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
MR. JUSTICE STEWART delivered the opinion of the Court.
The respondents, 18 owners of independent pharmacies in San
Antonio, Tex., brought an antitrust action in a Federal District
Court against the petitioners, Group Life and Health Insurance Co.,
known as Blue Shield of Texas (Blue Shield), and three pharmacies
also doing business in San Antonio. The complaint alleged that the
petitioners had violated § 1 of the Sherman Act, 15 U.S.C. § 1, by
entering agreements to fix the retail prices of drugs and
pharmaceuticals, and that the activities of the petitioners had
caused Blue Shield's policyholders not to deal with certain of the
respondents, thereby constituting an unlawful group boycott. The
trial court granted summary judgment to the petitioners on the
ground that the challenged agreements are exempt from the antitrust
laws under § 2(b) of the McCarran-Ferguson Act, 59 Stat. 34, as
amended, 61 Stat. 448, 15 U.S.C. § 1012(b), because the agreements
are the "business of insurance," are "regulated by [Texas] law,"
and are not "boycott" within the meaning of § 3(b) of the Act, 59
Stat. 34, 15 U.S.C.
Page 440 U. S. 208
§ 1013(b). [
Footnote 1]
415 F.
Supp. 343 (WD Tex.). The Court of Appeals for the Fifth Circuit
reversed the judgment. Holding that the agreements in question are
not the "business of insurance" within the meaning of § 2(b), the
appellate court did not reach the other questions decided by the
trial court. 556 F.2d 1375. We granted certiorari because of
inter-circuit conflicts as to the meaning of the phrase "business
of insurance" in § 2(b) of the Act. [
Footnote 2] 435 U.S. 903.
Page 440 U. S. 209
I
Blue Shield offers insurance policies which entitle the
policyholders to obtain prescription drugs. If the pharmacy
selected by the insured has entered into a "Pharmacy Agreement"
with Blue Shield, and is therefore a participating pharmacy, the
insured is required to pay only $2 for every prescription drug. The
remainder of the cost is paid directly by Blue Shield to the
participating pharmacy. If, on the other hand, the insured selects
a pharmacy which has not entered into a Pharmacy Agreement, and is
therefore a nonparticipating pharmacy, he is required to pay the
full price charged by the pharmacy. The insured may then obtain
reimbursement from 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. Under the Agreement, a participating
pharmacy agrees to furnish prescription drugs to Blue Shield's
policyholders at $2 for each prescription, and Blue Shield agrees
to reimburse the pharmacy for the pharmacy's cost of acquiring the
amount of the drug prescribed. Thus, only pharmacies that can
afford to distribute prescription drugs for less than this $2
markup can profitably participate in the plan. [
Footnote 3]
Page 440 U. S. 210
The only issue before us is whether the Court of Appeals as
correct in concluding that these Pharmacy Agreements are not the
"business of insurance" within the meaning of 2(b) of the
McCarran-Ferguson Act. If that conclusion is correct, then the
Agreements are not exempt from examination under the antitrust
laws. [
Footnote 4] Whether the
Agreements are illegal under the antitrust laws is an entirely
separate question, not now before us. [
Footnote 5]
II
A
As the Court stated last Term in
St. Paul Fire & Marine
Ins. Co. v. Barry, 438 U. S. 531,
438 U. S. 541,
[
Footnote 6] the starting point
in a case involving construction of the McCarran-Ferguson Act, like
the starting point in any case involving the meaning of a statute,
is the language of the statute itself.
See also Blue Chip
Stamps v. Manor Drug Stores, 421 U. S. 723,
421 U. S. 756
(POWELL, J., concurring). It is important, therefore, to observe at
the outset that the statutory language in question
Page 440 U. S. 211
here does not exempt the business of insurance companies from
the scope of the antitrust laws. The exemption is for the "business
of insurance," not the "business of insurers":
"The statute did not purport to make the States supreme in
regulating all the activities of insurance companies; its language
refers not to the persons or companies who are subject to state
regulation, but to laws 'regulating the
business of
insurance.' Insurance companies may do many things which are
subject to paramount federal regulation; only when they are engaged
in the 'business of insurance' does the statute apply."
SEC v. National Securities, Inc., 393 U.
S. 453,
393 U. S.
459-460. (Emphasis in original.) Since the law does not
define the "business of insurance," the question for decision is
whether the Pharmacy Agreements fall within the ordinary
understanding of that phrase, illumined by any light to be found in
the structure of the Act and its legislative history.
Cf. Ernst
& Ernst v. Hochfelder, 425 U. S. 185,
425 U. S. 199,
and n.19.
B
The primary elements of an insurance contract are the spreading
and underwriting of a policyholder's risk.
"It is characteristic of insurance that a number of risks are
accepted, some of which involve losses, and that such losses are
spread over all the risks so as to enable the insurer to accept
each risk at a slight fraction of the possible liability upon
it."
1 G. Couch, Cyclopedia of Insurance Law § 1:3 (2d ed.1959).
See also R. Keeton, Insurance Law § 1.2(a) (1971)
("Insurance is an arrangement for transferring and distributing
risk"); 1 G. Richards, The Law of Insurance § 2 (W. Freedman 5th
ed.1952). [
Footnote 7]
Page 440 U. S. 212
The significance of underwriting or spreading of risk as an
indispensable characteristic of insurance was recognized by this
Court in
SEC v. Variable Annuity Life Ins. Co.,
359 U. S. 65. That
case involved several corporations, representing themselves as
"life insurance" companies, that offered variable annuity contracts
for sale in interstate commerce. The companies were regulated by
the insurance commissioners of several States. Purchasers of the
contracts were not entitled to any fixed return, but only to a
pro rata participation in the investment portfolios of the
companies. Thus, a policyholder could receive substantial sums if
investment decisions were successful, but very little if they were
not. One of the questions presented was whether these variable
annuity contracts were the "business of insurance" under § 2(b) of
the McCarran-Ferguson Act. [
Footnote 8] The Court held that the annuity contracts were
not insurance, even though they were regulated as such under state
law and involved actuarial prognostications of mortality. Central
to the Court's holding was the premise that "the concept of
'insurance' involves some investment risk-taking on the part of the
company." 359 U.S. at
359 U. S. 71.
Since the variable annuity contracts offered no guarantee of fixed
income, they placed all the investment risk on the annuitant, and
none on the company.
Ibid. The Court concluded, therefore,
that the annuities involved "no true underwriting of risks, the one
earmark of insurance as it has commonly been conceived of in
popular understanding and usage."
Id. at
359 U. S. 73
(footnote omitted).
Cf. German Alliance Ins. Co. v. Lewis,
233 U. S. 389,
233 U. S. 412
("The effect of insurance -- indeed,
Page 440 U. S. 213
it has been said to be its fundamental object -- is to
distribute the loss over as wide an area as possible").
The petitioners do not really dispute that the underwriting or
spreading of risk is a critical determinant in identifying
insurance. Rather, they argue that the Pharmacy Agreements do
involve the underwriting of risks. As they state in their
brief:
"In
Securities and Exchange Commission v. Variable Annuity
Life Insurance Co., 359 U. S. 65,
359 U. S.
73 (1959), the 'earmark' of insurance was described as
the 'underwriting of risks' in exchange for a premium. Here, the
risk insured against is the possibility that, during the term of
the policy, the insured may suffer a financial loss arising from
the purchase of prescription drugs, or that he may be financially
unable to purchase such drugs. In consideration of the premium,
Blue Shield assumes this risk by agreeing with its insureds to
contract with Participating Pharmacies to furnish the needed drugs
and to reimburse the Pharmacies for each prescription filled for
the insured. In short, each of the fundamental elements of
insurance is present here -- the payment of a premium in exchange
for a promise to indemnify the insured against losses upon the
happening of a specified contingency."
The fallacy of the petitioners' position is that they confuse
the obligations of Blue Shield under its insurance policies, which
insure against the risk that policyholders will be unable to pay
for prescription drugs during the period of coverage, and the
agreements between Blue Shield and the participating pharmacies,
which serve only to minimize the costs Blue Shield incurs in
fulfilling its underwriting obligations. [
Footnote 9] The
Page 440 U. S. 214
benefit promised to Blue Shield policyholders is that their
premiums will cover the cost of prescription drugs except for a $2
charge for each prescription. [
Footnote 10] So long as that promise is kept,
policyholders are basically unconcerned with arrangements made
between Blue Shield and participating pharmacies. [
Footnote 11]
The Pharmacy Agreements thus do not involve any underwriting or
spreading of risk, but are merely arrangements for the purchase of
goods and services by Blue Shield. By agreeing with pharmacies on
the maximum prices it will pay for drugs, Blue Shield effectively
reduces the total amount it must pay to its policyholders. The
Agreements thus enable Blue Shield to minimize costs and maximize
profits. Such cost-savings arrangements may well be sound business
practice, and may well inure ultimately to the benefit of
policyholders in the form of lower premiums, but they are not the
"business of insurance." [
Footnote 12]
Page 440 U. S. 215
The Pharmacy Agreements are thus legally indistinguishable from
countless other business arrangements that may be made by insurance
companies to keep their costs low, and thereby also keep low the
level of premiums charged to their policyholders. Suppose, for
example, that an insurance company entered into a contract with a
large retail drug chain whereby its policyholders could obtain
drugs under their policies only from stores operated by this chain.
The justification for such an agreement would be administrative and
bulk purchase savings resulting from obtaining all of the company's
drug needs from a single dealer. Even though these cost savings
might ultimately be reflected in lower premiums to policyholders,
would such a contract be the "business of insurance"? Or suppose
that the insurance company should decide to acquire the chain of
drug stores in order to lower still further its costs of meeting
its obligations to its policyholders. Such an acquisition would
surely not be the "business of insurance."
SEC v. National
Securities, Inc., 393 U. S. 453.
[
Footnote 13]
C
Another commonly understood aspect of the business of insurance
relates to the contract between the insurer and the insured. In
enacting the McCarran-Ferguson Act, Congress was concerned
with:
"The relationship between insurer and insured, the type of
policy which could be issued, its reliability, interpretation,
Page 440 U. S. 216
and enforcement -- these were the core of the 'business of
insurance.' Undoubtedly, other activities of insurance companies
relate so closely to their status as reliable insurers that they
too must be placed in the same class. But whatever the exact scope
of the statutory term, it is clear where the focus was -- it was on
the relationship between the insurance company and the
policyholder."
SEC v. National Securities, Inc., supra at
393 U. S.
460.
The Pharmacy Agreements are not "between insurer and insured."
They are separate contractual arrangements between Blue Shield and
pharmacies engaged in the sale and distribution of goods and
services other than insurance.
The petitioners argue that, nonetheless, the Pharmacy Agreements
so closely affect the "reliability, interpretation, and
enforcement" of the insurance contract, and "relate so closely to
their status as reliable insurers," as to fall within the exempted
area. [
Footnote 14] This
argument, however, proves too much.
At the most, the petitioners have demonstrated that the Pharmacy
Agreements result in cost savings to Blue Shield which may be
reflected in lower premiums if the cost savings are passed on to
policyholders. But, in that sense, every business decision made by
an insurance company has some impact on its reliability, its
ratemaking, and its status as a
Page 440 U. S. 217
reliable insurer. The manager of an insurance company is no
different from the manager of any enterprise with the
responsibility to minimize costs and maximize profits. If terms
such as "reliability" and "status as a reliable insurer" were to be
interpreted in the broad sense urged by the petitioners, almost
every business decision of an insurance company could be included
in the "business of insurance." Such a result would be plainly
contrary to the statutory language, which exempts the "business of
insurance," and not the "business of insurance companies."
III
A
The conclusion that the Pharmacy Agreements are not the
"business of insurance" is fully confirmed by the legislative
history of the McCarran-Ferguson Act. The law was enacted in 1945
in response to this Court's decision in
United States v.
South-Eastern Underwriters Assn., 322 U.
S. 533. The indictment in that case charged that the
defendants had conspired to fix insurance rates and commissions,
and had conspired to boycott and coerce noncooperating insurers,
agents, and insureds. In the District Court, the defendants had
successfully demurred to the indictment on the ground that the
insurance industry was not a part of interstate commerce subject to
regulation under the Commerce Clause. [
Footnote 15] On direct appeal, this Court reversed the
judgment, holding that the business of insurance is interstate
commerce, and that the Congress which enacted the Sherman Act had
not intended to exempt the insurance industry from its
coverage.
B
The primary concern of Congress in the wake of that decision was
in enacting legislation that would ensure that
Page 440 U. S. 218
the States would continue to have the ability to tax and
regulate the business of insurance. [
Footnote 16] This concern is reflected in §§ 1 and 2(a)
of the Act, [
Footnote 17]
neither of which is involved in this case. A secondary concern was
the applicability of the antitrust laws to the insurance industry.
[
Footnote 18] Months
before
Page 440 U. S. 219
this Court's decision in
South-Eastern Underwrites was
announced, proposed legislation to totally exempt the insurance
industry from the Sherman and Clayton Acts had been introduced in
Congress. [
Footnote 19] Less
than three weeks after the actual decision, the House of
Representatives passed a bill which would also have provided the
insurance industry with a blanket exemption from the antitrust
laws, thus restoring the state of law that had existed before the
decision in
South-Eastern Underwriters. [
Footnote 20]
Congress, however, rejected this approach. [
Footnote 21] Instead of a total exemption,
Congress provided in § 2(b) that the antitrust laws "shall be
applicable" unless the activities of insurance companies are the
business of insurance and regulated by state law. Moreover, under §
3(b), the Sherman Act was made applicable in any event to acts of
boycott, coercion, or intimidation. To allow the States time to
adjust to the applicability of the antitrust laws to the insurance
industry,
Page 440 U. S. 220
Congress impose a 3-year moratorium. [
Footnote 22] After the expiration of the moratorium on
July 1, 1948, however, Congress clearly provided that the antitrust
laws would be applicable to the business of insurance "to the
extent that such business is not regulated by State law." [
Footnote 23]
By making the antitrust laws applicable to the insurance
industry except as to conduct that is the business of insurance,
regulated by state law, and not a boycott, Congress did not intend
to and did not overrule the
South-Eastern Underwriters
case. [
Footnote 24] While
the power of the States to tax and regulate insurance companies was
reaffirmed, the McCarran-Ferguson Act also established that the
insurance industry would no longer have a blanket exemption from
the antitrust laws. It is true that § 2(b) of the Act does create a
partial exemption from those laws. Perhaps more significantly,
however, that section, and the Act as a whole, embody a legislative
rejection of the concept that the insurance industry is outside the
scope of the antitrust laws -- a concept that had prevailed before
the
South-Eastern Underwriters decision.
C
References to the meaning of the "business of insurance" in the
legislative history of the McCarran-Ferguson Act
Page 440 U. S. 221
strongly suggest that Congress understood the business of
insurance to be the underwriting and spreading of risk. Thus, one
of the early House Reports stated:
"The theory of insurance is the distribution of risk according
to hazard, experience, and the laws of averages. These factors are
not within the control of insuring companies in the sense that the
producer or manufacturer may control cost factors."
H.R.Rep. No. 873, 78th Cong., 1st Sess., 9 (1943). [
Footnote 25]
See also
S.Rep. No. 1112, 78th Cong., 2d Sess., 6 (1944); 90 Cong.Rec. 6526
(1944) (remarks of Rep. Hancock).
Because of the widespread view that it is very difficult to
underwrite risks in an informed and responsible way without
intra-industry cooperation, the primary concern of both
representatives of the insurance industry and the Congress was that
cooperative ratemaking efforts be exempt from the antitrust laws.
The passage of the McCarran-Ferguson Act was preceded by the
introduction in the Senate Committee of a report and a bill
submitted by the National Association of Insurance Commissioners on
November 16, 1944. [
Footnote
26] The views of the NAIC are particularly significant, because
the Act ultimately passed was based in large part on the NAIC bill.
[
Footnote 27] The report
emphasized that the concern of the insurance commissioners was that
smaller enterprises and insurers other than life insurance
companies were unable to underwrite risks accurately, and it
therefore concluded:
"For these and other reasons, this subcommittee believes it
would be a mistake to permit or require the unrestricted
competition contemplated by the antitrust laws to apply to the
insurance business.
To prohibit combined
Page 440 U. S. 222
efforts for statistical and ratemaking purposes would be a
backward step in the development of a progressive business. We
do not regard it as necessary to labor this point any further,
because Congress itself recently recognized
the necessity for
concert of action in the collection of statistical data and rate
making when it enacted the District of Columbia Fire Insurance
Rating Act."
Id. at A4405 (emphasis added).
The bill proposed by the NAIC enumerated seven specific
practices to which the Sherman Act was not to apply. [
Footnote 28] Each of the specific
practices involved intra-industry cooperative or concerted
activities. None involved contractual arrangements that insurance
companies might make with providers of goods or services to reduce
the costs to the companies of meeting their underwriting
obligations to their policyholders. [
Footnote 29]
Page 440 U. S. 223
The floor debates also focused simply on whether cooperative
ratemaking should be exempt. Thus, Senator Ferguson, in explaining
the purpose of the bill, stated:
"This bill would permit -- and I think it is fair to say that it
is intended to permit -- rating bureaus, because, in the last
session, we passed a bill for the District of Columbia allowing
rating. What we saw as wrong was the fixing of rates without
statutory authority in the States; but we believe that State rights
should permit a State to say that it believes in a rating bureau. I
think the insurance companies have convinced many members of the
legislature that we cannot have open competition in fixing rates on
insurance. If we do, we shall have chaos. There will be failures,
and failures always follow losses."
91 Cong.Rec. 1481 (1945). The consistent theme of the remarks of
other Senators also indicated a primary concern that cooperative
ratemaking would be protected from the antitrust laws.
Id.
at 1444 and 1485 (remarks of Sen. O'Mahoney); 485 (remarks of Sen.
Taft). [
Footnote 30]
President Roosevelt, in signing the bill, also emphasized
Page 440 U. S. 224
that the bill would allow cooperative rate regulation. He stated
that
"Congress did not intend to permit private rate fixing, which
the Antitrust Act forbids, but was willing to permit actual
regulation of rates by affirmative action of the States."
S. Rosenman, The Public Papers and Addresses of Franklin D.
Roosevelt, 1944-1945 Vol., p. 587 (1950). [
Footnote 31] There is not the slightest
suggestion in the legislative history that Congress in any way
contemplated that arrangements such as the Pharmacy Agreements in
this case, which involve the mass purchase of goods and services
from entities outside the insurance industry, are the "business of
insurance." [
Footnote
32]
Page 440 U. S. 225
D
At the time of the enactment of the McCarran-Ferguson Act,
corporations organized for the purpose of providing their
Page 440 U. S. 226
members with medical services and hospitalization were not
considered to be engaged in the insurance business at all, and thus
were not subject to state insurance laws.
E.g., Jordan v. Group
Health Assn., 71 App.D.C. 38, 107 F.2d 239 (1939);
California Physicians' Service v. Garrison, 155 P.2d 885
(Cal.App. 1945),
aff'd., 28 Cal. 2d
790, 172 P.2d 4 (1946);
Commissioner of Banking Insurance
v. Community Health Service, 129 N.J.L. 427, 30 A.2d 44
(1943);
State ex rel. Fishback v. Universal Service
Agency, 87 Wash. 413, 151 P. 768 (1915). [
Footnote 33] Similarly, States which regulated
prepaid health service plans at the time the Act was enacted either
exempted them from the requirements of the state insurance code or
provided that they "shall not be construed as being engaged in the
business of insurance" under state law. Rorem, Enabling Legislation
for Non-Profit Hospital Service Plans, 6 Law & Contemp.Prob.
528, 534 (1939). [
Footnote
34] Since the legislative
Page 440 U. S. 227
history makes clear that Congress certainly did not intend the
definition of the "business of insurance" to be broader than its
commonly understood meaning, the contemporary perception that
health care organizations were not engaged in providing insurance
is highly significant in ascertaining congressional intent.
The
Jordan v. Group Health Assn. case, supra, is
illustrative of the contemporary view of health care plans. Group
Health was organized as a nonprofit corporation to provide various
medical services and supplies to members who paid a fixed annual
premium. To implement the plan, Group Health contracted with
physicians, hospitals, and others, to provide medical services.
These groups were compensated exclusively by Group Health. By
contracting with the various medical groups directly, Group Health
was able to obtain
Page 440 U. S. 228
services at a lower cost than if each member contracted
separately. The plan, therefore, was somewhat similar to the
Pharmacy Agreements in this case. The court in
Group
Health held that this type of arrangement was not
insurance:
"Whether the contract is one of insurance or of indemnity, there
must be a risk of loss to which one party may be subjected by
contingent or future events and an assumption of it by legally
binding arrangement by another. Even the most loosely stated
conceptions of insurance . . . require these elements. Hazard is
essential, and equally so a shifting of its incidence."
"
* * * *"
"Although Group Health's activities may be considered in one
aspect as creating security against loss from illness or accident,
more truly they constitute the quantity purchase of well-rounded,
continuous medical service by its members. Group Health is, in fact
and in function, a consumer cooperative. The functions of such an
organization are not identical with those of insurance or indemnity
companies. The latter are concerned primarily, if not exclusively,
with risk. . . . On the other hand, the cooperative is concerned
principally with
getting service rendered to its members
and doing so at lower prices made possible by quantity purchasing
and economies in operation."
71 App.D.C. at 44, 46, 107 F.2d at 245, 247. (Emphasis supplied
in part; footnotes omitted.) [
Footnote 35]
Page 440 U. S. 229
Indeed, Blue Cross and Blue Shield organizations themselves have
historically taken the position that they are not insurance
companies in seeking to avoid state regulation and taxation.
[
Footnote 36] It is thus
difficult to assume that, contrary to this historical position and
a majority of court decisions, Congress in 1945 understood that
advance-payment medical
Page 440 U. S. 230
benefits plans are the "business of insurance." [
Footnote 37] It is next to impossible to
assume that Congress could have thought that agreements (even by
insurance companies) which provide for the purchase of goods and
services from third parties at a set price are within the meaning
of that phrase. [
Footnote
38]
Page 440 U. S. 231
IV
It is well settled that exemptions from the antitrust laws are
to be narrowly construed.
E.g., Abbott Laboratories v. Portland
Retail Druggists Assn., Inc., 425 U. S.
1;
Connell Construction Co. v. Plumbers &
Steamfitters, 421 U. S. 616;
FMC v. Seatrain Lines, Inc., 411 U.
S. 726;
United States v. McKesson & Robbins,
Inc., 351 U. S. 305.
This doctrine is not limited to implicit exemptions from the
antitrust laws, but applies with equal force to express statutory
exemptions.
E.g., Abbott Laboratories v. Portland Retail
Druggists Assn., Inc., supra at
425 U. S. 11-12
(the Nonprofit Institutions Act);
FMC v. Seatrain Lines, Inc.,
supra at
411 U. S. 733
(§ 15 of the Shipping Act);
United States v. McKesson Robbins,
supra at
351 U. S. 316
(the Miller-Tydings and McGuire Acts).
Application of this principle is particularly appropriate in
this case because the Pharmacy Agreements involve parties wholly
outside the insurance industry. In analogous contexts, the Court
has held that an exempt entity forfeits antitrust exemption by
acting in concert with nonexempt parties. The Court has held, for
example, that an exempt agricultural cooperative under the
Capper-Volstead Act loses its exemption if it conspires with
nonexempt parties.
Case-Swayne Co. v. Sunkist Growers,
Inc., 389 U. S. 384;
United States v. Borden Co., 308 U.
S. 188. Similarly, the Court has consistently stated
that a union forfeits its exemption from the antitrust laws if it
agrees with one set of employers to impose a wage scale on other
bargaining units.
Ramsey v. Mine
Workers,
Page 440 U. S. 232
401 U. S. 302,
401 U. S. 313;
Mine Workers v. Pennington, 381 U.
S. 657,
381 U. S.
665-666. [
Footnote
39]
If agreements between an insurer and retail pharmacists are the
"business of insurance" because they reduce the insurer's costs,
then so are all other agreements insurers may make to keep their
costs under control -- whether with automobile body repair shops or
landlords. [
Footnote 40]
Such agreements
Page 440 U. S. 233
would be exempt from the antitrust laws if Congress had extended
the coverage of the McCarran-Ferguson Act to the "business of
insurance companies." [
Footnote
41] But that is precisely what Congress did not do.
For all these reasons, the judgment of the Court of Appeals
is
Affirmed.
[
Footnote 1]
The Act provides in relevant part:
"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."
"Sec. 2. (a) 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."
"(b) No Act of Congress shall be construed to invalidate,
impair, or supersede any law enacted by any State for the purpose
of regulating the business of insurance, or which imposes a fee or
tax upon such business, unless such Act specifically relates to the
business of insurance:
Provided, That after June 30, 1948,
the Act of July 2, 1890, as amended, known as the Sherman Act, and
the Act of October 15, 1914, as amended, known as the Clayton Act,
and the Act of September 26, 1914, known as the Federal Trade
Commission Act, as amended, shall be applicable to the business of
insurance to the extent that such business is not regulated by
State law."
"Sec. 3. (a) Until June 30, 1948, the Act of July 2, 1890, as
amended, known as the Sherman Act, and the Act of October 15, 1914,
as amended, known as the Clayton Act, and the Act of September 26,
1914, known as the Federal Trade Commission Act, . . . and the Act
of June 19, 1936, known as the Robinson-Patman Anti-discrimination
Act, shall not apply to the business of insurance or to acts in the
conduct thereof."
"(b) Nothing contained in this Act shall render the said Sherman
Act inapplicable to any agreement to boycott, coerce, or
intimidate, or act of boycott, coercion, or intimidation."
59 Stat. 33-34, as amended, 61 Stat. 448.
[
Footnote 2]
The position of the Fifth Circuit is in conflict with that of
the Third, Fourth, and District of Columbia Circuits.
See
Frankford Hospital v. Blue Cross of Greater Philadelphia, 554
F.2d 1253 (CA3 1977);
Anderson v. Medical Service of District
of Columbia, 551 F.2d 304 (CA4 1977);
Proctor v. State
Farm Mutual Automobile Ins. Co., 182 U.S.App.D.C. 264, 561
F.2d 262 (1977).
[
Footnote 3]
The
amicus curiae brief of the United States provides a
useful illustration of the operation of the Pharmacy Agreement:
"Suppose the usual and customary retail price for a quantity of
Drug X charged both by 'participating' Pharmacy A and
'non-participating' Pharmacy B is $10.00, and the wholesale price
(or acquisition cost) to both is $8.00. If an insured buys Drug X
from Pharmacy A, the insured pays $2.00. Pharmacy A receives $2.00
from the insured and $8.00 from Blue Shield, or $10.00 total. If an
insured buys Drug X from Pharmacy B, the insured pays Pharmacy B
$10.00, and receives $6.00 (75 percent of the difference between
the retail price and $2.00) from Blue Shield. While Pharmacy B
receives the same as Pharmacy A, the insured must pay $4.00 for the
drug and also must take steps to obtain reimbursement."
"If the pharmacy's acquisition cost for the drug is $5.00,
rather than $8.00, the situations of Pharmacy B and the insured are
unchanged. But now Pharmacy A will receive only $5.00 from Blue
Shield, for a total of $7.00."
[
Footnote 4]
Even if they are the "business of insurance," the Agreements are
exempt from the antitrust laws only if they are also "regulated by
State law" within the meaning of § 2(b), and not "boycotts" or
other conduct described by § 3(b).
See n 1,
supra. See also St. Paul Fire
& Marine Ins. Co. v. Barry, 438 U.
S. 531.
[
Footnote 5]
It is axiomatic that conduct which is not exempt from the
antitrust laws may nevertheless be perfectly legal. The United
States in its
amicus brief urging affirmance has taken the
position that the Pharmacy Agreements probably do not violate the
antitrust laws, though recognizing that that issue is not presented
here.
[
Footnote 6]
The issue in that case was the meaning of the "boycott"
exception in § 3(b) of the Act. The issue here, the meaning of the
"business of insurance" exemption in § 2(b) of the Act, was not
before the Court.
[
Footnote 7]
Webster's New International Dictionary of the English Language
1289 (unabr.2d ed.1958) defines insurance as:
"Act of insuring, or assuring, against loss or damage by a
contingent event; a contract whereby, for a stipulated
consideration, called a premium, one party undertakes to indemnify
or guarantee another against loss by a certain specified
contingency or peril, called a risk, the contract being set forth
in a document called the policy. . . ."
[
Footnote 8]
The issue in
SEC v. Variable Annuity Life Ins. Co. was
whether the variable annuity contracts were subject to regulation
under the Securities Act of 1933 and the Investment Company Act of
1940. The Court held that the contracts were subject to such
regulation as securities, since they were not "insurance" or
"annuity" policies specifically exempt from the Securities Act, and
because they were not the "business of insurance" within the
meaning of the McCarran-Ferguson Act.
[
Footnote 9]
It is true that some type of provider agreement is necessary for
a service benefit plan to exist. But it does not follow that,
because an agreement is necessary to provide insurance, it is also
the "business of insurance." Assume, for example, that an indemnity
insurer must have a line of credit or other commercial arrangement
with a bank in order to pay off monetary claims. Despite the fact
that the line of credit is "necessary" for the insurer to fulfill
its obligations, it is nevertheless not the "business of
insurance."
[
Footnote 10]
Thus, the benefit promised to Blue Shield policyholders under
the policy is that they "shall be required to pay no more than the
drug deductible for each of such covered drugs."
[
Footnote 11]
As the Court of Appeals stated:
"Blue Shield's policyholders are basically unconcerned with the
contract between the insurer and the Participating Pharmacy. They
are obligated to pay a Participating Pharmacy two dollars ($2.00)
for a prescription regardless of the presence or absence of a
price-fixing arrangement. Thus, by minimizing costs and maximizing
profits, the Participating Pharmacy Agreements inure principally to
the benefit of Blue Shield."
556 F.2d 1375, 1381.
[
Footnote 12]
As the United States points out in its
amicus brief,
there is an important distinction between risk underwriting and
risk reduction. By reducing the total amount it must pay to
policyholders, an insurer reduces its liability and therefore its
risk. But unless there is some element of spreading risk more
widely, there is no underwriting of risk.
[
Footnote 13]
In
National Securities, the Arizona Director of
Insurance approved, pursuant to statute, a merger between two
insurance companies. This Court held, however, that the Arizona
statute was not enacted for the purpose of regulating the "business
of insurance." 393 U.S. at
393 U. S. 460. If a merger between two insurance
companies is not the "business of insurance," then an acquisition
by an insurer of a manufacturer or a retail chain, although
conceptually indistinguishable from the Pharmacy Agreements in this
case, is also not the "business of insurance."
[
Footnote 14]
The petitioners argue that the absence of the Pharmacy
Agreements
"which permit the insured to obtain drugs on the terms and for
the amounts stated in the policies would constitute a breach of the
contract of insurance."
But the benefit Blue Shield provides its policyholders is the
assurance that they can obtain drugs in return for a direct maximum
payment of $2 for each prescription. The Pharmacy Agreements are
separate contractual arrangements between Blue Shield and certain
pharmacists fixing the cost Blue Shield will pay for drugs. The
wholly separate nature of the two categories of agreements is in no
way affected by the fact that the Pharmacy Agreements are
indirectly referred to in the insurance policies.
[
Footnote 15]
Since the leading case of
Paul v.
Virginia, 8 Wall. 168,
75 U. S. 183,
it had been understood that "[i]ssuing a policy of insurance is not
a transaction of commerce."
[
Footnote 16]
S.Rep. No. 20, 79th Cong., 1st Sess., 2 (1945); H.R.Rep. No.
143, 79th Cong., 1st Sess., 2-3 (1945). The problem was that, if
insurance was interstate commerce, then the constitutionality of
state regulation and taxation would be questionable. As the House
Report stated:
"Inevitable uncertainties . . . followed the handing down of the
decision in the
Southeastern Underwriters Association
case. . . . "
"[Y]our committee believes there is urgent need for an immediate
expression of policy by the Congress with respect to the continued
regulation of the business of insurance by the respective States.
Already many insurance companies have refused, while others have
threatened refusal to comply with State tax laws, as well as with
other State regulations, on the ground that to do so, when
such
laws may subsequently be held unconstitutional in keeping with
the precedent-smashing decision in the
Southeastern
Underwriters case, will subject insurance executives to both
civil and criminal actions for misappropriation of company
funds."
Ibid. (Emphasis added.)
[
Footnote 17]
See text of statute at
n 1,
supra.
[
Footnote 18]
There is no question that the primary purpose of the
McCarran-Ferguson Act was to preserve state regulation of the
activities of insurance companies, as it existed before the
South-Eastern Underwriters case. The power of the States
to regulate and tax insurance companies was threatened after that
case because of its holding that insurance companies are in
interstate commerce. The McCarran-Ferguson Act operates to assure
that the States are free to regulate insurance companies without
fear of Commerce Clause attack. The question in the present case,
however, is one under the quite different
secondary
purpose of the McCarran-Ferguson Act -- to give insurance companies
only a limited exemption from the antitrust laws.
The repeated insistence in the dissenting opinion that the
McCarran-Ferguson Act should be read as protecting the right of the
States to regulate what they traditionally regulated is thus
entirely correct -- and entirely irrelevant to the issue now before
the Court.
See n 38
infra. For the question here is not whether the
McCarran-Ferguson Act made state regulation of these Pharmacy
Agreements exempt from attack under the Commerce Clause. It is the
quite different question whether the Pharmacy Agreements are exempt
from the antitrust laws.
In short, the McCarran-Ferguson Act freed the States to continue
to regulate and tax the business of insurance companies, in spite
of the Commerce Clause. It did not, however, exempt the business of
insurance companies from the antitrust laws. It exempted only "the
business of insurance."
See SEC v. National Securities,
Inc., 393 U. S. 453.
[
Footnote 19]
H.R. 3270, 78th Cong., 1st Sess. (1943); S. 1362, 78th Cong.,
1st Sess. (1943). These bills would have provided that nothing in
the Sherman or Clayton Acts
"shall be construed to apply to the business of insurance or to
acts in the conduct of that business or in any wise to impair the
regulation of that business by the several States."
[
Footnote 20]
90 Cong.Rec. 6565 (1944).
[
Footnote 21]
The total exemption bill failed in the Conference Committee
because of a fear that it could not pass in the Senate and, in any
event, would be vetoed by the President. 91 Cong.Rec. 1087 (1945)
(remarks of Rep. Hancock). Also important was the opposition of the
National Association of Insurance Commissioners to a blanket
antitrust exemption. 90 Cong.Rec. 8482 (1944).
[
Footnote 22]
See n 1,
supra. The purpose of the moratorium was to allow the
States three years to take steps to regulate the business of
insurance. 91 Cong.Rec. 1443 (1945) (remarks of Sen. McCarran).
[
Footnote 23]
Ibid. (remarks of Sen. Ferguson); McCarran, Federal
Control of Insurance: Moratorium Under Public Law 15 Expired July
1, 34 A.B.A.J. 539, 540 (1948).
[
Footnote 24]
That Congress did not intend to restore the law to what it had
been before
South-Eastern Underwriters is made
dramatically clear in the following exchange between Senator
McKellar and Senator Ferguson:
"Mr. McKELLAR. As I understand the bill, its purpose and effect
will be to establish the law as it was supposed to be prior to the
rendering of the recent opinion of the Supreme Court of the United
States. Is that correct?"
"Mr. FERGUSON. No."
91 Cong.Rec. 478 (1945).
See also id. at 1444 (exchange
between Sens. Pepper and McCarran).
[
Footnote 25]
The recognition by Congress that the ability to control costs
was not within the ability of insurance companies is further
evidence that the Pharmacy Agreements, which are solely designed to
minimize costs, are not insurance.
[
Footnote 26]
90 Cong.Rec. A4403-4408 (1944).
[
Footnote 27]
91 Cong.Rec. 483 (1945) (remarks of Sen. O'Mahoney).
[
Footnote 28]
90 Cong.Rec. A4406 (1944). This specific list of exempted
activities was not included in the law ultimately enacted.
[
Footnote 29]
The dissenting opinion makes the argument that, because Congress
rejected bills that would have limited the "business of insurance"
to a specific list of insurance company practices, Congress
intended that the exemption it finally enacted be interpreted
"broadly." Precisely the opposite is true.
At the time Congress was considering one of the early versions
of the Act, H.R. 3270, 78th Cong., 1st Sess. (1943), which would
have wholly exempted from the antitrust laws "the business of
insurance or . . . acts in the conduct of that business," an
amendment was introduced which would have exempted specific
activities. 90 Cong.Rec. 6561 (1944). The proponent of the
amendment, Representative Anderson, explained that its purpose was
to provide broader protection than provided by H.R. 3270:
"But I say to this House that some legislation should be passed
which asserts the right of the States to control the questions of
risks, rates, premiums, commissions, policies, investments,
reinsurance, capital requirements, and items of that nature. It is
for that purpose I have insisted upon bringing this at this time to
the attention of the House. If you pass H.R. 3270 as it now stands
and go back home and any of your insurance friends ask you what you
did to safeguard the protection of insurance by the State, you must
answer them in all truth that all you did was to pass a bill which
provided antitrust protection for companies now under
indictment."
The amendment was defeated. 90 Cong.Rec. 6562 (1944).
Thus, Congress rejected an amendment which exempted specific
activities of insurance companies (not including anything remotely
resembling the Pharmacy Agreements in this case) which was
perceived to be broader than H.R. 3270. Since H.R. 3270 was itself
broader than the Act as eventually enacted, it necessarily follows
that the exemption of the Act is narrower than the bills which
would have exempted specific practices. This pattern is consistent
with the entire legislative history of the McCarran-Ferguson Act,
which was characterized by a continual narrowing of the original
blanket exemption.
[
Footnote 30]
The dissenting opinion states that the "compelling explanation"
for the lack of discussion of provider agreements in the
legislative history was the congressional concern about fire
insurance companies.
Post at
440 U. S. 234,
n. 2. However, input from all types of insurance companies was
sought through the Insurance Commissioners of the various States,
"because the Commissioners were aware of the chaotic condition
which exists at the present time." 91 Cong.Rec. 484 (1945) (remarks
of Sen. Ferguson). Moreover, the National Association of Insurance
Commissioners, whose concern was surely not limited to fire
insurance, was certainly aware of provider agreements, since it
drafted model state enabling legislation to govern service benefit
health plans. But this Association, which played a major role in
the drafting of the McCarran-Ferguson Act, did not include provider
agreements in its proposed bill exempting specific practices of
insurance companies from the scope of the antitrust laws. 90
Cong.Rec. A4406 (1944). Given this background, the failure of
Congress to mention provider agreements, or anything in any way
resembling them, suggests that Congress did not intend that
provider agreements were to be exempt.
[
Footnote 31]
The dissenting opinion states that the
National
Securities case recognized that the legislative history of the
Act "sheds little light" on the meaning of the "business of
insurance."
Post at
440 U. S. 234.
In
National Securities, however, the Court went on to
state that the legislative history indicated that
"Congress was mainly concerned with the relationship between
insurance ratemaking and the antitrust laws, and with the power of
the States to tax insurance companies."
393 U.S. at
393 U. S.
458-459.
[
Footnote 32]
One question not resolved by this legislative history is which
of the various practices alleged in the
South-Eastern
Underwriters indictment Congress intended to be covered by the
phrase "business of insurance." The indictment in that case had
charged, for example, that the defendants had fixed their agents'
commissions, as well as premium rates. It is clear from the
legislative history that the fixing of rates is the "business of
insurance." The same conclusion does not so clearly emerge with
respect to the fixing of agents' commissions.
The bills introduced before the
South-Eastern
Underwriters decision which would have totally exempted the
insurance industry from the antitrust laws specifically included
agreements regarding agents' commissions as an exempt practice.
E.g., H.R. 4444, 78th Cong., 2d Sess. (1944). Similarly,
the bill proposed by the National Association of Insurance
Commissioners two months after the
South-Eastern
Underwriters case was decided would have also exempted agents'
commissions. 90 Cong.Rec. A4406 (1944). The subsequent bill that
followed the approach of the NAIC and exempted specific activities,
however, was limited to traditional underwriting activities, and
made no mention of agreements with insurance agents:
§ 4(b).
"On and after March 1, 1946, the provisions of said Sherman Act
shall not apply to any agreement or concerted or cooperative action
between two or more insurance companies for making, establishing,
or using rates for insurance, rating methods, premiums, insurance
policy or bond forms, or underwriting rules. . . ."
S. 12, 79th Cong., 1st Sess. (1945) . One inference that can be
drawn from this pattern is that Congress was aware of the existence
of agreements regarding agents' commissions, and chose not to
include them within the exemption for the "business of insurance."
On the other hand, the fact that the indictment in
South-Eastern Underwriters had included a charge that
insurance companies did boycott agents who insisted on selling
other lines of insurance, together with the fact that § 3(b)
presumably removes an exemption that, but for its absence, would be
conferred by § 2, suggests that the "business of insurance" may
have been intended to include dealings within the insurance
industry between insurers and agents.
Even if it be assumed, however, that transactions between an
insurer and its agents, including independent agents, are the
"business of insurance," it still does not follow that the Pharmacy
Agreements also fall within the definition. Transactions between an
insurer and an agent, unlike the Pharmacy Agreements, are wholly
intra-industry; an insurance agent sells insurance, while a
pharmacy sells goods and services. Moreover, there are historical
reasons why the Pharmacy Agreements should not be considered the
"business of insurance," whatever may be the status of agreements
between an insurer and its agents.
See 440 U.
S. infra.
[
Footnote 33]
The only case to the contrary was
Cleveland Hospital Service
Assn. v. Ebright, 14 Ohio St. 51, 49 N.E.2d 929 (1943). There
have been few cases dealing with the issue since the enactment of
the McCarran-Ferguson Act; most of them have also held that Blue
Cross and Blue Shield plans are not insurance.
See, e.g.,
Michigan Hospital Service v. Sharpe, 339 Mich. 357,
63 N.W.2d
638 (1954);
Hospital Service Corp. v. Pennsylvania Ins.
Co., 101 R.I. 708,
227
A.2d 105 (1967).
[
Footnote 34]
The dissenting opinion argues that
"regulation of the service benefit plans was a part of the
system of state regulation of insurance that the McCarran-Ferguson
Act was designed to preserve."
Post at
440 U. S. 240.
It is not at all clear that States that passed enabling statutes
regarded the plans as insurance. These statutes typically
authorized the plans to operate, but did not specify whether or not
they were insurance.
E.g., 1935 Ill.Laws, p. 621 ("An Act
to provide for the Incorporation and Regulation of nonprofit
Hospital Service Corporations"); 1939 Mich.Pub.Acts No. 109 ("An
Act to provide for and to regulate the incorporation of nonprofit
hospital service corporations"); 1938 N.J.Laws, ch. 336 ("An Act
concerning hospital service corporations and regulating the
establishment, maintenance and operation of hospital service
plans"); ch. 698, 53 Stat. 1412 (1939) ("Providing for the
incorporation of certain persons as Group Hospitalization, Inc.").
This latter statute enacted by Congress also provided in § 7:
"This corporation shall not be subject to the provisions of
statutes regulating the business of insurance in the District of
Columbia, but shall be exempt therefrom unless specifically
designated therein."
The Senate Report stated: "This bill does not change existing
law, but merely creates a private corporation which did not
heretofore exist in the District of Columbia." S.Rep. No. 1012,
76th Cong., 1st Sess., 2 (1939). At the time this statute was
passed in 1939, the group health services plan in the District of
Columbia had been construed not to be engaged in the business of
insurance.
Group Health Assn. v. Moor, 24 F. Supp.
445 (DC 1938).
Indeed, courts have continued to hold that Blue Shield plans are
not insurance even in States that have enacted enabling statutes.
E.g., Michigan Hospital Service v. Sharpe, supra. In that
case, the court specifically rejected the proposition that the
existence of the enabling statute was sufficient to demonstrate
that the plan was insurance.
But even if certain aspects of a Blue Shield plan are the
"business of insurance," the Pharmacy Agreements in this case are
not -- for all the reasons set out in this opinion. It is to be
emphasized that the question whether provider agreements like the
Pharmacy Agreements in this case, or other aspects of insurance
companies, were in 1945 or are now regulated by state law is
irrelevant to the issue before the Court in the present case.
See n 38,
infra.
[
Footnote 35]
Despite the fact that courts did not view plans like Blue Cross
and Blue Shield as insurance at the time of the passage of the
McCarran-Ferguson Act, the petitioners argue that Attorney General
Biddle's remarks when testifying in the Joint Hearing before the
Subcommittees of the Committees on the Judiciary on S. 1362, H.R.
3269, and H.R. 3270, 78th Cong., 1st Sess., 41-42 (1943), indicate
a congressional understanding that such plans were indeed
insurance.
The thrust of Attorney General Biddle's remarks was that this
Court's decision in
American Medical Assn. v. United
States, 317 U. S. 519,
justified the indictment in the
South-Eastern Underwriters
case. In the
AMA case, the Court had held that a health
maintenance organization was engaged in "trade" within the meaning
of the Sherman Act. Based on this decision, Attorney General Biddle
expressed the view that the plan was insurance, and that therefore
the Court had already held that insurance was commerce. Thus, he
argued that the indictment in
South-Eastern Underwriters
was proper.
It seems clear, however, why this testimony does not demonstrate
that Congress believed that Blue Cross or Blue Shield plans are
insurance. First, the statement of the Attorney General that the
plan in the AMA case was insurance was not accepted by Congress.
Senator Bailey rejected the characterization, pointing out that the
Court had not referred to the plan as insurance. To Senator Bailey,
the plan was not insurance, but a "group cooperative movement."
(Indeed, the precise plan at issue was held not to be insurance in
Jordan v. Group Health Assn., 71 App.D.C. 38, 107 F.2d 239
(1939).) But even if it can nonetheless be inferred that some
Members of Congress may have agreed with the Attorney General that
prepaid health plans are insurance, his testimony did not remotely
suggest that agreements between an insurer and a third party fixing
the cost at which goods and services will be purchased is also
insurance.
Similarly, the fact that, a few years later, some witnesses at a
Senate Committee hearing referred to Blue Cross as insurance in
discussing alternatives to national health insurance,
e.g., Hearings before the Senate Committee on Education
and Labor on S. 1606, 79th Cong., 2d Sess., pt. 1, pp. 172-176
(1946), does not establish that Congress shared this view, let
alone that provider agreements like the Pharmacy Agreements in this
case are insurance.
[
Footnote 36]
Weller, The McCarran-Ferguson Act's Antitrust Exemption for
Insurance: Language, History and Policy, 1978 Duke L.J. 587, 624 n.
174. As one commentator has stated about the effectiveness of the
traditional opposition of these organizations to being
characterized as insurance:
"[I]nsurance experts are fond of expressing amazement at Blue
Cross and Blue Shield opinion that the Blues are not insurance, but
something else, such as 'pre-payment plans.' The insurance experts
should control their incredulity of this view, or at least save
some for the courts. For the fact is that the majority of cases
have, in effect, upheld these so-called 'outrageous' opinions of
Blue Cross adherents."
Denenberg, The Legal Definition of Insurance, 30 J.Ins. 319, 322
(1963).
[
Footnote 37]
This is not to say that the contracts offered by Blue Shield to
its policyholders, as distinguished from its provider agreements
with participating pharmacies, may not be the "business of
insurance" within the meaning of the Act.
[
Footnote 38]
This conclusion is in no way affected by the existence of state
enabling statutes regulating advance payment medical benefits plans
at the time the McCarran-Ferguson Act was enacted.
E.g.,
1937 Cal.Stats., ch. 882, as amended by 1941 Cal.Stats., ch. 311;
1939 Conn.Pub. Acts, ch. 150; 1935 Ill.Laws, p. 621; 1936
Miss.Gen.Laws, ch. 177; 1939 Mich.Pub.Acts, No. 109; 1938 N.J.Laws,
ch. 719. These statutes generally provided that the plans were not
insurance.
See supra at
440 U. S.
226-227, and n. 34. Even if it is assumed that some
state legislatures believed that these plans are insurance,
however, it still does not follow that provider agreements like the
Pharmacy Agreements in this case were considered by Congress to be
the "business of insurance."
Many aspects of insurance companies are regulated by state law,
but are not the "business of insurance." Similarly, the enabling
statutes in existence at the time the Act was enacted typically
regulated such diverse aspects of the plans as the composition of
their boards of directors, when their books and records could be
inspected, how they could invest their funds, when they could
liquidate or merge, as well as how they could purchase goods and
services by entering into provider agreements.
Provider agreements are no more the "business of insurance"
because they were regulated by state law at the time of the
McCarran-Ferguson Act than are these other facets of the plans
which were similarly regulated. If Congress had exempted the
"business of insurance companies," then these aspects of the plans
which are not themselves insurance as that term is commonly
understood would nevertheless be arguably exempt. But since
Congress explicitly rejected this approach, they are not within the
exemption even though they are the subject of state regulation.
This Court has implicitly recognized that state regulation of a
practice of an insurance company does not mean that the practice is
the "business of insurance" within the meaning of the
McCarran-Ferguson Act. In both cases,
SEC v. Variable Annuity
Life Ins. Co., 359 U. S. 65, and
SEC v. National Securities, Inc., 393 U.
S. 453, the challenged conduct was regulated by the
State Insurance Commissioner, but this Court held that the
practices were not the "business of insurance."
[
Footnote 39]
As the Court stated in
Pennington, 381 U.S. at
381 U. S.
665-666 (footnote omitted):
"[A] union may make wage agreements with a multi-employer
bargaining unit and may, in pursuance of its own union interests,
seek to obtain the same terms from other employers. No case under
the antitrust laws could be made out on evidence limited to such
union behavior. But we think a union forfeits its exemption from
the antitrust laws when it is clearly shown that it had agreed with
one set of employers to impose a certain wage scale on other
bargaining units. One group of employers may not conspire to
eliminate competitors from the industry and the union is liable
with the employers if it becomes a party to the conspiracy."
[
Footnote 40]
There is no principled basis upon which a line could rationally
be drawn that would extend the McCarran-Ferguson Act exemption only
to an insurer's agreement with providers of goods and services to
be furnished to its policyholders -- such as agreements with
hospitals, doctors, lawyers, and the like. But assuming that such a
line could rationally be drawn, to hold that even such provider
agreements are the "business of insurance" is to ignore the
language and purpose of the Act not to exempt the insurance
industry as such from the antitrust laws.
Moreover, exempting provider agreements from the antitrust laws
would be likely, in at least some cases, to have serious
anticompetitive consequences. Recent studies have concluded that
physicians and other health care providers typically dominate the
boards of directors of Blue Shield plans. Thus, there is little
incentive on the part of Blue Shield to minimize costs, since it is
in the interest of the providers to set fee schedules at the
highest possible level. This domination of Blue Shield by providers
is said to have resulted in rapid escalation of health care costs
to the detriment of consumers generally.
See Skyrocketing
Health Care Costs: The Role of Blue Shield, Hearings before the
Subcommittee on Oversight and Investigations of the House Committee
on Interstate and Foreign Commerce, 95th Cong., 2d Sess., 4-34
(1978) (remarks of Michael Pertschuk, Chairman, Federal Trade
Commission).
[
Footnote 41]
It might be argued that some such agreements are exempt from the
antitrust laws under the state action exemption of
Parker v.
Brown, 317 U. S. 341. But
that exemption would exist because of the extent of state
regulation, and not because the agreements are the "business of
insurance."
MR. JUSTICE BRENNAN, with whom THE CHIEF JUSTICE, MR. JUSTICE
MARSHALL, and MR. JUSTICE POWELL join, dissenting.
The McCarran-Ferguson Act, 59 Stat. 33, as amended, 15 U.S.C. §§
1011-1015, renders the federal antitrust laws inapplicable to the
"business of insurance" to the extent such business is regulated by
state law and is not subject to the "boycott" exception stated in §
1013(b). [
Footnote 2/1] The single
question presented by this case is whether the "business of
insurance"
Page 440 U. S. 234
includes direct contractual arrangements ("provider agreements")
between petitioner Blue Shield and third parties to provide
benefits owed to the insurer's policyholders. The Court today holds
that it does not.
I disagree: since (a) there is no challenge to the status of
Blue Shield's drug benefits
policy as the "business of
insurance," I conclude (b) that some provider agreements negotiated
to carry out the policy obligations of the insurer to the insured
should be considered part of such business, and (c) that the
specific Pharmacy Agreements at issue in this case should be
included in such part. Before considering this analysis, however,
it is necessary to set forth the background of the enactment of the
McCarran-Ferguson Act.
I
SEC v. National Securities, Inc., 393 U.
S. 453,
393 U. S. 459
(1969), recognized that the legislative history of the
McCarran-Ferguson Act sheds little light on the meaning of the
words "business of insurance."
See S.Rep. No. 20, 79th
Cong., 1st Sess. (1945); H.R.Rep. No. 143, 79th Cong., 1st Sess.
(1945). But while the legislative history is largely silent on the
matter, [
Footnote 2/2] it does
indicate that Congress deliberately chose
Page 440 U. S. 235
to phrase the exemption broadly. Congress had draft bills before
it which would have limited the "business of insurance" to a narrow
range of specified insurance company practices, but chose instead
the more general language which ultimately became law. [
Footnote 2/3]
Page 440 U. S. 236
The historical background of the statute's enactment, developed
by the Court in
SEC v. National Securities, Inc., supra,
provides the guide to congressional purpose:
"The McCarran-Ferguson Act was passed in reaction to this
Court's decision in
United States v. South-Eastern Underwriters
Assn., 322 U. S. 533 (1944). Prior to
that decision, it had been assumed, in the language of the leading
case, that '[i]ssuing a policy of insurance is not a transaction of
commerce.'
Paul v. Virginia, 8 Wall.
168,
75 U. S. 183 (1869).
Consequently, regulation of insurance transactions was thought to
rest exclusively with the States. In
South-Eastern
Underwriters, this Court held that insurance transactions were
subject to federal regulation under the Commerce Clause, and that
the antitrust laws, in particular, were applicable to them.
Congress reacted quickly . . . [, being] concerned about the
inroads the Court's decision might make on the tradition of state
regulation of insurance. The McCarran-Ferguson Act was the product
of this concern. Its purpose was stated quite clearly in its first
section; Congress declared that 'the continued regulation and
taxation by the several States of the business of insurance is in
the public interest.' 59 Stat. 33 (1945), 15 U.S.C. § 1011. As this
Court said shortly afterward, '[o]bviously Congress' purpose was
broadly to give support to the existing and future state systems
for regulating and taxing the business of insurance.'
Prudential Insurance Co. v. Benjamin, 328 U. S.
408,
328 U. S. 429 (1946)."
"The . . . Act was an attempt to turn back the clock, to assure
that the activities of insurance companies in dealing with their
policyholders would remain subject to state regulation."
393 U.S. at
393 U. S.
458-459.
See also St. Paul Fire Marine Ins. Co. v.
Barry, 438 U. S. 531,
438 U. S.
538-539 (1978); 90 Cong.Rec. 6524 (1944) (Cong.
Walter)
Page 440 U. S. 237
("[T]he legislation . . . is designed to restore to the
status quo the position the insurance business of this
Nation occupied before the Supreme Court recently legislate [in
South-Eastern Underwriters]").
Since continuation of state regulation as it existed before
South-Eastern was Congress' goal, [
Footnote 2/4] evidence of what States
Page 440 U. S. 238
might reasonably have considered to be and regulated as
insurance at the time the McCarran-Ferguson Act was passed in 1945
is clearly relevant to our decision. This does not mean that a
transaction not viewed as insurance in 1945 cannot be so viewed
today.
"We realize that . . . insurance is an evolving institution.
Common knowledge tells us that the forms have greatly changed even
in a generation. And we would not undertake to freeze the concep[t]
of 'insurance' . . . into the mold [it] fitted when these Federal
Acts were passed."
SEC v. Variable Annuity Life Ins. Co., 359 U. S.
65,
359 U. S. 71
(1959). It is thus logical to suppose that, if elements common to
the ordinary understanding of "insurance" are present, new forms of
the business should constitute the "business of insurance" for
purposes of the McCarran-Ferguson Act. The determination of the
scope of the Act, therefore, involves both an analysis of the
proximity between the challenged transactions and those well
recognized as elements of "insurance," and an examination of the
historical setting of the Act. On both counts, Blue Shield's
Pharmacy Agreements constitute the "business of insurance."
Page 440 U. S. 239
II
I start with common ground. Neither the Court,
ante at
440 U. S. 230
n. 37, nor the parties challenge the fact that the drug benefits
policy offered by Blue Shield to its policyholders -- as
distinguished from the contract between Blue Shield and the
pharmacies -- is the "business of insurance." Whatever the merits
of scholastic argument over the technical definition of
"insurance," the policy both transfers and distributes risk. The
policyholder pays a sum certain -- the premium -- against the risk
of the uncertain contingency of illness, and, if the company has
calculated correctly, the premiums of those who do not fall ill pay
the costs of benefits above the premiums of those who do.
See R. Mehr & E. Cammack, Principles of Insurance
31-32 (6th ed.1976). An important difference between Blue Shield's
policy and other forms of health insurance is that Blue Shield
"pays" the policyholder in goods and services (drugs and their
dispensation), rather than in cash. Since we will not "freeze the
concep[t] of
insurance' . . . into the mold it fitted" when
McCarran-Ferguson was passed, this difference cannot be a reason
for holding that the drug benefits policy falls outside the
"business of insurance" even if our inquiry into the understandings
of what constituted "insurance" in the 1930's and 1940's were to
suggest that a contrary view prevailed at that time. [Footnote 2/5]
Fortunately, logic and history yield the same result. It is true
that the first health insurance policies provided only cash
indemnities. However, although policies that specifically provided
drug benefits were not available during the 1930's and 1940's,
analogous policies providing hospital and medical services --
rather than cash -- were available.
The hospital service benefit concept originated in Texas in
Page 440 U. S. 240
1929; medical services were first offered in 1939. R. Eilers,
Regulation of Blue Cross and Blue Shield Plans 10, 15 (1963)
(hereinafter Eilers). In 1940, 4,500,000 people in 60 communities
were covered by Blue Cross or related hospital benefits plans. C.
Rorem, Non-Profit Hospital Service Plans 1-2 (1940) (hereinafter
Rorem I). During the 1940's, health insurance became a subject of
collective bargaining, with unions demanding the service benefit
approach of Blue Cross and Blue Shield. S. Law, Blue Cross 11
(1974) (hereinafter Law). By 1945, the year the McCarran-Ferguson
Act was enacted, over 20 million people were enrolled in service
benefit programs, with service benefit plans comprising 61% of the
total hospitalization insurance market.
See Hearings
before the Senate Committee on Education and Labor, A National
Health Program, 79th Cong.,2d Sess., pt. 1, p. 173 (1946); Eilers
19; Law 11.
Moreover, regulation of the service benefit plans was a part of
the system of state regulation of insurance that the
McCarran-Ferguson Act was designed to preserve. Led by New York in
1934, 24 States passed enabling Acts by 1939 which, while relieving
the plans of certain reserve requirements and tax obligations,
specifically subjected service benefit plans to the supervision and
control of state departments of insurance. [
Footnote 2/6]
See Rorem, Enabling Legislation
for Non-Profit Hospital Service Plans 6 Law & Contemp.Prob.
528, 531, 534 (1939) (hereinafter Rorem II); N. Sinai, O. Anderson,
& M. Dollar, Health Insurance in the United States
Page 440 U. S. 241
48-49 (1946) (hereinafter Sinai); Comment, Group Health Plans:
Some Legal and Economic Aspects, 53 Yale L.J. 162, 174 (1943).
Another 16 States apparently limited the issuance of
hospitalization insurance to stock and mutual insurance companies.
Nine acted on the premise that the plans were not "insurance," and
authorized operation under general corporation laws, exempt from
reserve requirements. Rorem II, p. 532. By the time the
McCarran-Ferguson Act was passed, 35 States had enabling
legislation. [
Footnote 2/7] During
this period, the National Association of Insurance Commissioners
(NAIC), the organization of state insurance directors which played
a major role in drafting the McCarran-Ferguson Act, [
Footnote 2/8] was also drafting model state
enabling legislation to govern service benefit health plans.
Proceedings of the NAIC, 75th Sess., 226 (1944);
id. 76th
Sess., 250 (1945). [
Footnote
2/9]
Page 440 U. S. 242
Thus, when the McCarran-Ferguson Act became law, service benefit
plans similar to the Blue Shield plan at issue here were a
widespread and well recognized form of insurance, subject to
regulation in most of the States. Congress itself treated these
important programs as insurance. In 1939, Congress adopted an
enabling Act incorporating a hospitalization benefits plan in the
District of Columbia, with supervisory
Page 440 U. S. 243
authority placed in the hands of the Superintendent of
Insurance.
See H.R. 6266, 76th Cong., 1st Sess. (1939);
H.R.Rep. No. 1247, 76th Cong., 1st Sess. (1939); 84 Cong.Rec. 11224
(1939). And in hearings held the year after passage of the
McCarran-Ferguson Act, the same Congress that approved that Act
debated Blue Shield-type programs as alternatives to national
health insurance, with participating Congressmen frequently
referring to them as "insurance." Hearings before the Senate
Committee on Education and Labor, A National Health Program, 79th
Cong., 2d Sess., pt. 1, pp. 55, 83, 108, 172, pt. 2, p. 558 (1946).
[
Footnote 2/10] The status of
service benefit policies as "insurance," both logically and
historically, is therefore sufficiently established to make that
the first premise in an analysis of the status of the Pharmacy
Agreements at issue in this case.
III
The next question is whether at least some contracts with third
parties to procure delivery of benefits to Blue Shield's insureds
would also constitute the "business of insurance." Such contracts,
like those between Blue Shield and the druggists in this case, are
known as "provider agreements." The Court, adopting the view of the
Solicitor General, today holds that no provider agreements can be
considered part of the "business of insurance." [
Footnote 2/11] It contends that the "underwriting
or spreading of risk [is] an indispensable characteristic of
Page 440 U. S. 244
insurance,"
ante at
440 U. S. 212,
[
Footnote 2/12] and that
"[a]nother commonly understood aspect of the business of insurance
relates to the contract between the insurer and the insured."
Ante at
440 U. S. 215.
Because provider agreements neither themselves spread risk, nor
involve transactions between insurers and insureds, the Court
excludes them from the "business of insurance."
The argument fails in light of this Court's prior decisions and
the legislative history of the Act. The Court has held, for
example,
FTC v. National Casualty Co., 357 U.
S. 560 (1958), that the advertising of insurance, a
unilateral act which does not involve underwriting, is within the
scope of the McCarran-Ferguson Act. And the legislative history
makes it abundantly clear that numerous horizontal agreements
between insurance companies which do not technically involve the
underwriting of risk were regarded by Congress as within the scope
of the Act's exemption for the "business of insurance." For
example, rate agreements among insurers, a conspicuous
congressional illustration,
see, e.g., 91 Cong.Rec. 1481,
1484 (1945) (remarks of Sens. Pepper and Ferguson), and the subject
of the
South-Eastern Underwriters case,
see SEC v.
National Securities, Inc., 393 U.S. at
393 U. S. 460,
do not themselves spread risk. Indeed, the Court apparently
concedes that arrangements among insurance companies respecting
premiums and benefits would constitute the "business of insurance,"
despite their failure to fit within its formula.
Ante at
440 U. S. 221
and
440 U. S.
224-225, n. 32.
But the Court's attempt to limit its concession to horizontal
transactions still conflicts with the legislative history.
Compelling evidence is the fact that Congress actually rejected a
proposed bill to limit the exemption to agreements between
Page 440 U. S. 245
insurance companies. S. 12, 79th Cong., 1st Sess. (1945).
See 440
U.S. 205fn2/3|>n. 3,
supra. Moreover, vertical
relationships between insurance companies and independent sales
agencies were a subject of the indictment in
United States v.
South-Eastern Underwriters Assn., 322 U.
S. 533,
322 U. S. 535
(1944), were the object of discussion in the House, 90 Cong.Rec.
6538 (1944) (remarks of Cong. Celler), and were expressly included
as part of the "business of insurance" in an early draft of the
Act,
id. at A4406 (NAIC bill, § 4(b)(5)). Again, the Court
concedes that such transactions, between insurers and agents, might
fall within the "business of insurance," despite the inconsistency
with the Court's own theory.
Ante at
440 U. S.
224-225, n. 32. [
Footnote
2/13]
The Court's limitation also ignores the significance of
pervasive state insurance regulation -- prevailing when the Act was
passed -- of hospitalization benefits plans whose "distinctive
feature," Rorem I, p. 64; Proceedings of the NAIC, 75th Sess., 228
(1944), was the provider contract with the participating hospital
to provide service when needed. The year prior to adoption of the
Act the NAIC emphasized the relationship between provider
agreements and service benefit policies:
"A hospital service plan is designed to provide service, rather
than to indemnify, and this can only be guaranteed through
contractual arrangements between plans and hospitals."
Id. The Association also proposed, in the year
McCarran-Ferguson passed, a model state enabling Act requiring
"full approval of . . . contracts with hospitals . . . by the
insurance commissioner." Proceedings of the NAIC, 76th Sess.,
250
Page 440 U. S. 246
(1945). That proposal reflected well the actual contents of
existing state enabling Acts which armed insurance commissioners
with considerable authority to regulate provider agreements.
[
Footnote 2/14] Congress itself
authorized the service benefit plan it incorporated in the District
of Columbia "to enter into contracts with hospitals for the care
and treatment of [its subscribers]." H.R. 6266, 76th Cong., 1st
Sess. (1939). In light of Congress' objective through the
McCarran-Ferguson Act to insure the continuation of existing state
regulation, the conclusion that at least some provider agreements
were intended to be within the "business of insurance" is
inescapable.
Logic compels the same conclusion. Some kind of provider
agreement becomes a necessity if a service benefits insurer is to
meet its obligations to the insureds. The policy before us in this
case, for example, promises payment of benefits in drugs. Thus,
some arrangement must be made to provide those drugs for
subscribers. [
Footnote 2/15] Such
an arrangement obtains
Page 440 U. S. 247
the very benefits promised in the policy; it does not simply
relate to the general operation of the company. A provider contract
in a service benefit plan, therefore, is critical to "the type of
policy which could be issued" as well as to its "reliability" and
"enforcement." It thus comes within the terms of
SEC v.
National Securities, Inc., 393 U.S. at
393 U. S. 460.
That case explained that the "business of insurance" involves not
only the "relationship between insurer and insured," but also
"other activities of insurance companies [that] relate so closely
to their status as reliable insurers that they too must be placed
in the same class." Thus,
"[s]tatutes aimed at protecting or regulating . . . [the
insurer/insured] relationship,
directly or indirectly, are
laws regulating the 'business of insurance.'"
Ibid. (emphasis added).
The Congress that passed McCarran-Ferguson was composed of
neither insurance experts nor dictionary editors. Rather than use
the technical term "underwriting" to express its meaning, Congress
chose "the business of insurance," a common sense term connoting
not only risk underwriting but contracts closely related thereto.
[
Footnote 2/16] Since Congress
knew of service benefit policies, and viewed them as insurance, it
would strain common sense to suppose Congress viewed contracts
Page 440 U. S. 248
necessary to effectuate those policies' commitments as being
outside the business it sought to exempt from the antitrust
laws.
IV
The remaining question is whether the provider agreement in this
case constitutes the "business of insurance." Respondents contend
that, even if some contract between Blue Shield and the pharmacies
is necessary, this one is not. Under the contract at issue, the
druggist agrees to dispense drugs to Blue Shield's insureds for a
$2 payment, and Blue Shield agrees to reimburse the druggist for
the acquisition cost of each drug so dispensed. The pharmacy is
thus limited to a $2 "markup." With support from the Court of
Appeals, respondents argue that only the first half of the bargain
is necessary for Blue Shield to fulfill its policy obligations.
Those are fulfilled when Blue Shield binds the pharmacy to dispense
the requested drug for $2. The second half of the agreement, the
amount Blue Shield reimburses the druggist, is assertedly
irrelevant to the policyholder. As an alternative to the existing
plan, the respondents and the Court of Appeals suggest that Blue
Shield could simply pay the pharmacist his usual charge (minus the
$2 paid by the policyholder). The present plan, which limits
reimbursement to acquisition cost and freezes the markup at $2, is
said to set a "fixed" price. From this premise, respondents argue
that such fixed-price plans are "anticompetitive," and therefore
not the "business of insurance."
Respondents' argument is directly contradicted by history. The
service benefit plans available when the McCarran-Ferguson Act was
passed actually "fixed" more of the payment to their participating
providers than does the plan here, which "fixes" only the markup.
Those early plans usually paid established and equal amounts to
their participating hospitals, rather than paying whatever each
hospital charged. Rorem I, p. 64. Moreover, under the typical state
enabling Act, those
Page 440 U. S. 249
payments were subject to the approval of the state department of
insurance. [
Footnote 2/17] The
1937 Pennsylvania statute, for example, provided that
"all rates of payments to hospitals made by such [service
benefit plan] corporations . . . and any and all contracts entered
into by any such corporation with any hospital shall, at all times,
be subject to the prior approval of the Insurance Department."
1937 Pa.Laws No. 378. Therefore, as insurer/provider fee
agreements were part of the system of state regulation which the
McCarran-Ferguson Act sought to preserve, there is no historical
reason to exclude Blue Shield's Pharmacy Agreements from the ambit
of the exemption; there is, instead, a good historical reason for
including them.
Nor does respondents' claim that the Pharmacy Agreements are
"anticompetitive" exclude them from constituting the "business of
insurance." The determination of whether Blue Shield's Pharmacy
Agreements actually involve antitrust violations or are otherwise
anticompetitive has been held in abeyance pending final decision as
to whether the agreements fall within the scope of the
McCarran-Ferguson Act. But even if the agreements were
anticompetitive, that alone could not be the basis for excluding
them from the "business of insurance." An antitrust exemption, by
its very nature, must protect some transactions that are
anticompetitive; an exemption that is extinguished by a finding
that challenged activity violates the antitrust laws is no
exemption at all.
While this reason for excluding the Pharmacy Agreements from the
circle of exempt provider agreements is unconvincing, there are
substantial reasons, in addition to history, for including them
within that circle. First, it is clear that the contractual
arrangement utilized by Blue Shield affects its
Page 440 U. S. 250
costs, and thus affects both the setting of rates and the
insurer's reliability. This is definitely a factor relevant to the
determination of whether a transaction is within the "business of
insurance."
See SEC v. National Securities, Inc., 393 U.S.
at
393 U. S. 460.
See also Proctor v. State Farm Mutual Automobile Ins. Co.,
182 U.S.App.D.C. 264, 561 F.2d 262 (1977). True, that factor alone
is not determinative, for, as argued by the Court, innumerable
agreements, including the lease on the insurance company's offices,
affect cost. This contract, however, has more than a mere
incidental connection to the policy and premium. It is a direct
arrangement to provide the very goods and services whose purchase
is the risk assumed in the insurance policy. It is therefore
integral to the insurer's rate-setting process, as the correlation
between rates and drug prices in a drug benefits policy is
necessarily high. Moreover, the ability of state insurance
commissioners to regulate rates, an important concern of the Act,
is measurably enhanced by their ability to control the formulas by
which insurers reimburse providers. [
Footnote 2/18] The same is true of state efforts to
ensure that plans are financially reliable.
See Travelers Ins.
Co. v. Blue Cross of Western Pennsylvania, 481 F.2d 80, 83 n.
9 (CA3 1973) (quoting the Pennsylvania Insurance Commissioner).
This close nexus between the Pharmacy Agreements and both the rates
and fiscal reliability of Blue Shield's plan speaks strongly for
their inclusion within the "business of insurance."
See
generally Proctor v. State
Page 440 U. S. 251
Farm Mutual Automobile Ins. Co., supra, at 271-272, 561
F.2d at 269-270.
Another reason, in addition to this nexus to basic insurance
elements, also supports the conclusion that fixed-price provider
agreements are the "business of insurance." Such agreements
themselves perform an important insurance function. It may be true,
as the Court contends, that conventional notions of insurance focus
on the underwriting of risk. But they also include efforts to
reduce the unpredictable aspects of the risks assumed. Traditional
plans achieve this end by setting ceilings on cash payments or
utilizing large deductibles. R. Mehr & E. Cammack, Principles
of Insurance 222 (6th ed. 1976). Even if the insurer cannot know
how often a policyholder might become ill, it can know the extent
of its exposure in the event of illness. The actuarial uncertainty,
therefore, is greatly reduced. A fixed-price provider agreement
attempts to reach the same result by contracting in advance for a
price, rather than agreeing to pay as the market fluctuates. The
agreement on price at least minimizes the variance of the "payoff"
variable, even if the probability of its occurrence remains an
unknown. Indeed, if examined carefully, this function comes within
the latter half of the definition of "underwriting" offered by the
Solicitor General: "spread[ing] risk more widely or reduc[ing] the
role of chance events."
See 440
U.S. 205fn2/12|>n. 12,
supra. Of course, the
Pharmacy Agreements in this case do not totally control "the role
of chance" in drug prices, since acquisition costs may fluctuate
even if "markup" is fixed, but they are at least an attempt to
reduce the role of chance to manageable proportions. [
Footnote 2/19]
Moreover, a service benefit plan which "pay[s] the cost . . .
whatever it might be," as hypothesized by the Court of
Page 440 U. S. 252
Appeals, 556 F.2d at 1381, would run grave risks of bankruptcy.
Since it would expose the insurer to unknown liability, it would
measurably increase the probability that an incorrect assessment of
exposure would occur. This could lead to a failure to cover actual
losses with premiums. Respondents argue that this fiscal
reliability problem could be solved by placing a dollar limit. on
benefits. But such a plan would be almost indistinguishable from a
cash indemnity policy. It would not be the "full service regardless
of price" plan for which the policyholders bargained. [
Footnote 2/20] The Pharmacy Agreements
are thus "other activities of insurance companies relate[d] so
closely to their status as reliable insurers that they too must be
placed in the same class."
SEC v. National Securities, Inc.,
supra at
393 U. S.
460.
V
The process of deciding what is and is not the "business of
insurance" is inherently a case-by-case problem. It is true that
the conclusion advocated here carries with it line-drawing
problems. That is necessarily so once the provider agreement line
is crossed by holding some to be within the "business." But that is
a line which history and logic compel me to cross. I would hold
that the
concept of a provider agreement for benefits
promised in the policy is within the "business of insurance"
because some form of provider agreement is necessary to fulfill the
obligations of a service benefit policy. I would hold that
these provider agreements, Blue Shield's Pharmacy
Agreements, are protected because they (1) directly obtain the very
benefits promised in the policy, [
Footnote 2/21] and therefore
Page 440 U. S. 253
directly affect rates, cost, and insurer reliability, and (2)
themselves constitute a critical element of risk "prediction."
[
Footnote 2/22] The conclusion
that thee kinds of agreements are the "business of insurance" is
that reached by every Court of Appeals except the Court of Appeals
in this case. [
Footnote 2/23]
I would not suggest, however, that
all provider
agreements come within the McCarran-Ferguson Act proviso. Given the
facts found by the District Court upon summary judgment, this is
not a case where the petitioner pharmacies themselves conspired to
exclude others from the market, and either pressured Blue Shield to
go along or were voluntarily joined by the insurer.
See
also Government Brief 13 n. 6. Such an agreement among
pharmacies, itself neither necessary nor related to the insurer's
effort to satisfy its obligations to its policyholders, would be
outside the "business of insurance." An insurance company cannot
immunize an illegal conspiracy by joining it.
Cf. Parker v.
Brown, 317 U. S. 341,
317 U. S.
351-352
Page 440 U. S. 254
(1943). Moreover, since, in this case, the Blue Shield plan was
offered to all San Antonio pharmacies, and was, in fact, agreed to
by at least 12, I am not called upon to decide whether an exclusive
arrangement with a single provider would be so tenuously related to
providing policyholder benefits as to be beyond the exemption's
protection.
See generally Proctor v. State Farm Mutual
Automobile Ins. Co., 182 U.S.App.D.C. at 270 n. 10, 561 F.2d
at 268 n. 10. [
Footnote 2/24]
Finally, the conclusion that Blue Shield's Pharmacy Agreements
should be held within the "business of insurance" [
Footnote 2/25]
Page 440 U. S. 255
does not, alone, establish whether the agreements enjoy an
exemption from the antitrust laws. To be entitled to an exemption,
petitioners still would have to demonstrate that the transactions
are, in fact, truly regulated by the State, 15 U.S.C. § 1012(b),
and that they do not fall within the "boycott" exception of 15
U.S.C. § 1013(b). The District Court held for petitioners on both
issues. Neither issue was reached by the Court of Appeals, however,
in light of its holding that the contracts were not the "business
of insurance." Accordingly,
Page 440 U. S. 256
I would reverse the judgment of the Court of Appeals and remand
the case for further proceedings. [
Footnote 2/26]
[
Footnote 2/1]
Section 2(b) of the Act, as set forth in 15 U.S.C. § 1012(b),
provides:
"(b) No Act of Congress shall be construed to invalidate,
impair, or supersede any law enacted by any State for the purpose
of regulating the business of insurance, or which imposes a fee or
tax upon such business, unless such Act specifically relates to the
business of insurance:
Provided, That after June 30, 1948,
the Act of July 2, 1890, as amended, known as the Sherman Act, and
the Act of October 15, 1914, as amended, known as the Clayton Act,
and the Act of September 26, 1914, known as the Federal Trade
Commission Act, as amended [15 U.S.C. 41
et seq.], shall
be applicable to the business of insurance to the extent that such
business is not regulated by State Law."
Section 3(b), as set forth in 15 U.S.C. § 1013(b), provides:
"(b) Nothing contained in this chapter shall render the said
Sherman Act inapplicable to any agreement to boycott, coerce, or
intimidate, or act of boycott, coercion, or intimidation."
[
Footnote 2/2]
The Court argues that the silence with respect to agreements
between insurers and third parties, coupled with the fact that
Congressmen did discuss horizontal agreements between insurance
companies, establishes by negative inference that third-party
agreements were not considered "the business of insurance." There
is, however, a compelling explanation for the lack of mention of
provider agreements. As the Court has noted in several cases,
see, e.g., SEC v. National Securities, Inc., 393 U.
S. 453,
393 U. S. 459
(1969);
St. Paul Fire & Marine Ins. Co. v. Barry,
438 U. S. 531,
438 U. S.
538-539 (1978), the McCarran-Ferguson Act was a reaction
to the decision in
United States v. South-Eastern Underwriters
Assn., 322 U. S. 533
(1944).
See infra at
440 U. S.
236-237. That case involved an organization of fire
insurance companies, and much of the congressional discussion
accordingly concerned alleged abuses by and regulation of such
companies.
See, e.g., 91 Cong.Rec. 1091-1092, 1479 (1945);
90 Cong.Rec. 6449-6455, 6527 (1944). Indeed, health insurers did
not even participate in the hearings on the Act.
See Joint
Hearing before the Subcommittees of the Committees on the Judiciary
on S. 1362
et al., 78th Cong., 1st Sess. (1943). Since
fire insurers paid their policyholders cash indemnities, these
companies had no reason to contract with third parties for the
provision of goods or services. That fact fully explains the
absence of discussion of such contracts in the congressional
debates. Such absence no more indicates a congressional intent to
exclude provider agreements from the "business of insurance" than
does the absence of any mention of health insurance companies
indicate a congressional intent arbitrarily to exclude all health
insurance from the "business of insurance."
[
Footnote 2/3]
S. 12, 79th Cong., 1st Sess. (1945), would have specified
"any agreement or concerted or cooperative action
between
two or more insurance companies for making, establishing, or
using rates for insurance, rating methods, premiums, insurance
policy or bond forms, or underwriting rules."
(Emphasis added.)
See also § 4(b) of a draft bill of
the National Association of Insurance Commissioners, 90 Cong.Rec.
A4406 (1944). A significant Senate floor debate with regard to such
limiting bills is the following:
"MR. PEPPER. Would it not be better that those agreements, if
there are such that are legitimatized, be identified in the
statute?"
"MR. O'MAHONEY. I quite agree with the Senator, and I endeavored
to the very best of my ability to induce the committees of Congress
to write into the law specific exemptions from the antitrust law,
but I was unable to prevail in the Committee on the Judiciary and I
was unable to prevail on the floor of the Senate."
91 Cong.Rec. 1444 (1945).
The Court challenges the conclusion that Congress intended to
phrase the exemption broadly by referring to the legislative
history of one obscure amendment to an early House version of the
Act.
Ante at
440 U. S.
222-223, n. 29. Closer examination of the short debate
surrounding that amendment reveals only the Representatives'
repeated expressions of their confusion over what the amendment
meant.
See 90 Cong.Rec. 6562 (1944) (remarks of Reps.
Summers, Hobbs, and Fernandez).
[
Footnote 2/4]
There can be no quarrel with the Court's statement,
ante at
440 U. S. 220,
and n. 24, that the McCarran-Ferguson Act was not intended to
restore the law,
in all respects, to what it had been
before
South-Eastern Underwriters. But the principal
differences between pre-
South-Eastern and
post-McCarran-Ferguson law are irrelevant for purposes of this
case, and do not detract from the Court's oft-repeated statement
that the purpose of the Act was to preserve state regulatory
schemes as they existed before
South-Eastern
Underwriters.
Before
South-Eastern, insurance companies might
boycott, coerce, and intimidate without violating federal antitrust
statutes, since insurance was not considered "commerce," and hence
was beyond the reach of federal law. For the same reason, even
unregulated insurance transactions were free from antitrust attack.
Finally, Congress, because of the "commerce" problem, could not
otherwise regulate insurance. None of these elements survived the
decision in
South-Eastern, and none was revived by
McCarran-Ferguson. These differences between
pre-
South-Eastern and post-McCarran-Ferguson law were what
Senator Ferguson had in mind when he answered "no" to Senator
McKellar's question, cited by the Court,
ante at
440 U. S. 220
n. 24, asking whether the effect of the Act was to reestablish the
law as it stood prior to
South-Eastern. This is revealed
by quotation of Senator Ferguson's full answer to Senator
McKellar.
"MR. FERGUSON. No. I would say that subsection (b), at the
bottom of page 2, would allow the provisions of the Sherman Act to
apply to all agreements or acts of boycott, coercion, or
intimidation, and subsection 4(a) would suspend the application of
the provisions of the Sherman Act and the Clayton Act, insofar as
States may regulate and tax such companies, until certain dates or
until Congress may act in the meantime in respect to what Congress
thinks should be done with the business of insurance."
91 Cong.Rec. 478 (1945).
These discrete differences between pre-
South-Eastern
and post-McCarran-Ferguson law are not applicable here, and do not
conflict with the holdings of this Court's prior opinions that,
with respect to
state-regulated insurance practices
not constituting boycotts, McCarran-Ferguson was intended
to preserve preexisting state insurance regulation.
This analysis also explains, and renders irrelevant for this
case, Congress' rejection of the "total" exemption bills cited by
the Court,
ante at
440 U. S.
218-219, and n. 21. Those bills, unlike the one that
passed, would have exempted boycotts and unregulated transactions.
It was this aspect of the "total" exemption bills to which the
National Association of Insurance Commissioners objected.
See 90 Cong.Rec. 8482 (1944). These bills were rejected
not because of a decision to narrow the scope of the nonboycott
activities to be exempted, but because Congress determined that the
business of insurance should be exempted only where regulated by
the States, rather than unconditionally.
[
Footnote 2/5]
See SEC v. National Securities, Inc., 393 U.S. at
393 U. S. 460
("The relationship between insurer and insured, [and]
the type
of policy which could be issued . . . [are] the core of the
'business of insurance'"). (Emphasis added.)
[
Footnote 2/6]
See 1935 Ala.Acts No. 544; 1935 Cal.Stats., ch. 386;
1939 Conn.Pub.Acts, ch. 150; ch. 698, 53 Stat. 1412 (1939)
(District of Columbia); 1937 Ga.Laws, p. 690; 1935 Ill.Laws, p.
621; 1939 Iowa Acts, ch. 222; 1938 Ky.Acts, ch. 23; 1939 Me.Acts,
ch. 149; 1937 Md.Laws, ch. 224; 1936 Mass.Acts, ch. 409; 1939
Mich.Pub.Acts No. 109; 1936 Miss.Gen.Laws, ch. 177; 1939 N.H.Laws,
ch. 80; 1938 N.J.Laws, ch. 366; 1939 N.M.Laws, ch. 66; 1934
N.Y.Laws, ch. 595; 1939 Ohio Leg.Acts, p. 154; 1937 Pa.Laws No.
378; 1939 R.I.Acts, ch. 719; 1939 S.C.Acts No. 296; 1939
Tex.Gen.Laws, p. 123; 1939 Vt.Laws No. 174; 1939 Wis.Laws, ch.
118.
[
Footnote 2/7]
F. Hedinger, The Social Role of Blue Cross as a Device for
Financing the Costs of Hospital Care 51 (1966). The additional
statutes were: 1945 Ariz.Sess. Laws, ch. 13 (1st Spec.Sess.); 1939
Fla.Laws, ch.19108; 1941 Kan.Sess.Laws, ch. 259; 1940 La.Acts No.
267; 1941 Minn.Laws, ch. 53; 1941 Neb.Laws, ch. 43; 1941
N.C.Pub.Laws, ch. 338; 1943 N.D.Laws, ch. 103; 1945 Tenn.Pub.Acts,
ch. 98; 1940 Va.Acts, ch. 230; 1943 W.Va.Acts, ch. 8.
[
Footnote 2/8]
See 91 Cong.Rec. 483 (1945) (remarks of Sen.
O'Mahoney).
[
Footnote 2/9]
Debate arose during this period as to whether service benefit
plans were technically insurance.
See ante at
440 U. S.
225-230. Most state insurance commissioners ruled during
the 1930's that the plans constituted insurance, and therefore had
to meet the capital stock, reserve, and assessment requirements
applicable to the commercial stock and mutual insurance companies
which offered cash indemnity policies. Eilers 101. In addition,
this meant that the plans were subject to special state taxation.
Ibid. Such holdings limited the feasibility of the plans
at a time when they were widely perceived as being socially
beneficial. Moreover, it was argued that these rulings were
inappropriate to service benefit plans, which were generally
"nonprofit," and often included guarantees by hospitals to provide
services regardless of the financial state of the insurer --
potentially an adequate substitute for the cash reserves needed by
indemnity plans.
Id. at 135-136, 239.
Some courts, and even some Blue Cross-type organizations,
attempted to surmount these barriers to effectuation of plans
deemed to be in the public interest by arguing that the plans were
not technically "insurance" subject to the jurisdiction of state
insurance commissioners, and hence were not bound by the
requirements of the stock and mutual insurance companies.
See,
e.g., Jordan v. Group Health Assn., 71 App.D.C. 38, 107 F.2d
239 (1939).
But see Cleveland Hospital Service Assn. v.
Ebright, 142 Ohio St. 51, 49 N.E.2d 929 (1943) (hospital
service plans are insurance);
McCart v . King County Medical
Service Corp., 26 Wash. 2d 660, 175 P.2d 653 (1946) (same).
But contemporary commentators questioned the soundness of such
views, and argued that the plans should be treated as insurance,
although as a special kind not subject to the traditional
requirements.
See, e.g., Note, The Legal Problems of Group
Health, 52 Harv.L.Rev. 809, 815 (1939); Comment, Group Health
Plans: Some Legal and Economic Aspects, 53 Yale L.J. 162, 172
(1943). The 35 state enabling Acts governing service benefit health
plans reflected the States' agreement that the plans were "a
special type of insurance" differing from the stock and mutual
companies. Rorem II, p. 534; Sinai 48. This is most clearly
demonstrated by the fact that the vast majority of the state
statutes, while relieving the plans of "other" insurance law
requirements (primarily the reserve requirements and special
insurance taxes), subjected their activities to the control of the
state insurance commissioner. The 1939 New Mexico Statute, for
example, amended the State's Insurance Code by adding a new section
entitled "Non-Profit Hospital Service Plans." The amendment
subjected the plans, and in particular both their premiums and
rates of payment to hospitals, to the approval of the
Superintendent of Insurance, while exempting them from
"all
other provisions of the insurance law." 1939 N.M.
Laws, ch. 66 (emphasis added). This approach was in accord with the
commonly held view that such plans were forms of "insurance," as
reflected by the statements of numerous Congressmen in the
congressional hearings on the proposed National Health Program,
see infra at
440 U. S. 243.
And everyday meaning, rather than some technical term of art, is
what Congress intended by its use of the word "insurance" in the
McCarran-Ferguson Act.
[
Footnote 2/10]
Messages of two Presidents to the Congress on the subject of
national health care also referred to service benefit plans as
forms of insurance. Message from the President of the United
States, Report and Recommendations on National Health, H.R.Doc. No.
120, 76th Cong., 1st Sess., 63 (1939); Message from the President,
A National Health Program, H.R.Doc. No. 380, 79th Cong., 1st Sess.,
9, 10 (1945).
[
Footnote 2/11]
The respondents do not argue this view. They agree that some
provider contracts may constitute the "business of insurance."
Brief for Respondents 33.
[
Footnote 2/12]
"Underwriting," the Solicitor General argues, means "spread[ing]
risk more widely or reduc[ing] the role of chance events." Brief
for United States as
Amicus Curiae 17 (hereinafter
Government Brief). For purposes of argument, I will assume that
this is a correct definition of "underwriting."
But see R.
Holtom, Underwriting Principles and Practices 11 (1973).
[
Footnote 2/13]
The effort to distinguish insurer/agent transactions from
provider agreements on the ground that the former are "wholly
intra-industry," while the latter are not,
ante at
440 U. S. 225
n. 32, constitutes argument by tautology. The former are
"intra-industry" and the latter not only because the Court so holds
today.
[
Footnote 2/14]
See, e.g., 1935 Cal.Stats., ch. 386; 1939 Iowa Acts,
ch. 222; 1937 Md.Laws, ch. 224; 1939 Me.Acts, ch. 149; 1939
N.H.Laws, ch. 80; 1939 S.C.Acts No. 296.
See also Rorem I,
pp. 67-68; Sinai 48-49. Such provisions were often quite extensive,
e.g., requiring approval by the insurance commissioner of
contracts between hospitals and the corporation, including rates of
payment,
ibid.; requiring that the contracts contain
guarantees of services by the hospitals to policyholders despite
financial difficulties of the insurer, Rorem I, p. 67; or even
limiting the kind of hospitals with which contracts could be made,
id. at 68.
[
Footnote 2/15]
Indeed, unions negotiating for drug coverage plans have
requested that the plans include contractual arrangements with
pharmacies in order to guarantee that the policy's promises are
kept.
See Brief for Motor Vehicle Manufacturers Assn. as
Amicus Curiae 10-11.
It might be argued that the drug benefits policy could operate
successfully without any agreement between Blue Shield and the
pharmacies. The consumer could simply pay the pharmacist his full
price, whereupon he would normally receive the drugs without
hesitation. Blue Shield could then reimburse the policyholder for
the full price minus the $2 deductible. This would not, however, be
the policy bargained for in this case. That policy guarantees
provision of drugs upon a minimal $2 payment, without requiring the
policyholder to advance the full price when the contingency of
illness occurs -- a time when he may not be able to afford the
out-of-pocket payment. Moreover, such cash reimbursement plans
almost inevitably include payment ceilings, again distinguishing
them from the full coverage service plan bargained for in this
case.
See discussion
infra at
440 U. S. 252
and n. 20.
[
Footnote 2/16]
The Court errs in its reading of
SEC v. Variable Annuity
Life Ins. Co., 359 U. S. 65
(1959). There, a "variable annuity" plan was held not to be "the
business of insurance" because all risk remained on the
policyholder and no underwriting of risk occurred. The key to
Variable Annuity is that neither the agreement at issue
nor any with which it was involved effectuated a transference of
risk.
Id. at
359 U. S. 71.
That is not the case here, where the policyholder has successfully
transferred his risk by trading his premium for the certainty of
benefits in the event of illness.
[
Footnote 2/17]
Sinai 49.
See, e.g., 1937 Ga.Laws, p. 690; 1939 Iowa
Acts, ch. 222; 1939 Mich.Pub.Acts No. 109; 1939 N.M.Laws, ch. 66;
1939 Tex.Gen.Laws, p. 123. The same is true of the modern state
statutes.
See Eilers 106-107.
[
Footnote 2/18]
Indeed, some state insurance commissioners have made aggressive
use of their authority over provider contracts as a means of
controlling premium rates.
See Frankford Hospital v. Blue Cross
of Greater Philadelphia, 417
F. Supp. 1104, 1106 (ED Pa.1976),
aff'd, 554 F.2d 1253
(CA3),
cert. denied, 434 U.S. 860 (1977); State of
Michigan, Commissioner of Ins., No. 77-R-101 (Mar. 3, 1977); State
of Illinois, Dept. of Ins., Hearing No. 1607 (Apr. 8, 1977). This
may also explain why the Federal Government, in programs in which
it functions as a health insurer, requires that its provider
agreements include specified fee formulas.
See, e.g., 42
U.S.C. §§ 1395u, 1395x(v) (Medicare).
[
Footnote 2/19]
The pharmacist respondents would not be better off if Blue
Shield set acquisition cost as well as markup. In that event, they
might not even meet the cost of their own outlays.
[
Footnote 2/20]
The plan here was "bargained for" in the literal sense. It had
its origins in a 1967 collective bargaining agreement between the
United Auto Workers and the three largest domestic automobile
manufacturers. Brief for Petitioners 6.
[
Footnote 2/21]
The Solicitor General suggests that this test could be subverted
by an insurer's decision to list all kinds of incidental and even
unrelated transactions in its policy. As with other forms of
antitrust immunity, I have no difficulty concluding that "sham"
arrangements should not be honored.
Cf. Eastern Railroad
Presidents Conference v. Noerr Motor Freight, Inc.,
365 U. S. 127,
365 U. S. 144
(1961);
California Motor Transport Co. v. Trucking
Unlimited, 404 U. S. 508
(1972).
[
Footnote 2/22]
These factors together are sufficient to decide this case. I
need not decide whether either would independently suffice, nor
whether, in the absence of these factors, others might also be
capable of bringing a provider agreement within the exemption.
[
Footnote 2/23]
See Proctor v. State Farm Mutual Automobile Ins. Co.,
182 U.S.App.D.C. 264, 561 F.2d 262 (1977),
aff'g 406 F. Supp.
27 (DC 1975),
cert. pending, No. 77-580;
Doctors,
Inc. v. Blue Cross of Greater Philadelphia, 557 F.2d 1001 (CA3
1976),
aff'g 431 F. Supp.
5 (ED Pa.1975);
Frankford Hospital v. Blue Cross of Greater
Philadelphia, 554 F.2d 1253 (CA3 1976),
aff'g 417 F.
Supp. 1104 (ED Pa.),
cert. denied, 434 U.S. 860
(1977);
Anderson v. Medical Service of District of
Columbia, 551 F.2d 304 (CA4 1977),
aff'g 1976-1 Trade
Cases � 60,884 (ED Va);
Travelers Ins. Co. v. Blue Cross of
Western Pennsylvania, 481 F.2d 80 (CA3),
aff'g 361 F.
Supp. 774 (WD Pa.1972),
cert. denied, 414 U.S. 1093
(1973).
[
Footnote 2/24]
Such an arrangement could not be suspect simply because it would
be anticompetitive,
see discussion,
supra at
440 U. S. 249.
Rather, that means of providing policy benefits might be regarded
as so unnecessary, and so likely to have its principal impact on
pharmacies, rather than policyholders, as to cross the boundary
line of what constitutes the "business of insurance." I intimate no
view upon the question.
[
Footnote 2/25]
The analogies to other antitrust exemptions referred to by the
Court,
ante at
440 U. S.
231-232, are inapt. It is true that, as a general rule,
an "exempt" party loses its immunity when it makes an agreement
that is outside the scope of the exemption. But that general rule
has no application here unless one assumes what the respondents
need to prove -- that the Pharmacy Agreements are outside the scope
of the McCarran-Ferguson Act. Reference to the cases under the
Capper-Volstead Act is not helpful on the matter, as that Act
limits its exemption to those who are "engaged in the production of
agricultural products
as farmers, planters, ranchmen, dairymen,
nut or fruit growers." 42 Stat. 388, 7 U.S.C. § 291 (emphasis
added). As a result, this Court has held that agreements involving
nonfarmers are not exempt.
National Broiler Marketing Assn. v.
United States, 436 U. S. 816
(1978). As the Court emphasizes, however, the McCarran-Ferguson Act
exemption was not written in terms of "insurance companies," but
extends instead to the "business of insurance." Hence, the
participation of pharmacies does not automatically vitiate the
exemption, as does the participation of nonfarmers in the
Capper-Volstead "analogy."
Nor is reference to the labor exemption helpful to the Court.
The quotation from
Mine Workers v. Pennington,
381 U. S. 657,
381 U. S.
665-666 (1965), cited by the Court,
ante at
440 U.S. 232 n. 39, is in
complete accord with what I would conclude here:
"[A] union [read 'insurer'] may make wage [pharmacy] agreements
with a multi-employer bargaining unit [a group of pharmacies]. . .
. But . . . [o]ne group of employers [pharmacies] may not conspire
to eliminate competitors from the industry, and the union [insurer]
is liable with the employers [pharmacies] if it becomes a party to
the conspiracy."
The labor exemption is a particularly poor analogy for the Court
to stress, because in yet another footnote,
Pennington
expressly approved a set of transactions virtually identical to
those complained of in this case. Here, respondents contend that
Blue Shield adopted a uniform fee policy, even though it may have
suspected that some pharmacies would not be able to compete if
required to limit their markup to that demanded by Blue Shield.
There was, however, no additional evidence of a conspiracy among
the participating pharmacies to drive out their less able brethren,
which Blue Shield then joined. This was precisely the set of
circumstances held by the
Pennington Court to be
within the scope of the exemption:
"Unilaterally, and without agreement with any employer group to
do so, a union may adopt a uniform wage policy and seek vigorously
to implement it even though it may suspect that some employers
cannot effectively compete if they are required to pay the wage
scale demanded by the union. The union need not gear its wage
demands to wages which the weakest units in the industry can afford
to pay. Such union conduct is not, alone, sufficient evidence to
maintain a union-employer conspiracy charge under the Sherman Act.
There must be additional direct or indirect evidence of the
conspiracy."
381 U.S. at
381 U. S. 665
n. 2.
Thus, the approach taken by the Court today does not merely
"narrowly" construe "insurance" in accordance with our general
practice. Rather, that approach actively discriminates between
kinds of insurance, effectively confining "insurance" to
traditional forms and effectively excluding forms that provide
full-service coverage via provider agreements. It thereby places a
significant obstacle in the path of the latter.
[
Footnote 2/26]
The Court argues,
ante at
440 U.S. 232 n. 40, that provider
agreements may have anticompetitive consequences which could lead
to escalation of health care costs. The argument is not without
force, but I must note that the very purpose of an antitrust
exemption is to protect anticompetitive conduct. The argument,
therefore, is better directed to the legislature, which has the
power to modify or repeal McCarran-Ferguson, rather than to this
Court. Referral to the legislators is particularly appropriate in
this case, as the policy aspects may not be as one-sided as those
painted by the Court. There is authority for the proposition that
provider agreements, far from increasing costs, constitute an
effective means for reduction in health care prices and premiums.
Council on Wage and Price Stability, Employee Health Care Benefits:
Labor and Management Sponsored Innovations in Controlling Cost, 41
Fed.Reg. 40298, 40305 (1976). And the argument that "there is
little incentive on the part of Blue Shield to minimize costs,
since it is in the interest of the providers to set fee schedules
at the highest possible level" overlooks the vital consideration
that many, if not most, of these plans originate in collective
bargaining agreements where "the consumer power and negotiating
expertise of organized labor" combine to "reduce the unit price of
health services."
Ibid. Control over provider agreements
by state insurance commissioners constitutes a second "incentive"
operating in the same direction.
See 440
U.S. 205fn2/18|>n. 18,
supra. Whether or not the
potential anticompetitive impact of McCarran-Ferguson outweighs
these positive effects on health care costs is a judgment properly
to be made by Congress.