The Supreme Court, in a decision with broad potential impact on health care, ruled yesterday the antitrust immunity granted insurance companies does not extend to anticompetitive agreements they enter into to provide goods or services.
Specifically, the court ruled 5 to 4 that a restrictive agreement by Group Life & Health Insurance Co. (Blue Shield of Texas) to provide prescription drugs to policyholders was not covered by the insurance industry's antitrust immunity.
Although the case specifically involved health care benefits, the ruling applies to a broad array of insurance costs ranging from hospital fees to auto repair.
Both the United Auto Workers union and the Motor Vehicle Manufacturers Association had warned prior to the ruling that such a decision would increase the cost of health care. The Justice Department, however, has predicted long-term benefits from broader competition.
The case involved the McCarran-Fefguson Act of 1945, which exempts from the federal antitrust laws the "business of insurance" to the extent that it is regulated by state law and isn't a boycott.
Just what that "business" encompasses was at the heart of the dispute between the litigants, Group Life and the owners of 18 independent pharmacies in San Antonio.
Blue Shield invited every licensed pharmacy in the state to sign an agreement under which the insurer would reimburse the costs of filling a prescription and the mark-up would be only the $2 fee paid by the policyholder.
To steer business to signers of the agreement, Blue Shield restricts the $2 maximum only to those policyholders who patronize signatories; those who patronize non-signers must pay 25 percent of the difference between $2 and the retail price.
Such agreements, initiated in 1967 by the domestic auto industry's "Big Three" manufacturers and the UAW, have grown to the point that Blue Shield and Blue Cross plans across the country now enroll more than 7 million subscribers in them. Additional large numbers of persons are enrolled in out-of-hospital plans offered by other insurers
In the Texas case, the dispute was not about the arrangements insofar as Blue Shield and the policyholders were concerned. In the opinion for the court, Justice Potter Stewart acknowledged that the majority wasn't saying that these "may not be the 'business of insurance'..."
Rather, the dispute centered on the so-called "provider" agreements between Blue Shield and the pharmacies. Like the 5th U.S. Circuit Court of Appeals, which was affirmed yesterday, Stewart wrote that such agreements are not part of the business of insurance and, consequently, are not exempt from the antitrust laws.
They don't involve "any underwriting or spreading of risk, but are merely arrangements for the purchase of goods and services by Blue Shield," Stewart said.
Like "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 policy holders," the agreements are part of something that isn't exempted by law, "the 'business of insurance companies'," he said.
The legislative history of McCarran-Ferguson contains "not the slightest suggestion" of a congressional intent to exempt "the mass purchase of goods and services from outside the insurance industry," Stewart declared.
The majority did not deal with the question of whether the agreements constitute illegal price fixing and an unlawful group boycott of non-signatory pharmacies, as claimed in the antitrust lawsuit filed by the 18 San Antonio druggists.
The dissenting opinion reached the same conclusion on such agreements as has been reached by every federal appeals court except for the 5th Circuit in this case. Justice William J. Brennan Jr. wrote it, joined by Chief Justice Warren E. Burger and justices Thurgood Marshall and Lewis F. Powell Jr.
The unchallenged Blue Shield arrangement with policy holders can work only if coupled with something like the pharmacy agreements, because they obtain "the very benefits promised in the policy," Brennan said.
He said he would hold the agreements immune under the antitrust laws "because they (1) directly obtain the very benefits promised in the policy and therefore directly affect rates, cost, and insure reliability, and (2) themselves constitute a critical element of risk 'prediction'."