Group Life & Health Ins. Co. v. Royal Drug Co., Inc.
440 U.S. 205 (1979)

Annotate this Case

U.S. Supreme Court

Group Life & Health Ins. Co. v. Royal Drug Co., Inc., 440 U.S. 205 (1979)

Group Life & Health Insurance Co. v. Royal Drug Co., Inc.

No. 77-952

Argued October 11, 1978

Decided February 27, 1979

440 U.S. 205

Syllabus

Petitioner Blue Shield, a Texas insurance company, offers policies that entitle the insured to obtain prescription drugs. The insured may obtain the drugs from a pharmacy participating in a "Pharmacy Agreement" with Blue Shield (in which case the insured must pay only $2 for every prescription drug, with the remainder of the cost being paid directly by Blue Shield to the participating pharmacy) or from a nonparticipating pharmacy (in which case the insured pays the full price and may be reimbursed by Blue Shield for 75% of the difference between that price and $2.) Blue Shield offered to enter into a Pharmacy Agreement with each licensed pharmacy in Texas, the participating pharmacy to agree to furnish Blue Shield policyholders prescription drugs at $2 each, with Blue Shield to agree to reimburse the pharmacy for its cost in acquiring the drug. Respondents, nonparticipating pharmacies, brought this antitrust action alleging that Blue Shield and three participating pharmacies, also petitioners, had violated § 1 of the Sherman Act by entering into agreements fixing the retail prices of drugs and that petitioners' activities had caused Blue Shield policyholders to boycott certain respondents. The trial court granted petitioners summary judgment on the ground that the agreements are exempt from the antitrust laws under § 2(b) of the McCarran-Ferguson Act (Act), because the agreements are the "business of insurance," are regulated by Texas, and are not boycotts within the meaning of the Act. The Court of Appeals reversed.

Held: The Pharmacy Agreements are not the "business of insurance" within the meaning of § 2(b). Pp. 440 U. S. 211-233.

(a) Section 2(b) exempts the "business of insurance," not the "business of insurers." Pp. 440 U. S. 210-211.

(b) A primary element of an insurance contract is the underwriting or spreading of risk, SEC v. Variable Annuity Life Ins. Co.,359 U. S. 65, but that element is not involved in the Pharmacy Agreements, which are merely arrangements for the purchase of goods and services by Blue Shield, enabling it to effect cost savings. Pp. 440 U. S. 211-215.

Page 440 U. S. 206

(e) The Pharmacy Agreements involve contractual arrangements between Blue Shield and the pharmacies, not its policyholders. Pp. 440 U. S. 215-217.

(d) The legislative history of the Act confirms the conclusion that the "business of insurance" was understood by Congress to involve the underwriting of risk and the relationship and transactions between insurance companies and their policyholders, and no legislative intention is disclosed to exempt agreements or transactions between insurance companies and entities outside the insurance industry. Moreover, at the time of the Act's enactment, health care plans such as those of Blue Shield were not considered to constitute insurance at all, and it is difficult to assume that Congress, contrary to that contemporary view, could have considered such plans to be the "business of insurance" within the meaning of the Act. Even if Congress did consider certain aspects of such plans to be the "business of insurance," however, it still does not follow that the Pharmacy Agreements in this case are within the meaning of that phrase. Pp. 440 U. S. 217-230.

(e) This result is consistent with the principle that exemptions from the antitrust laws are to be construed narrowly. Pp. 440 U. S. 231-233.

556 F.2d 1375, affirmed.

STEWART, J., delivered the opinion of the Court, in which WHITE, BLACKMUN, REHNQUIST, and STEVENS, JJ., joined. BRENNAN, J., filed a dissenting opinion, in which BURGER, C.J., and MARSHALL and POWELL, JJ., joined, post, p. 440 U. S. 233.

Page 440 U. S. 207

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