The current interpretation of the
McCarran-Ferguson Act is only
a specter of the law’s original intent
The belief that McCarran-Ferguson is just an antitrust
exemption for the insurance industry is just another clever humbug.
By Kevin P. Hennosy
March 9, 2025, is the 80th anniversary of the passage of the McCarran-Ferguson Act. Do not expect a parade. Transit services will not waive fares.
The “Act to express the intent of the Congress with reference to the regulation of the business of insurance” is all but forgotten after eight decades of outrageous implementation.
More often than not, one comes across references to the statute only as part of course work for a university degree or professional certification. Occasionally, journalists mention the McCarran-Ferguson Act but describe it only as “the insurance industry’s antitrust exemption.” Of course, frequent readers of this column see more than their share of references to the statute. Mea Culpa!
To anyone who honestly reads the McCarran-Ferguson Act, the application of the term “antitrust exemption” to the statute is stupefying. The “exemption” from Federal Antitrust Law and Federal Trade Commission enforcement is limited, and contingent on state regulatory action.
One could counter that this layman’s interpretation of the act’s straightforward language ignores deeper legal meanings that lurk behind the words. A former-Ralph Nader consumer advocate and occasional insurance regulator blew that smoke my way during a discussion 20 years ago and never followed up with evidence to support their claim.
Of course, lawyers know the Secrets of the Temple and the proper incantations to unlock those secrets, unlike laymen who can only read!
The evidence rests with any interpretation of the act that recognizes its limited and contingent nature. The Congress loaned the states jurisdiction over insurance “to the extent that insurance is regulated by state law.”
In 1948, the Notre Dame Law Review carried an article attributed to Senator Patrick McCarran (D-Nev.), titled “Insurance as Commerce—After Four Years.” One may assume that the article was the work of a ghostwriter because the Senator’s Papers do not include any draft versions of the piece.
Whoever penned the article, it presented the Senator’s views on insurance and its regulation four years after the Supreme Court ruled that the business of insurance is interstate commerce. When discussing the “McCarran-Ferguson Act” the article avoids using the author’s name. Instead, the article refers to Public Law 15 of 1945. McCarran described the statute, as follows: The Act specifically made the Sherman Act and related acts inapplicable to the business of insurance until January 1, 1948; and further provided that after the end of the moratorium period, the Sherman Act, Clayton Act, and the Federal Trade Commission Act are to be applicable to the business of insurance “to the extent that such business is not regulated by State law.”
In the 1960s, the National Association of Independent Insurers, an insurance carrier trade group formed in 1945 to, among other roles, lobby the states to implement regulation consistent with the McCarran-Ferguson Act, published a small book, which recounted 25 years of insurance caselaw. The decisions in those cases echoed the interpretation of the statute included in the law review article signed by McCarran.
Later still, on October 16, 1972, the U.S. Su-preme Court denied a hearing in the case of ohio afl-cio, united autoworkers of ohio v. insurance rating bd., 409 u.s. 917 (1972). The case alleged that an Ohio Private Rating Board empowered insurers to set prices outside the scope of McCarran-Ferguson.
Justice William O. Douglas wrote a dissenting opinion against the decision of the Court’s majority, which said that he would have ordered the case up from the Appeals Court for a hearing. The Douglas dessent that the Ohio insurance regulators were not providing regulatory oversight to the Boards’ ratemaking activities. The justice wrote, “This McCarran-Ferguson Act provides, in part, that the Sherman Anti-Trust Act ‘shall be applicable to the business of insurance to the extent that such business is not regulated by State law.’”
Justice Douglas went further to note that the Court established precedent that states could not simply pass laws to meet the McCarran threshold: “We indicated [in Federal Trade Commission v. National Casualty Co., 357 U.S. 560, 563, 2 L. Ed. 2d 1540], however, that the grant of exclusive regulatory power to the State would be ineffective if the state statutory provisions which purported to regulate were a ‘mere pretense’ of regulation.”
In the intervening half-century, the “mere pretense” of regulation is about all that remains of the old McCarran-Ferguson framework.
The change did not come overnight. The process reminds this writer of the fable where a poor drifter stops at a house and asks an old woman who lived there for food, and she says “No, I haven’t any food.” The drifter does not leave. Instead, he reaches into his pack and pulls out a nail and asks the woman to put a pot of water on the stove so he can make his favorite dish, Nail Soup. Intrigued, she did what the drifter asked, and he placed the nail into the pot.
As the water heats up, the drifter tells the woman that the only thing that would make Nail Soup better was a potato. Curious, she retrieves a potato and gives it to him to put into the pot. Of course, as the story continues, and the drifter keeps suggesting the addition of single ingredients to make the Nail Soup a little bit better, a delicious stew comes together in the pot.
The history of McCarran-Ferguson over the past half-century is a backward retelling of the Nail Soup story. In 1945, the independent insurers (non-cartel), independent agents, and the states received a feast from Congress in the form of jurisdiction, tax revenue, and parochial regulation.
In the 1950s and 1960s, independent insurers and agents celebrated the McCarran-Ferguson Act as the tasty gumbo that it was. No longer could the cartel companies and agents punish the independent agents and companies. But in the last 50 years, changes to the political interpretation of the law, not the text of the law, encouraged states to remove one regulatory ingredient after another until all that is left is hot air.
So, when one looks at the text of the statute, one sees that nothing has changed since one minor amendment to extend the antitrust moratorium for another year. The text still supports Justice Douglas’s dissent from 1972, previously cited.
Only the false interpretation of the act fostered change in insurance regulation. An act to express congressional intent on “the regulation of the business of insurance” became the insurance industry’s “Antitrust exemption.” The McCarran-Ferguson Act transformed into a Ghost Law, which exists only in belief.
We should note that Americans possess a mighty ability to fervently believe the unbelievable. In his stellar book Fantasyland: How America Went Haywire, Kurt Andersen references a life-changing observation made by P. T. Barnum. According to Andersen, “Barnum realized ‘the perfect good nature with which the American public submits to a clever humbug.’”
“Clever humbugs” abound in American history: The 1846 Mexican Invasion of Texas, Mrs. O’Leary’s cow, The Mothman Terror Spree, and the belief that “federalism” means transferring jurisdiction to the states to name a few. The belief that McCarran-Ferguson is just an antitrust exemption for the insurance industry is just another clever humbug.
However, clever humbugs can and often do shape public policy. The United States waged a War of Aggression on Mexico based upon the clever humbug mentioned above. A series of clever-enough humbugs have erased the text of the McCarran-Ferguson Act and replaced its statutory provisions with a pretense of regulation. The statute, as written in 1945, is still “the law of the land,” as cited in the Gramm Leach Bliley Act of 1999.
One may assign a certain measure of justice to the reality that the statute that bears the names of two of the most corrupt U.S. Senators to ever serve in the chamber has become a Ghost Law. It is as if for their sins, McCarran and Ferguson must “ride forever on that range up in the sky.”
The author
Kevin P. Hennosy is an insurance writer who specializes in the history and politics of insurance regulation. He began his insurance career in the regulatory compliance office of Nationwide and then served as public affairs manager for the National Association of Insurance Commissioners (NAIC). Since leaving the NAIC staff, he has written extensively on insurance regulation and testified before the NAIC as a consumer advocate.
