On December 22, 2020, the U.S. Senate unanimously approved the Competitive Health Insurance Reform Act (CHIRA), previously passed by the House on September 21. If signed by the president, CHIRA would repeal health insurers’ federal antitrust immunity under the McCarran-Ferguson Act for state regulated activity that constitutes the business of insurance. CHIRA preserves some protections for compiling historical loss data, determining loss development factors, and performing certain actuarial services, as well as for developing standard insurance policy forms.

The McCarran-Ferguson Act was enacted in 1945 and gives states the primary authority to regulate the insurance industry. The Act exempts the activities of insurance companies from federal antitrust liability only when the following three elements are met: (1) the challenged activity is part of the “business of insurance”; (2) the challenged activity is regulated by state law; and (3) the challenged activity does not constitute a boycott, coercion, or intimidation. To determine whether an insurer’s activity is within the business of insurance, courts consider whether the practice has the effect of transferring or spreading a policyholder’s risk and whether the practice is an integral part of the policy relationship between the insurer and the insured.

Over the past 75 years, the McCarran-Ferguson Act has provided some protection to insurers in antitrust suits where the challenged conduct related to the business of insurance. The Act has also been subject to numerous repeal efforts over the years.

If CHIRA is enacted, the Department of Justice and Federal Trade Commission would have expanded authority to regulate the business of health insurance. Arrangements between insurers to share data for the purpose of developing premiums that previously were immune from federal scrutiny may be subject to the rule of reason and a weighing of the procompetitive benefits and anticompetitive effects of the arrangements, to the extent those arrangements go beyond the remaining protections for compilation of historical loss data, determination of loss development factors, and performance of actuarial services. In addition, health insurers would be subject to suits by private plaintiffs brought under the federal antitrust laws that may previously have been subject to dismissal under the McCarran-Ferguson Act.

Health insurers should be aware that CHIRA may introduce additional regulatory oversight and litigation in health insurance markets already heavily regulated by the states. For more information, please contact one of the authors or the Reed Smith lawyer with whom you regularly work.