The recent controversy and showdown over health-care reform in Congress has brought the issue to the forefront of the public. The issue of health insurance has a long and storied history, and many of the concepts concerning regulation that have been debated lately have to do with a piece of legislation called the McCarran Ferguson Act. This article explains this act and how it affects regulation of the insurance industry.

Background of the Act:

Before 1945, health insurance regulations were relatively lax, and the federal government had little to do with controlling insurance companies and the guidelines they chose to employ. For years, insurance companies could set rates as they saw fit, which caused some to protest this arrangement.

In 1944, the U.S. Supreme Court ruled in United States v. South-Eastern Underwriters Association that the Commerce Clause of the U.S. Constitution allowed insurance to be regulated. However, a dissenting opinion in the case said that the Court should follow the lead of Congress. Taking this as a cue, Congress passed the McCarran Ferguson Act.

What the Act Means:

Under the provisions of this act, health insurance regulations are exempt from federal anti-trust laws designed to keep companies from joining together to form a trust or monopoly, as a way of keeping companies from using non-competitive, unfair rates. The act instead allows states the authority to regulate health insurance without interference from the federal government.

Does this mean that the federal government cannot regulate insurance at all? It does not; insurance companies still have to abide by federal legislation designed to prevent, among other things, discrimination based on gender, age, race, etc. It does mean, though, that the main regulatory body for the insurance industry is not the federal government through a federal agency.

Instead, each state has a state insurance commission which has the authority of overseeing insurance within the state. This is one reason why state regulations can vary from state to state. This is also a reason why there is no central federal body or agency that deals with health care insurance.

Implications for Health Care Today:

The health care reform debate was shaped by this act because it has historically been difficult for the federal government to intervene in what Congress has made a state issue. With the passage of the recent law, though, this situation is changing and the federal government is becoming more involved in regulating insurance.

Whether or not the act will be repealed, has yet to be seen. What is for certain, though, is that the federal government, because of this act, must seek wide, sweeping legislation to regulate health care insurance – resulting in the comprehensive reform passed recently.