Citizens for a Just Government advocates a full repeal of Federal McCarran Ferguson Act legislation for all insurance industry sectors.
The 1945 McCarran Ferguson Act transferred insurance industry regulatory oversight from the Federal government to states; fragmenting the industry, breaking up insurers’ ability to spread costs over national risk pools, and blocking interstate commercial flow.
To facilitate unfettered interstate competition, CJG urges Federal authorities to establish a national insurance regulatory framework in its place, in accordance with the Federal Government’s Constitutional, court-affirmed responsibility to oversee interstate commerce.
CJG recognizes that free markets are the keystone of a healthy economy, and by extension a free and open democracy. CJG advocates for the least-fettered flow of goods, services and labor to maximize economic benefits across the board.
The Federal Government’s abrogation of interstate commerce authority over the insurance industry has resulted in the very problem which that authority exists to prevent: a fragmented market that works to the benefit of industry, at the expense of consumers.
CJG supports repealing McCarran Ferguson as a first step towards the Federal government reassuming its appropriate Constitutional responsibility to ensure competitive, Federally-overseen insurance markets, nationwide.
In the absence of a full repeal, CJG supports HR 372, which would roll back part of the health insurance industry’s exemption from Federal anti-trust oversight.
By Deborah Nelson, Director, Policy and Communications/Citizens for a Just Government
As health costs continue to squeeze middle class America, Federal policymakers are renewing focus on cross-state insurance sales as a way to improve access and affordability.
President Donald Trump made interstate markets a central part of his campaign. Trump and Vice President Mike Pence predict that “allow[ing] Americans to purchase health insurance across state lines” will increase competition and reduce consumer costs.
But the prospect of interstate insurance competition poses fundamental questions about who will regulate it and how expanding markets might impact costs and quality of care.
Why can’t we buy insurance across state lines?
What’s preventing cross-state sales now?
The answer is state regulation. Or more precisely, 56 different systems of state and territory regulation. Most of which disallow insurance policies from other states.
The Federal government doesn’t forbid cross-state sales. In fact, Congress washed their hands of the whole issue in 1945, with legislation called The McCarran Ferguson Act, which passed insurance regulatory oversight to states.
Now, to allow interstate insurance commerce; either states would have to agree on common regulatory standards and reciprocity terms or the Federal government would have to take back oversight authority, overrule state laws, and regulate insurance from Washington.
The U.S. Constitution’s Commerce Clause says they can do that.
The Clause delegates authority over multi-state commercial activity to the Federal government. That power is intended to prevent states from slowing the free flow of economic activity to benefit themselves.
In America’s early years, courts held that insurance was not a form of commerce for the purposes of Federal oversight.
But in 1944, in an insurance industry fraud case called United States v. South-Eastern Underwriters Association, the Supreme Court ruled that insurance does, in fact, fall under interstate commerce authority.
A year later, Congress exempted “the business of insurance” from Federal commerce oversight through the McCarran Ferguson Act. In effect, Congress declined to regulate insurance at the national level, and declared that:
“The business of insurance, and every person engaged therein, shall be subject to the laws of the several States which relate to the regulation or taxation of such business.”
The McCarran Ferguson Act also exempts the insurance industry from Federal antitrust laws to the extent they’re already regulated by the particular state in which they reside. It does retain Federal authority to prosecute anti-competitive behavior that involves boycott, coercion or intimidation.
Through McCarran Ferguson, Congress issued a declaration of intent:
“Congress hereby declares that the continued regulation and taxation by the several States of the business of insurance is in the public interest, and that silence on the part of the Congress shall not be construed to impose any barrier to the regulation or taxation of such business by the several States.”
That doesn’t mean Congress gave up authority to pass Federal insurance laws. In fact, they’ve passed a number since, including Obamacare rules.
It simply states that only Federal laws that specifically apply to the business of insurance will supersede state law.
Generic laws, like nonspecific racketeering legislation, don’t apply to insurance companies as long as there’s a state law in place that does.
What Congress signaled with McCarran Ferguson is that although they can regulate the insurance industry, they generally don’t intend to. And in the face of that “silence,” state laws stand.
Indeed, Congress has since gone out of its way to make sure some Federal laws that touch on insurance don’t overlap state authority.
The 1974 Federal Employee Retirement Income Security Act (ERISA) includes preemption language that supersedes state employee benefit plan laws, but specifically carves out a McCarran Ferguson-mandated exception for the “business of insurance.” This created two different oversight standards for employer sponsored private insurance health plans versus company “self-funded” ones, because self-funded plans are not insurance companies for the purposes of the law, and thus don’t fall under McCarran Ferguson’s exception. Larger companies are more likely to afford self-funded plans that bypass state health insurance regulation, which may make their plans less expensive than those purchased by smaller firms and individuals.
Even Obamacare negotiations ultimately rejected full Federal insurance industry oversight.
McCarran Ferguson applies to all types of insurance.
Despite recent calls for health insurance to be as “obtainable across state lines as auto coverage;” in fact, property, life, casualty and other forms of insurance fall under the same state-level authority as health coverage.
Insurance companies must typically register with each state in which they want to do business. Large holding companies like Aetna, Geico and Prudential establish state-specific subsidiaries to do business in each jurisdiction. Some smaller, independent companies operate out of their respective state only.
In each state, the insurance industry must meet that government’s regulatory standards. Some kinds of insurance policies, however, are easier to transfer between states. Auto insurance may just require a change of residence form and small coverage adjustments.
Health insurance is a different issue, because of the local nature of hospital, doctor and other kinds of care, and the provider networks insurers set up to accept their policyholders.
What would McCarran Ferguson Repeal Do?
The U.S. House, March 23, 2017, passed a bill (HR 372) to repeal part of McCarran Ferguson. The bill is currently sitting in the Senate Judiciary Committee.
HR 372 would only repeal the antitrust exemption for health insurance – it wouldn’t affect property, casualty or other kinds of coverage.
Those kinds of insurance would remain exempt from Federal antitrust laws. And HR 372 only repeals parts of the exemption. It includes several provisions that maintain industry rights to share some kinds of statistical information.
It’s not clear how HR 372 would impact the health insurance market. The nonpartisan Congressional Budget Office predicts it would have little effect on policy prices.
Nor is it obvious how repealing McCarran Ferguson (albeit only partially) might affect interstate insurance competition or the establishment of national risk pools. Repeal, in and of itself, wouldn’t impose any insurance-specific new Federal regulation or negate existing state laws. Absent new Federal rules, current state regulation would still apply to insurance companies within each jurisdiction’s boundaries. Presumably, the only exceptions would be, depending on how far McCarran Ferguson was repealed, any state level anti-trust laws that would now conflict with the Federal ones that were the specific object of McCarran Ferguson to begin with.
Solving the issue of multiple regulatory jurisdictions will almost certainly require some combination of regulatory cooperation at the state level, or new Congressional “preemption” legislation to supersede State insurance laws with a new Federal framework.
To reemphasize, repealing McCarran Ferguson would not, in and of itself, negate State regulation. The 1944 Supreme Court decision ruled that insurance could be regulated by the Federal government, i.e., it falls under Interstate Commerce authority. It did not say that states could not regulate in the absence of applicable Federal rules.
Repealing McCarran Ferguson absent a new Federal framework, a fragmented regulatory system would still exist.
Who would Regulate Interstate Insurance Sales?
Since the ostensible point of expanding markets is to increase consumer choice, presumably the regulatory structure best suited to facilitate competition would provide the optimum oversight.
Regulation tends to be a dirty word with free market advocates, but it’s important to emphasize that the point of antitrust laws is to ensure competition. Indeed, it was an insurer price fixing case that prompted the Supreme Court to affirm the industry falls under Federal authority in the first place. When Congress subsequently passed responsibility for antitrust policing to states; it was with the understanding that they’d create their own antitrust oversight.
Over the years, a number of iterations between federal, state and combined regulatory authority have been proposed to oversee an interstate-oriented industry.
Interstate Compact: States voluntarily join a multi-state entity that sets uniform industry product standards that apply in all member states. A prototype called the Interstate Insurance Product Regulation Commission already exists, with 45 states joined to date. The IIPRC covers “asset-based insurance products, including individual and group life insurance, annuities, disability income, and long-term care insurance,” per the NAIC. Obamacare (Section 1333 – p 88) also provides for interstate compacts.
Reciprocity/Cross-Licensing: Five states currently allow out-of-state insurance sales. Eighteen considered similar legislation before Obamacare was enacted, and thirteen have considered it since.
Federal Exchanges: Obamacare includes Federal exchanges for individual health policies, but they’re run out of individual states. The Office of Personnel Management runs a “multi-state plan” program that aims to offer plans that are the same in several states, but not necessarily portable or interstate. Only Blue Cross currently offers a multi-state plan on the Obamacare exchange.
Universal Federal Employees Health Benefits Plan Eligibility: Congressman Darrell Issa (R – San Diego CA) proposed this in January 2017. It would allow any American to enroll in the Federal Employee Health Benefits program, administered by the Federal Office of Personnel Management. The program offers a range of insurance providers and policies, and operates like a Federal exchange. FEHB plans are not subject to state regulation.
Federal Oversight: a Federal Insurance Office, established by Dodd-Frank financial industry reform, already exists. It does not have regulatory powers, but monitors financial stability in all industry sectors except health insurance. Full insurance industry oversight would likely entail additional Federal authority and a national regulatory framework. Congress would have to repeal McCarran Ferguson, to negate its delegation of authority to states and establish an alternative regulatory framework in Washington.
Universal Medicare: A single-payer option that would place all Americans into Medicare primary health coverage, currently funded by taxes and premium payments. Insurance companies may still sell supplemental policies in the private market.
Insurance Industry Choice: The Federal government would establish an Office of National Insurance within the Treasury Department. Companies would have the option to choose Federal or State licensing and regulatory oversight. The National Insurance Act of 2006, which would have established a Federal agency to oversee nationally chartered insurance companies, died in committee.
Association Health Plans: Allow small employer groups and individuals to join together to buy group insurance. Proponents suggest expanding rules to allow a range of professional and other groups to buy group policies. Because plans are typically based in one state, while group members may live in other states, AHPs technically introduce a form of interstate sales.
CJG advocates a full repeal of McCarran Ferguson legislation for all industry sectors, and establishment of a Federal regulatory framework in its place.
Media Advisory: April 21, 2017
CJG urges lawmakers to abolish Triumph Gulf Coast and disburse BP damages directly to local governments
Citizens for a Just Government urges Florida’s legislature to abolish Triumph Gulf Coast and divide 75% of the total damages awarded to Florida between counties and municipalities in the eight disproportionately affected counties referenced in Florida Statute 288.8012, allocated by population size.
In its role as custodian of “other people’s money,” government is inherently susceptible to fraud, waste and abuse. Tracking taxpayer money is a key part of Citizens for a Just Government’s ethical oversight mission.
Triumph Gulf Coast’s distance from local economic conditions and its reliance on a political appointee Board, which includes officials from a monopoly power company with its own vested interests; exacerbates the potential for fraud, waste and abuse.
The original settlement included no stipulation that a third party receive or allocate the money.
CJG thus opposes funneling any funds through Triumph and urges legislators to ensure maximum effectiveness by distributing damages directly to the officials already vested with authority over economic improvement and diversification decisionmaking by the affected populations in question.
Citizens for a Just Government is a grassroots advocacy organization, formed in response to increasingly evident institutional corruption in local, state and national government.
Our mission is to investigate, challenge and present solutions to public ethics problems that, if left unchecked, threaten to compromise a just democracy that serves all citizens equitably
Citizens for a Just Government opposes Gulf Power rate hike
Citizens for a Just Government opposes Gulf Power’s proposed base rate hike, and supports any efforts by Florida’s Public Counsel to lower the company’s base rate instead.
Tracking taxpayer money is a key part of Citizens for a Just Government’s ethical oversight mission. In its role as custodian of “other people’s money,” government is inherently susceptible to fraud, waste and abuse. Ill-used revenues can become a self-perpetuating problem that will eventually grow government to unsustainable levels.
As a government-sponsored monopoly, Gulf Power enjoys many of the benefits of a government agency, such as a captive customer base; but escapes the responsibilities, such as transparent recordkeeping, open meetings and public accountability, of government entities.
According to Florida’s Public Counsel, Gulf Power is requesting the rate increase to cover unnecessary costs for which the company is not accountable to ratepayers; including excessive profits, Georgia-based Scherer Coal Plant expenses, salary and benefit overages and excessive payments to Gulf Power’s parent company, Southern Company.
CJG objects to Gulf Power raising rates to cover unmerited expenses.
CJG supports a government that imposes the least constraint on individual, entrepreneurial, and property rights freedoms.
Solar power allows citizens to bypass Public Service Commission utility monopoly rate hike approval, thereby reducing government control over individual energy consumption.
According to the Public Service Commission, in December 2015, Gulf Power saw a 1.25% increase in customers for the year; but a 1.15% decrease in average annual energy consumption; which suggests customers are using less energy per capita.
It’s clear that Gulf Power is requesting the base rate hike to ensure customers who conserve energy and use alternative forms of power don’t cut into the company’s bottom line. In effect, the rate hike would reward customers who use more energy at the expense of those who conserve.
Citizens for a Just Government opposes any taxing above and beyond the minimum needed to support the least amount of government necessary. Debt creates a burden hard-working citizens inevitably end up having to cover.
In the case of Gulf Power’s quasi-governmental operation; it’s clear that the company is raising rates to pay for a Georgia power generating plant that they have not demonstrated is the most cost-effective option to provide local power. The Georgia plant would also place responsibility for future environmental cleanup costs on the shoulders of local customers, who do not participate in purchasing and operations decisions.
Citizens for a Just Government recognizes that free markets are the keystone of a healthy economy, and by extension a free and open democracy. CJG opposes crony capitalism and avenues of government interference that rig the free market by “picking winners and losers.”
Despite the fact that they operate as a nominally “private sector” company, Gulf Power had the highest residential base rate of all Florida municipal and investor-owned utilities as of December 2015, per the Public Service Commission.
For that reason, CJG supports efforts, as described by Florida’s Public Counsel, to reduce Gulf Power’s rates, rather than increase them.
Citizens for a Just Government opposes Amendments 1 and 2; and supports Amendments 3 and 5 on the November 8 ballot.
CJG advocates adherence to original Constitutional principles and checks & balance-based government process to ensure a system that works for citizens instead of the other way around.
Florida’s Constitution is intended to set down basic governmental principles on which laws are based. Amendments 1 and 2 address issues that more appropriately fall under the purview of Florida’s Legislature.
Amendment 1 deals with power customers’ relative subsidization of grid costs, a matter of regulatory authority. Amendment 2 addresses the sale and distribution of a substance that is illegal under Federal law – a decriminalization issue that falls under Florida lawmakers’ purview.
CJG urges Florida lawmakers to carry out their elected responsibility to address all issues that impact their constituents in a thorough and timely manner.
CJG supports Amendments 3 and 5.
Amendment 3: Citizens for a Just Government opposes any taxing above and beyond the minimum needed to support the least amount of government necessary. CJG agrees with legislators that disabled first responders merit a property tax exemption if legislators so choose to enact one.
Amendment 5: Citizens for a Just Government opposes any taxing above and beyond the minimum needed to support the least amount of government necessary. CJG agrees that this measure is necessary to ensure that low income seniors don’t lose tax exemptions they already qualify for if their homes increase in assessed value.