Antitrust Law Daily McCarran-Ferguson Act precludes antitrust claims against ‘Florida Blue’
Monday, September 23, 2019

McCarran-Ferguson Act precludes antitrust claims against ‘Florida Blue’

By Jody Coultas, J.D.

Sherman Act claims alleging that Blue Cross and Blue Shield of Florida used illegal, coercive broker agreements to block Oscar Insurance Co. of Florida from entering a Florida insurance market dismissed.

Allegations that Blue Cross and Blue Shield of Florida, Inc. and related health insurance plans (Florida Blue) used exclusivity arrangements with Florida insurance brokers to prevent a new competitor from entering the market were barred by the McCarran-Ferguson Act. Upon learning that Florida insurance agents had been contacted by Oscar Insurance Co. of Florida, Florida Blue informed its brokers that their association with Florida Blue would be terminated if they did not terminate their appointments with Oscar Insurance. The exemption applied because the challenged activity was part of the "business of insurance," the exclusivity arrangement was regulated by Florida law, and Florida Blue’s actions did not constitute coercion (Oscar Insurance Co. of Florida v. Blue Cross and Blue Shield of Florida, Inc., September 20, 2019, Byron, P.).

Oscar Insurance entered the Orlando health insurance market in 2018, selling individual health insurance plans in the "Bronze," "Silver," and "Gold" categories under the Affordable Care Act exchange. Individuals in Orlando could purchase these plans during the open-enrollment period running from November 1, 2018, to December 15, 2018, with coverage starting January 1, 2019. As part of its efforts as a new entrant into the market, Oscar Insurance used local brokers to sell its plans. However, one week before the open enrollment period began, Florida Blue sent an email to its brokers stating that if they did not terminate their appointments with Oscar Insurance within 48 hours, their Florida Blue appointments would be terminated. Florida Blue then updated its exclusivity policy, requiring brokers to sign an agreement acknowledging that "[a]ny agent or agency that violates the exclusivity arrangement with Florida Blue will be permanently terminated for cause." Subsequently, 235 brokers rescinded their appointments with Oscar Insurance. After accounting for the termination of the Florida Blue appointments, Oscar Insurance successfully appointed 1,887 brokers in Florida—with less than forty percent actually selling plans during the 2018 open-enrollment period.

The exclusivity agreements were part of Florida Blue’s anticompetitive scheme to keep Oscar Insurance from entering the Orlando insurance market, Oscar Insurance alleged. In response, Florida Blue sought dismissal of the antitrust claims based on the McCarran-Ferguson Act, which immunizes insurers from federal suits involving the "business of insurance."

The McCarran-Ferguson Act exempts the activities of insurance companies from antitrust liability when the following three elements are met: "(1) the challenged activity is part of the ‘business of insurance’; (2) the challenged activity is regulated by state law; and (3) the challenged activity does not constitute a boycott, coercion, or intimidation.

Business of insurance. To determine whether an insurer’s activity is within the business of insurance, courts consider (1) whether the practice has "the effect of transferring or spreading a policyholder’s risk"; (2) whether the practice is "an integral part of the policy relationship between the insurer and the insured"; and (3) whether the practice is "limited to entities within the insurance industry."

Florida Blue’s exclusive broker agreement constitutes the business of insurance, according to the federal district court in Orlando. As to the spreading risk factor, the court found that Florida Blue’s exclusive brokers work to create a broad risk pool, thereby spreading the risk, and that allowing Oscar to have access to Florida Blue’s exclusive brokers would impact Florida Blue’s ability to spread risk. "The relationship between the insurer and its brokers is at the core of the business of insurance—that is, spreading risk." The "integral part" prong required little consideration given the clear necessity of insurance brokers to navigate the complex world of health insurance coverage. Finally, as to the third prong, the court stated that brokers are not outside the insurance industry. Even Oscar Insurance conceded that brokers play an instrumental role in the sale of health insurance.

Regulated by state law. Oscar Insurance’s argument that the Florida Insurance Code does not specifically regulate exclusive brokerage agreements, thereby taking Florida Blue’s exclusive brokerage agreements outside the McCarran-Ferguson Act, was rejected by the court. Florida law comprehensively regulates the relationship between principles and their agents. The court did not that Florida exempts from regulation of monopolies and restraint of trade any activity exempt from provisions of the antitrust laws of the United States. Thus, activity exempt under McCarran-Ferguson is exempt from Florida’s laws regulating that same conduct. A reasonable argument could be made that Florida’s pass-through exemption precludes a finding that the activity is regulated by the state. However, had Congress intended for the exemption to exist only when state laws both regulate the activity and preclude exemption from the state’s scrutiny, it would have said as much.

Boycott. The court concluded that there was nothing coercive about enforcing the contractual relationship between Florida Blue and its brokers. Exclusive dealing arrangements are not per se unlawful but can violate antitrust laws when used by a dominant firm to maintain its monopoly. Florida Blue’s use of exclusive brokerage agreements predates Oscar’s entry into the market. Oscar asks the court to find that the continued use of exclusivity agreements, and Florida Blue’s enforcement of such lawful contractual relationships, constitutes coercion. However, if a contractual relationship is lawful, a party may enforce the agreement without those efforts morphing into coercion. The court noted that it was irrelevant to the issue of coercion that brokers who violate the agreement lose all of Florida Blue’s business. The brokers agreed to work exclusively for Florida Blue in exchange for access to all of Florida Blue’s product lines. The consequences of violating the agreement is the broker’s inability to sell insurance for Florida Blue. This was not coercive.

The case is No. 6:18-cv-01944-PGB-TBS.

Attorneys: Matthew Lisagar (Skadden, Arps, Slate, Meagher & Flom, LLP) and Sarah Anne Long (McDonald Toole Wiggins, PA) for Oscar Insurance Co. of Florida. Christine A. Varney (Cravath, Swaine & Moore, LLP) and Evan R. Chesler (Cravath, Swaine & Moore, LLP) for Blue Cross and Blue Shield of Florida, Inc. d/b/a Florida Blue, Florida Health Care Plan Inc. d/b/a Florida Health Care Plans and Health Options Inc. d/b/a Florida Blue HMO.

Companies: Oscar Insurance Co. of Florida; Blue Cross and Blue Shield of Florida, Inc. d/b/a Florida Blue; Florida Health Care Plan Inc. d/b/a Florida Health Care Plans; Health Options Inc. d/b/a Florida Blue HMO

MainStory: TopStory Antitrust FloridaNews

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