Monday, February 01, 2010

McCarran - Ferguson Explained and Updated

In an earlier post I gave my views on the talk in Washington about repealing McCarran-Ferguson.

I was called to task by one of our co-bloggers, Mike Feehan, over the source cited and the misspelling of the act. To be honest, when I posted I thought something looked wrong but never bothered to check it out because I was so steamed over the stupidity of those who want to repeal the act. As Mike pointed out, the correct spelling is McCarran, not McCrarran.

He also elaborated, in much less emotional fashion, on what the act really means. Here is his take.

McCarran-Ferguson was enacted primarily to maintain each state’s right to regulate insurance issued for its residents. The limited anti-trust exemption under McCarran-Ferguson leaves intact the states’ duty to regulate insurance.

And, in effect, this prohibits the sale of insurance “across state lines.” For example, a policy cannot be sold – or bought - in Florida unless the Florida insurance commissioner has approved it, and unless it contains all of Florida’s benefit mandates and other policy requirements. In effect, this permits the states to load up on mandates however they choose, and drive up the cost of insurance for everyone in their state however they choose, and so treat their residents like
the captive market that in fact McCarran-Ferguson makes of them.

There is a lot of talk today about the need for more insurance company competition that would reduce premiums by permitting insurers to sell policies “across state lines”. And clearly the reason this has not been done already, is that it cannot legally be done; the federal law, McCarran-Ferguson, does not allow it. We have met the enemy and, as so often, it's Congress.

Complete repeal of McCarran-Ferguson would remove the limited exemption from federal antitrust regulation this law requires for the insurance industry . It would of course pave the way for complete federal regulation of insurance. And this would have other ripple effects for example significant modification, or perhaps repeal, of ERISA, not to mention libraries full of state insurance law.

This last point is where we part ways . . .

I favor interstate sales of insurance as a means to stoke competition among insurers (and among states too, by the way) but I do not believe that complete repeal of McCarran-Ferguson is necessary to achieve that goal. However, those who favor complete federal regulation of insurance do favor complete repeal of McCarran-Ferguson, and have for many years. I trust them even less than I trust your source on McCarran-Ferguson.

It is my belief that allowing sales across state lines will do nothing to increase competition any more than artificially stimulating the grocery market in order to encourage Kroger to change their ways of doing business in markets where they are already dominant.
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