Competition and Regulation in the Insurance Sector: Reassessing the McCarran-Ferguson Act

This article was presented at a symposium entitled “Public and Private: Are the Boundaries in Transition?” sponsored by the American Antitrust Institute on June 24, 2010. It proposes a different paradigm, which more precisely describes regulation and competition in the insurance sector. This relationship is the shifting boundary between state and federal regulation instead of a boundary between the public and private sectors. The McCarran-Ferguson Act was adopted to protect firms acting in the business of insurance from federal antitrust scrutiny, but its language and impact goes far beyond federal competition law. So broad is the exemption that the modern effect of the Act only incidentally concerns antitrust. Fundamentally, the Act reifies the boundaries between federal and state power; it is, at base, an allocation of power and an affirmation of the federalism paradigm. In this sector, the distinction is between different manifestations of public power rather than the distinction between public and private power. Moreover, the defense of the antitrust boundaries is a skirmish, not the subject of the main purpose of the McCarran-Ferguson Act, which is, as ever, federalism. My provisional conclusions are as follows: the antitrust exemption is unnecessary, but even if it were eliminated, it would have protected little. Reverse preemption, which could be viewed as mere mischief, an unintended consequence, is, in fact, at the heart of this model and exposes the points of the Act: preservation of the boundaries, allocation of power, and deference among the states and federal government. This Article discusses, first, the antitrust immunity aspect of the McCarran-Ferguson Act, including the asserted justification for the exemption and whether it is required in the era of modern antitrust interpretation. Next, it discusses proposed legislative repealers and reasons for their failure, and offers comparative examples of competition and exemption in the insurance sector from the European Union. Finally, it concludes by returning to first principles, which reach more broadly than antitrust and implicate the structure of federal and state authority