STATEMENT BEFORE
THE UNITED STATES HOUSE OF REPRESENTATIVES
JUDICIARY COMMITTEE
SUBCOMMITTEE ON REGULATORY REFORM, COMMERCIAL AND ANTITRUST LAW
HEARING ON H.R. 372, THE “COMPETITIVE HEALTH INSURANCE REFORM ACT OF 2017”
February 16, 2017
I.
Introduction
Founded in 1896, the Independent Insurance Agents & Brokers of America (IIABA or the Big “I”) is the
nation’s oldest and largest national association of independent insurance agents and brokers,
representing a nationwide network of approximately a quarter of a million agents, brokers, and their
employees. Its members are businesses that offer customers a choice of policies from a variety of
insurance companies. Independent agents and brokers offer all lines of insurance—property, casualty,
life, health, employee benefit plans, and retirement products.
The focus of today’s hearing is H.R. 372, the “Competitive Health Insurance Reform Act of 2017,”
introduced by Rep. Paul Gosar. The Big “I” appreciates the intent of this legislation to help reform our
nation’s health insurance markets, but we believe the repeal of the McCarran-Ferguson Act’s limited
antitrust exemption is highly unlikely to result in increased competition or lower health insurance
premiums for consumers and might actually encourage the opposite result. The Big “I” strongly supports
state insurance regulation and the narrow federal antitrust exemption that exists today and appreciates
that other forms of insurance besides health insurance are not meant to be impacted by H.R. 372. In
support of these points, IIABA submits testimony today regarding the importance of state-based insurance
regulation, the significance and purpose of the limited antitrust exemption to the insurance market, and
the specific importance of the exemption to the property and casualty insurance industry.
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II.
The McCarran-Ferguson limited antitrust exemption does not act to restrain competition or
increase costs for insurance consumers, because state insurance laws, unfair trade practice
laws, and antitrust laws apply to insurers.
Insurance is a highly regulated at the state level. The Big “I” is a leading supporter of state regulation of
insurance. State systems are accessible, accountable, and responsive to local social and economic
conditions. State regulation has proven time and again that it effectively protects consumers. The primacy
of state insurance regulation was formally acknowledged and codified with the passage of the McCarranFerguson Act in 1945. Under the Act, "[n]o Act of Congress shall be construed to invalidate, impair, or
supersede any law enacted by any State for the purpose of regulating the business of insurance, or which
imposes a fee or a tax upon such business. . . .”
Laws in every state apply to the business of insurance and protect consumers. State insurance regulation
is structured around several key principles, including but not limited to licensing, product regulation,
market conduct oversight, and financial regulation.
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Licensing: State laws ensure that insurance companies, as well as insurance agents and brokers,
are regulated and licensed by state insurance departments. Those who do not comply with the
regulatory requirements applicable to them may be subject to fines or have their licenses
suspended or revoked.
Product Regulation: State regulators protect consumers by ensuring that insurance policy
provisions comply with state law, are reasonable and fair, and do not contain major gaps in
coverage that might be misunderstood by consumers and leave them unprotected. Regulators
also seek to ensure that policy benefits are commensurate with the premiums charged.
Market Conduct Regulation: Marketplace regulation seeks to ensure fair and reasonable
insurance prices, products and trade practices in order to protect consumers. Market conduct
examinations occur on a routine basis, but also can be triggered by complaints against an insurer.
If violations of law are found responsible parties may be subject to fines, or have their licenses
suspended or revoked.
Financial Regulation: State regulators closely regulate the financial condition of insurance
companies. This ensures that companies are financially solvent and engaging in appropriate
practices.
Beyond insurance-specific state laws, state unfair trade practice and antitrust laws apply to the business
of insurance. State unfair trade practice and antitrust laws prohibit all businesses, including insurers, from
conspiring to fix prices, improperly colluding, or otherwise taking actions to restrict competition to the
detriment of consumers.
As noted above, the McCarran-Ferguson Act was passed to ensure the preeminence of state insurance
regulation. As part of this, the Act included a limited exemption for the business of insurance from federal
antitrust laws for certain activities that are regulated by the states. The Act, and subsequent case law,
have established three requirements for the limited antitrust exemption to apply:
1. The activity in question must fall within the business of insurance.
2. The activity must be regulated by state law.
3. The activity must not involve boycott, coercion, or intimidation.
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Federal antitrust laws do apply to the business of insurance to the extent that it is not regulated by the
state, and the Act does not in any way exempt the business of insurance from state antitrust laws.
Therefore, the limited antitrust exemption provided in McCarran-Ferguson does not act to restrain
competition or increase costs for insurance consumers, because state insurance laws, unfair trade practice
laws, and antitrust laws apply to insurers. Before and since the passage of McCarran-Ferguson, state
insurance regulation has fostered robust, consumer-centric, and competitive insurance markets.
III.
The McCarran-Ferguson limited antitrust exemption allows insurers to operate in a more
efficient manner and repealing the exemption may decrease market competition and
discourage future market entrants.
The Big “I” believes that removing the limited antitrust exemption would reduce competition in the
insurance industry, resulting in less choice and higher costs for insurance buyers. In fact, a 2010 report by
the Congressional Research Service confirmed the pro-competitive nature of the McCarran-Ferguson Act,
stating that efforts to further limit the law’s antitrust provisions could lead to less competition,
undercutting the fundamental purpose of federal antitrust laws.1 Furthermore, at least two reports from
the Congressional Budget Office (CBO) have found that removing the antitrust exemption for the health
insurance industry would have no significant effect on the premiums that private insurers charge for
health insurance.2
One of the main benefits of the McCarran-Ferguson limited antitrust exemption is to allow insurers to
share information on insurance losses so that the insurance industry as a whole is better able to project
future losses and charge actuarially-based prices for their products. The ability to pool data enhances
market competition by giving small insurers access to large data sets that are needed to statistically rate
insurance products. The exemption gives small and midsized insurers the ability to accurately price risk,
thereby enabling them to compete against each other and large insurers for the benefit of consumers. As
such, repealing the exemption could make it more difficult for new small or medium-sized insurance
companies to enter the market in the future, because they may not be able to access the data needed to
develop actuarially-sound rating models.
IV.
Repealing the McCarran-Ferguson limited antitrust exemption for health insurance is
unlikely to solve market consolidation issues in health insurance.
Following the enactment of the Patient Protection and Affordable Care Act in March 2010, consolidation
has undoubtedly occurred in the health insurance sector. However, this consolidation is not a result of
McCarran-Ferguson. The limited antitrust exemption provided in McCarran-Ferguson does not bar the
federal government from regulating the insurance industry entirely. The Federal Trade Commission and
the Department of Justice are still responsible for antitrust enforcement involving mergers and
acquisitions, despite McCarran-Ferguson. In fact, earlier this month the merger of two major health
insurance companies, Anthem and Cigna, was blocked after the Justice Department concluded that the
deal would reduce competition in the health insurance market and raise prices. Therefore, repealing the
limited antitrust exemption would not slow or end market consolidation in the health insurance arena. As
1
See, “Limiting McCarran-Ferguson Act’s Antitrust Exemption for the ‘Business of Insurance’: Impact on Health
Insurers and Issuers of Medical Malpractice Insurance,” CRS Report (March 2, 2010).
2
See, CBO’s cost estimate for H.R. 3596, the Health Insurance Industry Antitrust Enforcement Act of 2009 (October
23, 2009), and CBO’s preliminary analysis of H.R. 3962, the Affordable Health Care for America Act, as introduced
on (October 29, 2009).
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noted above, before and since the passage of McCarran-Ferguson, state insurance regulation has fostered
robust, consumer-centric, and competitive insurance markets.
V.
The McCarran-Ferguson limited antitrust exemption is of vital importance for property and
casualty markets, and IIABA appreciates that H.R. 372 acknowledges this.
The McCarran-Ferguson limited antitrust exemption is important to the insurance industry as a whole;
however, it is particularly important to the property and casualty insurance market. Consequently, the
association greatly appreciates that H.R. 372 has been drafted specifically not to apply to (1) the business
of life insurance (including annuities); (2) the business of property or casualty insurance; and (3) excepted
benefits as defined in relevant part by 26 U.S.C. 9832(c), including but not limited to accident, disability
and liability coverages, workers compensation insurance, insurance coverages where medical coverages
is a secondary benefit, specific illness and disease coverages, and long-term care insurance.
The property and casualty industry is a highly competitive marketplace, with thousands of small, medium,
and large insurance companies operating across the country. Repeal of the McCarran-Ferguson limited
antitrust exemption in its entirety would reduce competition and likely increase the cost of insurance for
consumers by reducing market efficiencies. The exemption allows insurers to pool data giving small and
midsized insurers that would otherwise not have the resources to accurately price their products the
ability to do so. In the property and casualty market in particular, small and midsized insurers are an
important source of competition for larger national insurers. This competition benefits the consumer.
Additionally, the ability to pool data is particularly important for certain high-risk or emerging markets,
such as cyber insurance or private flood insurance, because the threat of antitrust litigation would likely
make insures unwilling to share data in areas where data sharing is vital to market development.
Finally, the limited antitrust exemption also allows for coordination on the development of policy forms.
The development of standard policy forms is important for insurance consumers because it enables the
consumer to work with their insurance agent or broker to make informed purchase decisions by
comparison shopping across the market.
VI.
Conclusion
The Big “I” understands and appreciates the intent of H.R. 372 to help foster a more competitive
environment for health insurance. IIABA believes that competitive insurance markets, across all lines of
insurance, are vital for consumers. However, as explained in our testimony, IIABA is not convinced that
the partial repeal of this very narrow antitrust exemption would achieve the outcome of increased
competition in health insurance markets. In fact, it may serve to limit future entrants to the market. That
said, the association greatly appreciates that H.R. 372 has been drafted to specifically exclude all forms of
insurance outside of health insurance. IIABA believes that the McCarran-Ferguson limited antitrust
exemption is vital in order to maintain competitive state property and casualty insurance markets.
Furthermore, the exemption is extremely important for high-risk and emerging markets. The Big “I”
appreciates the opportunity to express its views and thanks the Committee for holding this important
hearing.
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