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McArran Ferguson Act

McArran Ferguson Act

What is the McArran-Ferguson Act?

The McArran-Ferguson Act was passed by Congress in 1945 that exempts the insurance industry from most federal regulations; including anti-trust regulations.  The law does not specifically state that the insurance industry is exempt from any regulation; rather the McArran-Ferguson Act gives the power to the states to determine laws and policies directed towards the insurance industry.

In this way the McArran-Ferguson Act strengthens the 10th Amendment rights concerning states rights with regard to the insurance industry.  The act states that an act of Congress that does not expressly attempt to regulate the insurance business will not preempt state law.  If the federal government enacts a law prohibiting certain actions by “industry” then the insurance industry is exempt because “insurance industry” was not specifically targeted by the law.  The purpose clause of the Act states that the continued taxation and regulation of the business of insurance by states are in the public’s best interest.

What exactly does the act do?

The McArran-Ferguson Act is very long and extensive; the main points are that it:

• partially exempts insurance companies from the federal anti-trust legislation which applies to most businesses

• allows the state to regulate the insurance

• allows states to establish mandatory licensing requirements

• Preserves certain state laws of insurance.


Prior to the enactment of the McArran-Ferguson Act came about over controversy in whether insurance could be regulated by Congress under the commerce clause of the United States Constitution.

The commerce clause is an enumerated power cited in the United States Constitution that gives Congress the power to “regulate commerce with foreign nations, and among the several states, and with Indian tribes.” The commerce clause; in conjunction with the Necessary and Proper clause, allows Congress to regulate interstate commerce.  The clause traditionally takes an expansive view in that almost any act that constitutes the transportation of goods and services between two states can be regulated by the federal government.

The Supreme Court of the United States answered the question of whether the insurance industry fell within the constraints of the Commerce Clause in United States v. South-Eastern Underwriters Association, decided in 1944.  In that case, members of an insurance association were indicted on charges of violating the Sherman Act by fixing rates and monopolizing the insurance business in a six state area. The district court dismissed the indictment on the basis that the insurance industry did not constitute interstate commerce.  On appeal, the Supreme Court reversed, concluding that the question was not whether the insurance industry constituted interstate commerce but whether the commerce clause precluded state regulation.  The Supreme Court concluded that the insurance industry was indeed interstate commerce and was, therefore, subject to the Sherman Anti-Trust Act, and federal regulation.

Response to United States v. South-Eastern Underwriters Association

In response to Unites States v. South-Eastern Underwrites Association the federal government quickly began writing legislation that would specifically exempt insurance companies from federal regulation under the Sherman Anti-Trust Act.  The result was the McCarran-Ferguson Act which provides that state regulation and taxation of the insurance industry is in the public interest ant that congressional silence on the matter does not impose any barrier to the states in enacting regulatory statutes.  It goes on to designate taxing and regulation of insurance to the states and declares that “no federal law shall be construed to invalidate, impair, or supersede any state regulation or taxation of the insurance industry under the federal law.” The federal government still retained the right to regulate under the Sherman Anti-Trust act when an agreement involves “boycott, coercion, or intimidation.”


The controversy associated with the McArran-Ferguson Act has been mounting for decades.  Many complain the act of leaving it to the states to regulate the insurance industry does nothing more than allow for more monopolistic activities.

Some studies have shown that by repealing the McArran-Ferguson Act the cost of insurance premiums

could decrease by up to 10% and many individuals in Congress, essentially Democrats, have noted that a repeal of the McArran-Ferguson Act would result in more competition between insurers which would therefore result in lower premiums and better coverage.

Opponents of the repeal argue that regulation by the federal government, instead of the states, would result in higher premiums and actually create less competition.  They claim that smaller insurers are capable of competing with large insurance companies mainly due to the protections that are afforded them under state laws.  If the protections were lost then the insurers would quickly be absorbed by the larger firms.

How does McArran-Ferguson affect the Patient Protection and Affordable Care Act of 2010?

The discussion of McArran-Ferguson in health care reform begins with the Health Insurance Industry Antitrust Enforcement Act of 2009.  The key provisions of the Health Insurance Industry Antitrust Enforcement Act would repeal the federal antitrust exemption for health insurance and medical malpractice insurance companies for antitrust violations, including price-fixing, bid rigging, and market allocations, and subject health insurers and medical malpractice insurers to the same ant-trust and regulatory laws that apply to other business in the United States. As of this moment the bill has not yet passed and insurance carriers are still not regulated by the federal government.

The McArran-Ferguson Act has come into the national spotlight recently over its applicability to the McArran-Ferguson Act to the Patient Protection and Affordable Care Act of 2010.

The PPACA statutorily makes as a requirement that some health insurance policies and group health plans eliminate certain provisions altogether, for example, lifetime limits on health benefits and the pre-existing condition limitation.  PPACA delegates authority to the Department of Health and Human Services in order to regulate the contents of health insurers’ and plans’ summary of benefits and even the policies themselves.

Is this violative of McArran-Ferguson?  No, McArran-Ferguson has nothing to do with the ability of the federal government to regulate insurance companies.  What McArran-Ferguson does is allow for the states to regulate insurance when the federal government has not enacted statues that specifically designate “insurance industry” in the regulation.

As a result, it is perfectly legal for the federal government to create the health care reform act and require nationwide regulations of the insurance industry.

State regulation

State regulation of health insurers begins with the licensure process, and includes, among other things, ongoing oversight, audits, filing requirements, and solvency standards. State laws and regulations also cover a wide range of health insurer conduct—from what must be covered, to how their networks are formed and maintained, to how their products are priced. These rules often are enforced by the state insurance department, but other state agencies (such as the treasurer, the labor department, the health department, the secretary of state, and the attorney general) also can have oversight responsibilities and enforcement authority.

Many believe that the states are in the best position to regulate the insurance industry, including health insurance. Many find that the state laws are actually more regulatory and prohibitive than the federal regulation would be.  Also, many proponents argue that regulation by state law allows those in charge of regulation to be more informative and able to address issues that may escape the purview of the federal government.  Insurance, many say, is a local issue and should be handled by local interests, i.e. the states.