Antitrust & The Competitive Health Insurance Reform Act of 2020
Joseph Ho, MPH
Loyola University Chicago School of Law, JD 2022
The Competitive Health Insurance Reform Act of 2020 (“CHIRA”) was signed into law on January 13, 2020, shifting not only how health insurance markets operate but lowering the bar for federal government agencies to bring successful actions against anticompetitive behavior. Prior to becoming law, health insurance companies retained robust antitrust exemptions under the McCarran-Ferguson Act (the “Act”). While it does not completely eliminate antitrust exemptions, the passage of CHIRA sent a strong signal that the federal government intended to promote competitive conduct in health insurance markets and limit the scope of these antitrust exemptions. While the upshot is that consumers may benefit from increased access and potentially lower cost, the health insurance industry must begin to adjust its conduct or face contentious litigation.
Health insurance markets
Anticompetitive behavior exhibited by the health insurance industry creates high levels of market concentration, which lessens competition and causes disproportionate effects of individuals paying higher insurance premiums. Currently, the health insurance market is concentrated in many areas throughout the United States. By analyzing the data of commercial enrollments in HMO, PPO, and other insurance plans through the Hirschman-Herfindahl index — a generally accepted method to calculate market concentration — an overwhelming number of health insurance markets throughout the United States exhibit high concentration. Consequently, commentators have viewed antitrust enforcement as a means toward limiting the overall exertion of health insurer market power.
The McCarran-Ferguson Act
In 1944, the Supreme Court held in United States v. Southern-Eastern Underwriters Association that the federal government could regulate insurance companies. In response to this holding, Congress passed the McCarran-Ferguson Act in 1945 and gave states the authority to regulate insurance. The Act provided antitrust exemptions to these health insurance companies. To qualify for this exemption from federal antitrust law liability, the challenged practice must constitute the “business of insurance,” be “state law regulated,” and cannot constitute an “agreement to “boycott, coerce, or intimidate.”
In explaining the “business of insurance,” — arguably the most complex of the criterion — the Supreme Court case of Pilot Life Ins. Co. v. Dedeaux reiterated a three-part test to determine what constituted a “business of insurance.” There, the Court looked to whether the practice has “the effect of transferring or spreading a policyholder’s risk, whether the practice is “an integral part of the policy relationship between the insurer and the insured,” and whether the practice is “limited to entities within the insurance industry.”
Those in favor of exemptions believed the sharing of information protects the risk of future loss and that the insulation from antitrust litigation reduces cost. Alternatively, those against the exemptions argued that anticompetitive behavior exhibited by those in highly concentrated health insurance markets contributed to an increase in premium rates, lower reimbursement rates paid to providers delivering care, and an overall decrease in quality of care available to consumers.
The Competitive Health Insurance Reform Act of 2020
Praised by the Department of Justice’s Antitrust Division as a means of limiting anticompetitive behavior in health insurance markets and increasing the Department’s ability to investigate and prosecute this behavior, the Competitive Health Insurance Reform Act of 2020 repealed certain antitrust exemptions under the McCarran-Ferguson Act. The Act, however, does not fully repeal antitrust exemptions but will open those in “the business of health insurance” to federal antirust liability such as “price-fixing, bid-rigging, and market allocation.”
Notably, even after the passage of CHIRA, health insurers retain federal antitrust immunity in four situations. These include “a contract, combination or conspiracy to collect, compile, or disseminate historical loss data, determine a loss development factor for historical loss data, perform actuarial services if the collaboration does not involve a restraint of trade, or develop or disseminate a standard insurance policy form if adherence to the form is not required.”
Preparing for enforcement actions
Over the last five years, the Justice Department (“DOJ”) said it enforced antitrust actions against “health insurers involved in transactions valued at over 160 billion dollars.” Additionally, the passage of CHIRA could lead to private actions against health insurers. In either regard, with the inevitable increase of enforcement actions, health insurers will need to increase their oversight and compliance capabilities and perform their due diligence to understand what actions they take in the market no longer find safe harbor in antitrust exemptions.