Reconciling McCarran-Ferguson (Insurance) Case Law and ERISA Preemption: Kentucky Assn of Health Plans, Inc. v. Miller

CRS Report for Congress
Reconciling McCarran-Ferguson (Insurance)
Case Law and ERISA Preemption: Kentucky
Ass’n of Health Plans, Inc. v. Miller
Janice E. Rubin
Legislative Attorney
American Law Division
In Kentucky Ass’n of Health Plans, Inc. v. Miller,1 the Supreme Court ruled that
Kentucky’s “any willing provider” statutes, which mandate that health plans and health
insurers may not exclude from their networks any health-care providers that agree to the
plans’ participation terms, are not preempted by ERISA; as statutes that regulate and are
specifically directed toward the insurance industry they are exempted from such
preemption by the “savings” clause in ERISA, which precludes preemption for state
laws that “regulate ... insurance, banking, or securities.” Rejecting plaintiffs’ arguments
– grounded in case law interpreting the McCarran-Ferguson Act’s antitrust exemption
for the “business of insurance” – that the Kentucky laws, because they also reach
health-care providers, are not ‘specifically directed toward’ insurers, and do not regulate
insurance practices, the Court reconsidered and rejected prior judicial reliance upon
McCarran-Ferguson case law as a guide to interpreting ERISA’s applicability to and
preemption of state laws purporting to deal with insurance. The Court emphasizes the
distinction between the conduct of private parties that is the focus of McCarran-
Ferguson interpretation and the state laws that are the subject of the current litigation
to conclude that “our use of the McCarran-Ferguson case law in the ERISA context has
misdirected attention, failed to provide clear guidance to the lower federal courts, and
... added little to the relevant analysis.”2
Kentucky has enacted statutory provisions that prohibit health insurers from
discriminating against any health providers who are willing to abide by a health plan’s
participation terms – so-called “any willing provider” statutes.3 ERISA (Employee
Retirement Income Security Act of 1974) generally preempts state laws “insofar as they

1 538 U.S. 329 (2003)
2 Id. at 339-340.
3 Ky. Rev. Stat. Ann. § § 304.17A-270, 304.17A-271.
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may now or hereafter relate to any employee benefit plan.”4 State laws that regulate, inter
alia, “insurance” are not, however, preempted.5 The McCarran-Ferguson Act exempts
the “business of insurance” from the federal antitrust laws to the extent that nothing in
such business constitutes a boycott,6 thus leaving insurance regulation predominantly to
the states.7 Petitioner health plans, in Kentucky Ass’n of Health Plans, Inc. v. Miller,
argued to the Supreme Court that because the Kentucky statutes required actions not
encompassed in the McCarran-Ferguson “business of insurance” exemption, they did not
qualify for ERISA’s non-preemption treatment. The Court took the opportunity to clarify
the difference between the two federal statutes, and announced that it would no longer
rely upon case law interpreting the McCarran-Ferguson exemption in deciding whether
the ERISA “savings” clause would protect challenged state laws.
During the more than 50 years of its existence, the applicability of McCarran-
Ferguson has been interpreted in a series of decisions clarifying the exemption,
culminating in 1979, with the Court’s opinion in Group Life Ins. Co. v. Royal Drug,8
synthesized in Union Labor Life Ins. Co. v. Pireno.9 In Pireno, the Supreme Court
restated the three factors a court must find in order to determine that a practice constitutes
the “business of insurance” and qualifies for the McCarran-Ferguson exemption: it must
have the effect of transferring or spreading a policyholder’s risk; it must constitute an
“integral” part of the policy relationship between the insured and the insurer; and it must
be limited to entities within the insurance industry.10
The Pireno Court had also noted that even express exemptions from the antitrust
laws “must be” construed narrowly, and the Kentucky Ass’n of Health Plans Court thus
agrees with petitioners’ argument that the challenged “any willing provider” statutes
probably would not, under Royal Drug and Pireno, be entitled to the McCarran-Ferguson
exemption because they address entities both within and outside the insurance industry.
But the savings clause in ERISA, the Court notes, unlike the McCarran-Ferguson
exemption, is not limited to the “business of insurance,” and the health plans cannot
prevail upon the Court to allow ERISA to preempt the Kentucky statutes: “whether or not

4 29 U.S.C. § 1144(a).
5 29 U.S.C. § 1144 (b)(2)(A).
6 15 U.S.C. § § 1011 et seq.
7 McCarran-Ferguson does not preclude federal regulation of the business of insurance,
prohibiting all preemption of state laws; only indirect regulation by application of statutes such
as, e.g., the antitrust laws, is prohibited: “No Act of Congress shall be construed to ... supersede
any law enacted by any State for the purpose of regulating the business of insurance ... unless
such Act specifically relates to the business of insurance.” 15 U.S.C. § 1012(b) (emphasis
8 440 U.S. 205 (1979).
9 458 U.S. 119 (1982).
10 In other words, McCarran-Ferguson addresses the “business of insurance” (and not the
business of insurance companies); see Royal Drug, 440 U.S. at 216-217. For a less cursory
treatment of the McCarran-Ferguson exemption and its background, see CRS Report 90-212, The
McCarran-Ferguson Act’s Exemption of the Business of Insurance From Federal Antitrust Law.

an HMO’s contracts with providers constitute the ‘business of insurance’ under Royal
Drug is beside the point.”11
We believe that our use of the McCarran-Ferguson case law in the ERISA context has
misdirected attention, failed to provide clear guidance to lower federal courts, and, as
this case demonstrates, added little to the relevant analysis. That is unsurprising,
since the statutory language of [ERISA’s “savings” clause] differs substantially from
that of the McCarran-Ferguson Act. Rather than concerning itself [as does McCarran-
Ferguson] with whether certain practices constitute ‘[t]he business of insurance ... or
whether a state law was ‘enacted ... for the purpose of regulating the business of
insurance” ... [the ERISA clause] asks merely whether a state law is a ‘law ... which
regulates insurance ....’ What is more, the McCarran-Ferguson factors were12
developed in cases that characterized conduct by private actors, not state laws.
Because the two statutes are worded differently and serve different purposes,
therefore, the Court finds that it can no longer, without creating additional confusion and
disagreement among participants in the judicial system, utilize the case law interpreting
the McCarran-Ferguson Act to inform decisions concerning the applicability of the
“savings” clause of ERISA.

11 538 U.S. at 338.
12 Id. at 539-540 (emphasis in original). The Court had noted previously that not all state laws
directed at the insurance industry would necessarily pass ERISA “savings-clause” muster, giving
as an example of one that would not, a law mandating that insurance companies pay their janitors
“twice the minimum wage”: even though such a statute would undoubtedly constitute a
prerequisite to an entity’s ability to engage in the business of insurance, it would not affect the
traditional risk-pooling arrangements between an insurer and insured.