THE MCCARRAN-FERGUSON ACT AND REVERSE PREEMPTION PART V

THE MCCARRAN-FERGUSON ACT AND REVERSE PREEMPTION PART V

Part I | Part II | Part III | Part IV

By: Alex Martin

Current Issues Surrounding the McCarran-Ferguson Act

In 2010, the PPACA was signed into law.[1]  The PPACA was enacted with the goals of increasing the quality and affordability of health insurance, lowering the uninsured rate by expanding public and private insurance coverage, and reducing the costs of healthcare for individuals and the government.[2]  The PPACA marks the first federal law to comprehensively regulate the business of insurance since the enactment of the McCarran-Ferguson Act in 1945.[3]

The first prong of the McCarran-Ferguson Act—whether the federal statute at issue does not specifically relate to the business of insurance—makes it clear that the PPACA does not interfere with the McCarran-Ferguson Act—the PPACA specifically relates to the business of insurance.[4]  Prior case law supports the above conclusion.[5]

The PPACA suggests, at a minimum, that the federal government is now willing to comprehensively regulate the business of insurance.  As such, the McCarran-Ferguson Act and the states’ ability to regulate the insurance industry without federal intervention well may be on their way to becoming relics of the past.  Of course, this is an extreme end of the spectrum of possibilities.  The PPACA may very well be a one-time comprehensive regulation of the business of insurance by the federal government.  Only time will tell.

 Conclusion

The McCarran-Ferguson Act was passed to ensure that the states alone had the power to tax and regulate the insurance industry within their respective borders, absent specific congressional intent to the contrary.  The FAA, on the other hand, was passed to place arbitration agreements upon the same footing as other contractual agreements, thereby ensuring the enforceability of agreements to arbitrate.  However, the McCarran-Ferguson Act allows states to avoid the FAA’s application to insurance disputes.  So long as a state adopts a statute that affirmatively prohibits or restricts mandatory arbitration in the context of insurance disputes, the state statute almost certainly reverse preempts the FAA via the McCarran-Ferguson Act.

Nonetheless, by enacting the PPACA, the federal government has recently displayed a willingness to comprehensively regulate the business of insurance.  As such, the McCarran-Ferguson Act and the states’ ability to tax and regulate the insurance industry within their respective borders without federal intervention may very well be on their way to becoming relics of the past.  The times they are a-changin’.