic level, companies gather data from various insurers, aggregate and analyze this data, and provide aggregated data back to the individual insurers for use in setting future rates.
18See
19Id.
This cooperation is especially valuable to small insurance companies and start-ups, which would otherwise lack the scale of information they need to price policies accurately.20 By making it possible for small and independent insurance companies to compete, information-sharing within the insurance industry arguably increases competition and lowers prices for consumers.21 Repeal proponents claim that the market is different today; data-sharing is largely permitted under Federal antitrust laws and the bigger problem is market consolidation.
20Id.
21Id.
In addition to data sharing, ratings bureaus are also involved in the creation and filing of insurance policy forms. Insurance policy forms are complex legal documents, and, as controversies over insurance coverage for New
If the McCarran-Ferguson antitrust protection for "the business of insurance" is, in fact, curtailed or abolished, many lawsuits challenging some of these insurer practices as violations of the Federal antitrust laws are likely. It is possible that many of the cooperative activities that insurers engage in may be found to be permissible under the "state action" doctrine, which immunizes from the Federal antitrust laws: (1) all actions of state public entities; and, (2) those of private entities that are legislatively mandated or authorized and are "actively supervised" by the states. The question then becomes to what extent do the requirements of the McCarran-Ferguson exemption (under which current practices have been developed) differ from requirements of the "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.
If the cited examples of cooperation were found to be in violation of Federal antitrust laws, it would likely necessitate significant changes in the operation of insurers, particularly small insurers which do not have large pools of information from their own experience. Should additional data be unavailable to small insurers in some way, it may spur further consolidation in the insurance industry, as small insurers merge in order to gain the competitive advantage of additional information.
Current interest surrounding McCarran-Ferguson repeal for health insurance appears to be related to interest in the passage of a Federal law to permit the sale of insurance across state lines. However, the general consensus, including among witnesses at the most recent Judiciary hearing on the Competitive Health Insurance Reform Act, is that if
22See H.R. 372, the "Competitive Health Insurance Reform Act of 2017: Hearing Before the Subcomm. on Regulatory Reform, Commercial and Antitrust Law of the H. Comm. on the Judiciary (2017) (hereinafter RRCAL Subcomm. Hearing).
23RRCAL Subcomm. Hearing, supra note 22, at 6 (written testimony of Mr.
Insurers already can (and a number do) sell across state lines, to the extent permitted by the individual states. While instances of this are limited, it is unclear how much is a result of protectionist state policy rather than the actual viability of selling across state lines. Several parties have spoken of the general difficulty involved in setting up a provider network in one state from another. Importantly, a repeal of McCarran-Ferguson would not prohibit the states' ability to regulate the health insurance market outside of the antitrust sphere any more than regulations provided under existing Federal law.
E. Previous Legislative Activity
The Committee has from time to time considered legislation to repeal or scale back the McCarran-Ferguson antitrust exemption since at least the late 1980's. Some prior legislative efforts to repeal or scale back the exemption are discussed in detail in the Committee's report on the Insurance Competitive Pricing Act of 1994, H.R. 9 (103d Cong.).24
24H.R. Rep. No. 103-853 (1994).
More recently, in the 114th
25See H.R. 494, 114th Cong.
26See H.R. 99, 114th Cong.
27See H.R. 3682, 114th Cong.
28See H.R.s 2462, 2653, 114th Cong.
H.R. 372 as amended by the Committee has been made similar in a number of respects to repeal legislation that was introduced in the 111th and 112th Congresses. During the 111th
29See Health Insurance Industry Antitrust Enforcement Act of 2009, H.R. Rep. No. 111-322 (2009).
30H.R. 4626, 111th Cong.
31See H.R. 5, 112th Cong.
Hearings
On
32See RRCAL Subcomm. Hearing, supra note 22.
33RRCAL Subcomm. Hearing, supra note 22, at 8 (testimony of Mr.
34Id. at 10-11.
35Id. at 11.
36RRCAL Subcomm. Hearing, supra note 22, at 2 (written testimony of Mr. David Balto).
37Id.
38Id.
39RRCAL Subcomm. Hearing, supra note 22, at 5 (written testimony of Mr.
40Id. at 7.
41RRCAL Subcomm. Hearing, supra note 22, at 4 (written testimony of Mr.
42Id.
Committee Consideration
On
Committee Votes
In compliance with clause 3(b) of rule XIII of the Rules of the
Committee Oversight Findings
In compliance with clause 3(c)(1) of rule XIII of the Rules of the
Clause 3(c)(2) of rule XIII of the Rules of the
Congressional Budget Office Cost Estimate
In compliance with clause 3(c)(3) of rule XIII of the Rules of the
U.S.
Hon.
Committee on the Judiciary,
Dear Mr. Chairman: The
If you wish further details on this estimate, we will be pleased to provide them. The CBO staff contacts are
Sincerely,
Director.
Enclosure
cc: Honorable
Ranking Member
H.R. 372--Competitive Health Insurance Reform Act of 2017.
As ordered reported by the
Under current law, some activities of companies that provide health insurance are exempt from certain Federal antitrust laws if the companies are engaged in the business of insurance and are regulated at the state level. H.R. 372 would remove that exemption and subject such businesses to Federal antitrust laws, but would retain the antitrust exemption for certain collaborative activities between health insurance businesses.
Based on an analysis of information from the
H.R. 372 could affect the size and costs of premiums charged by private health and dental insurance companies, but those effects would probably be quite small. Changes in health or dental insurance premiums can affect Federal revenues because of the favorable tax treatment that is accorded to employment-based coverage under current law. Premiums might be lower to the extent that enacting the bill would prevent insurers from engaging in practices currently exempted from antitrust law. (That effect would probably be small because the range of insurer practices that fall under the antitrust exemption is narrow and such practices are subject to state regulation.) On the other hand, insurers could become subject to additional litigation and thus their costs and premiums might increase. Based on information from the
Because those prosecuted and convicted under H.R. 372 could be subject to criminal fines, Federal collections may increase. Criminal fines are recorded as revenues, deposited in the
CBO estimates that enacting H.R. 372 would not increase net direct spending or on-budget deficits in any of the four consecutive 10-year periods beginning in 2028.
H.R. 372 contains no intergovernmental mandates as defined in the Unfunded Mandates Reform Act (UMRA) and would not affect the budgets of state, local, or tribal governments.
H.R. 372 would impose a private-sector mandate, as defined in UMRA, on issuers of health insurance by repealing their exemptions from Federal antitrust laws with some exceptions. Because state laws generally prohibit or regulate activities that would be prohibited under the bill, CBO estimates that the incremental cost for health insurers to comply with the mandate would fall below the annual threshold established in UMRA for private-sector mandates (
The CBO staff contacts for this estimate are
Duplication of Federal Programs
No provision of H.R. 372 establishes or reauthorizes a program of the Federal Government known to be duplicative of another Federal program, a program that was included in any report from the
Disclosure of Directed Rule Makings
The Committee estimates that H.R. 372 specifically directs to be completed no specific rule makings within the meaning of 5 U.S.C. Sec. 551.
Performance Goals and Objectives
The Committee states that pursuant to clause 3(c)(4) of rule XIII of the Rules of the
Advisory on Earmarks
In accordance with clause 9 of rule XXI of the Rules of the
Section-by-Section Analysis
The following discussion describes the bill as reported by the Committee.
Section 1.
Section 2. Restoring the Application of Antitrust Laws to the Business of
Sec. 2(a)(c)(1): The McCarran-Ferguson Act provides that Federal antitrust law, including the Sherman Act, Clayton Act, and FTC Act shall not apply to the "business of insurance." The Competitive Health Insurance Reform Act amends this section to provide that the exception for the business of insurance does not apply to "the business of health insurance (including the business of dental insurance and limited scope dental benefits)."
Sec. 2(a)(c)(2): Provides that the repeal of the McCarran-Ferguson Act for the business of health insurance does not apply to specified safe-harbored activities. These activities include making a contract, or engaging in a combination or conspiracy for the collection, compilation and dissemination of historical loss data, the determination of a loss development factor, the performance of actuarial services that do not involve a restraint of trade, and the development or diminution of a standard insurance policy form, if such contract, combination or conspiracy is not to adhere to or require adherence to such standard form.
Sec. 2(c)(3)(A): Clarifies that the term "antitrust laws" shall have the meaning provided in the Clayton Act as well as section 5 of the FTC Act, to the extent the FTC Act applies to "unfair methods of competition."
Sec. 2(c)(3)(B): Explicitly provides that the term "business of health insurance" does not include the business of life insurance (including annuities), property or casualty insurance, other specific "excepted benefits" as stated in the Internal Revenue Code.
Sec. 2(c)(3)(C): Provides that the term "historical loss data" means information respecting claims paid, or reserves held for claims reported, by any person engaged in the business of insurance.
Sec. 2(c)(3)(D): Provides that the term "loss development factor" means an adjustment to the aggregate of losses incurred during a prior period of time that have been paid or for which claims have been incurred and reserves are being held, in order to estimate the aggregate of the losses incurred during such period that will ultimately be paid.
Sec. 2(b): Section 5 of the FTC Act prohibits "unfair or deceptive acts or practices in or affecting commerce." The Competitive Health Insurance Reform Act clarifies that section 5 of the FTC Act applies to the business of health insurance regardless of whether such business is carried on for profit.
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of the
The full text of the report is found at: https://www.congress.gov/congressional-report/115th-congress/house-report/36/1?r=4
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