Proponents of the socialized medicine scheme want to repeal the McCarran-Ferguson Act. (1) The argument put forth to the public is: the McCarran-Ferguson Act gives the insurance industry an exemption from anti-trust.
What is the McCarran-Ferguson Act? What is the history of the McCarran-Ferguson Act? Has there been past attempts to repeal the McCarran-Ferguson Act? Is the McCarran-Ferguson Act an exemption for the insurance industry from anti-trust?
What is the McCarran-Ferguson Act?
The McCarran-Ferguson Act is a federal law that was enacted on 03/09/1945. The act had the co-sponsors of democrat Pat McCarran of Nevada and republican Homer Ferguson of Michigan. (2) (3) (4)
The law gives insurers a very narrow exemption to anti trust laws. It allows "the business of insurance" to share loss data, jointly develop insurance forms and allows for the standardization of policy language. It more importantly allows states to regulate and tax insurance. (5) (6) (7)
Moreover, the "business of insurance" is otherwise subject to all other aspects of federal anti-trust. (8) (9) The business of insurance is subject to state level anti trust laws as well. (10)
What is the history of the McCarran-Ferguson Act?
In 1944 the United States Supreme Court ruled insurance was interstate commerce (United States v. South-Eastern Underwrites Ass'n). (11) (12) States then became distressed that they no longer had authority to regulate insurance within their state borders. (13)
McCarran-Ferguson was enacted for the benefit of the many and several states which had, in 1945, regulated and subsequently taxed insurance for nearly 100 years. It gives the many and several states the authority to regulate "the business of insurance". That federal regulation will not interfere with state regulation unless a federal law provides otherwise. (14) (15)
The very limited anti trust exemptions included in the act pertained to insurers. The very narrow exemption promotes lower insurance costs, promotes competition leading to choice, and helps assure solvency.
Basically, loss data is shared among the insurers for the benefit of policy pricing in regards to solvency. (16) The solvency of insurers is very dependent on accurate loss data. Further, small insurers do not have large pools of loss data information. If the small insurer would like to enter a market (increase competition) they need large pools of loss data to determine price and enter a market with solvency in mind. Large insurers also benefit from pooling of loss data in regards to their solvency. Solvency is surely an important consumer protection.
Standardized policy language and policy forms, through cooperation of insurers, was also included in the act. Standardized policy language and policy forms stream lines cost hence benefiting insurers and consumers alike. It also protects consumers, insurer, and the judicial system regarding consequential interpretation of policy language.
Has there ever been attempts to repeal the McCarran-Ferguson Act?
Attempts to repeal the McCarran-Ferguson have occurred every decade since 1960. (17) Obviously, in each case the repeal failed after close study. A somewhat recent attempt to undermine the law was the Insurance Industry Competition Act of 2007. (18)
The most recent attempt to repeal or amend the McCarran-Ferguson act is House Bill 1583 which is entitled The Insurance Competition Act of 2009. This particular legislation was introduced by Rep. Gene Taylor, D-Miss., and Rep. Peter DeFazio, D-Ore. This legislation continues to be debated.
Is the McCarran-Ferguson Act an exemption for the insurance industry from anti trust?
A very incomplete argument is that the McCarran-Ferguson exempts insurers from anti-trust. (19) As mentioned above, insurers are not exempt from federal or state anti-trust. The exemption that exists is particular to the dynamics of the insurance industry and is fashioned in a very narrow style in which to promote lower costs, competition and solvency.
Proponents of the socialized medicine scheme have fashioned a political argument, for the general public, that insurers are exempt from anti trust. The argument is political in purpose as its intent is to mislead as its argument basis is incomplete and hence incorrect. Its not a empirical argument, its an argument of "notion".
Insurers are only exempt in a narrow fashion due to the dynamics of the industry. The exemption lends itself to promoting lowering costs, promoting competition, and promoting insurer solvency. Further, the McCarran-Ferguson Act has its main thrust as guaranteeing a state right which is regulation and taxation of insurance.
note1: The McCarran-Ferguson Act applies across almost all lines of insurance. Meaning that insurance such as personal insurance (e.g. auto/property), commercial property and casualty, health, life, inland marine, etc. are included.
note 1a: the following is a link to a video explaining McCarran-Ferguson regarding state rights and the narrow insurance industry exemption: http://www.youtube.com/user/PIANational
note 2: "solvency" mentioned above means the on going ability of an insurer to pay claims.