Court Opinion

ID: 9427465
Source: CourtListenerOpinion
Date Created: 2023-08-02 23:20:54.669013+00
Date Added: 2024-06-11T17:23:07.422897
License: Public Domain

Mr. Justice Brennan,
with whom The Chief Justice, Mr. Justice Marshall, and Mr. Justice Powell join, dissenting.
The McCarran-Ferguson Act, 59 Stat. 33, as amended, 15 IT. S. C. §§ 1011-1015, renders the federal antitrust laws inapplicable to the “business of insurance” to the extent such business is regulated by state law and is not subject to the “boycott” exception stated in § 1013 (b).1 The single question presented by this case is whether the “business of insurance” *234includes direct contractual arrangements (“provider agreements”) between petitioner Blue Shield and third parties to provide benefits owed to the insurer’s policyholders. The Court today holds that it does not.
I disagree: Since (a) there is no challenge to the status of Blue Shield’s drug-benefits policy as the “business of insurance,” I conclude (b) that some provider agreements negotiated to carry out the policy obligations of the insurer to the insured should be considered part of such business, and (c) that the specific Pharmacy Agreements at issue in this case should be included in such part. Before considering this analysis, however, it is necessary to set forth the background of the enactment of the McCarran-Ferguson Act.
I
SEC v. National Securities, Inc., 393 U. S. 453, 459 (1969), recognized that the legislative history of the McCarran-Ferguson Act sheds little light on the meaning of the words “business of insurance.” See S. Hep. No. 20, 79th Cong., 1st Sess. (1945); H. R. Rep. No. 143, 79th Cong., 1st Sess. (1945). But while the legislative history is largely silent on the matter,2 it does indicate that Congress deliberately chose *235to phrase the exemption broadly. Congress had draft bills before it which would have limited the “business of insurance” to a narrow range of specified insurance company practices, but chose instead the more general language which ultimately became law.3
*236The historical background of the statute’s enactment, developed by the Court in SEC v. National Securities, Inc., supra, provides the guide to congressional purpose:
“The McCarran-Ferguson Act was passed in reaction to this Court’s decision in United States v. South-Eastern Underwriters Asm., 322 U. S. 533 (1944). Prior to that decision, it had been assumed, in the language of the leading case, that ‘[iIssuing a policy of insurance is not a transaction of commerce.’ Paul v. Virginia, 8 Wall. 168, 183 (1869). Consequently, regulation of insurance transactions was thought to rest exclusively with the States. In South-Eastern Underwriters, this Court held that insurance transactions were subject to federal regulation under the Commerce Clause, and that the antitrust laws, in particular, were applicable to them. Congress reacted quickly . . . [, being] concerned about the inroads the Court’s decision might make on the tradition of state regulation of insurance. The McCarran-Ferguson Act was the product of this concern. Its purpose was stated quite clearly in its first section; Congress declared that The continued regulation and taxation by the several States of the business of insurance is in the public interest.’ 59 Stat. 33 (1945), 15 U. S. C. § 1011. As this Court said shortly afterward, ‘[ojbviously Congress’ purpose was broadly to give support to the existing and future state systems for regulating and taxing the business of insurance.’ Prudential Insurance Co. v. Benjamin, 328 U. S. 408, 429 (1946).
“The . . . Act was an attempt to turn back the clock, to assure that the activities of insurance companies in dealing with their policyholders would remain subject to state regulation.” 393 U. S., at 458-459.
See also St. Paul Fire & Marine Ins. Co. v. Barry, 438 U. S. 531, 538-539 (1978); 90 Cong. Rec. 6524 (1944) (Cong. Wal*237ter) (“[T]he legislation ... is designed to restore to the status quo the position the insurance business of this Nation occupied before the Supreme Court recently legislated [in SouthEastern Underwriters]”).
Since continuation of state regulation as it existed before South-Eastern was Congress’ goal,4 evidence of what States *238might reasonably have considered to be and regulated as insurance at the time the McCarran-Ferguson Act was passed in 1945 is clearly relevant to our decision. This does not mean that a transaction not viewed as insurance in 1945 cannot be so viewed today.
“We realize that . . . insurance is an evolving institution. Common knowledge tells us that the forms have greatly changed even in a generation. And we would not undertake to freeze the conceptt] of 'insurance’ . . . into the mold [it] fitted when these Federal Acts were passed.” SEC v. Variable Annuity Lije Ins. Co., 359 U. S. 65, 71 (1959).
It is thus logical to suppose that if elements common to the ordinary understanding of “insurance” are present, new forms of the business should constitute the “business of insurance” for purposes of the McCarran-Ferguson Act. The determination of the scope of the Act, therefore, involves both an analysis of the proximity between the challenged transactions and those well recognized as elements of “insurance,” and an examination of the historical setting of the Act. On both counts, Blue Shield’s Pharmacy Agreements constitute the “business of insurance.”
*239II
I start with common ground. Neither the Court, ante, at 230 n. 37, nor the parties challenge the fact that the drug-benefits policy offered by Blue Shield to its policyholders — as distinguished from the contract between Blue Shield and the pharmacies — is the “business of insurance.” Whatever the merits of scholastic argument over the technical definition of “insurance,” the policy both transfers and distributes risk. The policyholder pays a sum certain — the premium — against the risk of the uncertain contingency of illness, and if the company has calculated correctly, the premiums of those who do not fall ill pay the costs of benefits above the premiums of those who do. See R. Mehr & E. Cammack, Principles of Insurance 31-32 (6th ed. 1976). An important difference between Blue Shield’s policy and other forms of health insurance is that Blue Shield “pays” the policyholder in goods and services (drugs and their dispensation), rather than in cash. Since we will not “freeze the concep[t] of 'insurance’ . . . into the mold it fitted” when McCarran-Ferguson was passed, this difference cannot be a reason for holding that the drug-benefits policy falls outside the “business of insurance” even if our inquiry into the understandings of what constituted “insurance” in the 1930’s and 1940’s were to suggest that a contrary view prevailed at that time.5
Fortunately, logic and history yield the same result. It is true that the first health insurance policies provided only cash indemnities. However, although policies that specifically provided drug benefits were not available during the 1930’s and 1940’s, analogous policies providing hospital and medical services — rather than cash — were available.
The hospital service-benefit concept originated in Texas in *2401929; medical services were first offered in 1939. R. Eilers, Regulation of Blue Cross and Blue Shield Plans 10, 15 (1963) (hereinafter Eilers). In 1940, 4,500,000 people in 60 communities were covered by Blue Cross or related hospital-benefits plans. C. Rorem, Non-Profit Hospital Service Plans 1-2 (1940) (hereinafter Rorem I). During the 1940’s, health insurance became a subject of collective bargaining, with unions demanding the service-benefit approach of Blue Cross and Blue Shield. S. Law, Blue Cross 11 (1974) (hereinafter Law). By 1945, the year the McCarran-Ferguson Act was enacted, over 20 million people were enrolled in service-benefit programs, with service-benefit plans comprising 61% of the total hospitalization insurance market. See Hearings before the Senate Committee on Education and Labor, A National Health Program, 79th Cong., 2d Sess., pt. 1, p. 173 (1946); Eilers 19; Law 11.
Moreover, regulation of the service-benefit plans was a part of the system of state regulation of insurance that the McCarran-Ferguson Act was designed to preserve. Led by New York in 1934, 24 States passed enabling Acts by 1939 which, while relieving the plans of certain reserve requirements and tax obligations, specifically subjected service-benefit plans to the supervision and control of state departments of insurance.6 See Rorem, Enabling Legislation for Non-Profit Hospital Service Plans, 6 Law & Contemp. Prob. 528, 531, 534 (1939) (hereinafter Rorem II); N. Sinai, O. Anderson, & M. Dollar, Health Insurance in the United States *24148-49 (1946) (hereinafter Sinai); Comment, Group Health Plans: Some Legal and Economic Aspects, 53 Yale L. J. 162, 174 (1943). Another 16 States apparently limited the issuance of hospitalization insurance to stock and mutual insurance companies. Nine acted on the premise that the plans were not “insurance” and authorized operation under general corporation laws, exempt from reserve requirements. Rorem II, p. 532. By the time the MeCarran-Ferguson Act was passed, 35 States had enabling legislation.7 During this period, the National Association of Insurance Commissioners (NAIC), the organization of state insurance directors which played a major role in drafting the MeCarran-Ferguson Act,8 was also drafting model state enabling legislation to govern service-benefit health plans. Proceedings of the NAIC, 75th Sess., 226 (1944); id., 76th Sess., 250 (1945).9
*242Thus, when the McCarran-Ferguson Act became law, service-benefit plans similar to the Blue Shield plan at issue here were a widespread and well-recognized form of insurance, subject to regulation in most of the States. Congress itself treated these important programs as insurance. In 1939, Congress adopted an enabling Act incorporating a hospitalization-benefits plan in the District of Columbia, with supervi*243sory authority placed in the hands of the Superintendent of Insurance. See H. R. 6266, 76th Cong., 1st Sess. (1939); H. R. Rep. No. 1247,76th Cong., 1st Sess. (1939); 84 Cong. Rec. 11224 (1939). And in hearings held the year after passage of the McCarran-Ferguson Act, the same Congress that approved that Act debated Blue Shield-type programs as alternatives to national health insurance, with participating Congressmen frequently referring to them as “insurance.” Hearings before the Senate Committee on Education and Labor, A National Health Program, 79th Cong., 2d Sess., pt. I, pp. 55, 83, 108, 172, pt. 2, p. 558 (1946).10 The status of service-benefit policies as “insurance,” both logically and historically, is therefore sufficiently established to make that the first premise in an analysis of the status of the Pharmacy Agreements at issue in this case.
Ill
The next question is whether at least some contracts with third parties to procure delivery of benefits to Blue Shield's insureds would also constitute the “business of. insurance.” Such contracts, like those between Blue Shield and the druggists in this case, are known as “provider agreements.” The Court, adopting the view of the Solicitor General, today holds that no provider agreements can be considered part of the “business of insurance.” 11 It contends that the “underwriting or spreading of risk [is]' an indispensable characteristic of *244insurance,” ante, at 212,12 and that “[ajnother commonly understood aspect of the business of insurance relates to the contract between the insurer and the insured.” Ante, at 215. Because provider agreements neither themselves spread risk, nor involve transactions between insurers and insureds, the Court excludes them from the “business of insurance.”
The argument fails in light of this Court’s prior decisions and the legislative history of the Act. The Court has held, for example, FTC v. National Casualty Co., 357 U. S. 560 (1958), that the advertising of insurance, a unilateral act which does not involve underwriting, is within the scope of the McCarran-Ferguson Act. And the legislative history makes it abundantly clear that numerous horizontal agreements between insurance companies which do not technically involve the underwriting of risk were regarded by Congress as within the scope of the Act’s exemption for the “business of insurance.” For example, rate agreements among insurers, a conspicuous congressional illustration, see, e. g., 91 Cong. Rec. 1481, 1484 (1945) (remarks of Sens. Pepper and Ferguson), and the subject of the South-Eastern Underwriters case, see SEC v. National Securities, Inc., 393 U. S., at 460, do not themselves spread risk. Indeed, the Court apparently concedes that arrangements among insurance companies respecting premiums and benefits would constitute the “business of insurance,” despite their failure to fit within its formula. Ante, at 221 and 224-225, n. 32.
But the Court’s attempt to limit its concession to horizontal transactions still conflicts with the legislative history. Compelling evidence is the fact that Congress actually rejected a proposed bill to limit the exemption to agreements between *245insurance companies. S. 12, 79th Cong., 1st Sess. (1945). See n. 3, supra. Moreover, vertical relationships between insurance companies and independent sales agencies were a subject of the indictment in United States v. South-Eastern Underwriters Assn., 322 U. S. 533, 535 (1944), were the object of discussion in the House, 90 Cong. Ree. 6538 (1944) (remarks of Cong. Celler), and were expressly included as part of the “business of insurance” in an early draft of the Act, id., at A4406 (NAIC bill, §4 (b)(5)). Again, the Court concedes that such transactions, between insurers and agents, might fall within the “business of insurance,” despite the inconsistency with the Court’s own theory. Ante, at 224r-225, n. 32.13
The Court’s limitation also ignores the significance of pervasive state insurance regulation — prevailing when the Act was passed — of hospitalization-benefits plans whose “distinctive feature,” Rorem I, p. 64; Proceedings of the NAIC, 75th Sess., 228 (1944), was the provider contract with the participating hospital to provide service when needed. The year prior to adoption of the Act the NAIC emphasized the relationship between provider agreements and service-benefit policies:
“A hospital service plan is designed to provide service rather than to indemnify and this can only be guaranteed through contractual arrangements between plans and hospitals.” Ibid.
The Association also proposed, in the year MeCarran-Ferguson passed, a model state enabling Act requiring “full approval of . . . contracts with hospitals ... by the insurance commissioner.” Proceedings of the NAIC, 76th Sess., 250 *246(1945). That proposal reflected well the actual contents of existing state enabling Acts which armed insurance commissioners with considerable authority to regulate provider agreements.14 Congress itself authorized the service-benefit plan it incorporated in the District of Columbia “to enter into contracts with hospitals for the care and treatment of '[its subscribers].” H. it. 6266, 76th Cong., 1st Sess. (1939). In light of Congress’ objective through the McCarran-Ferguson Act to insure the continuation of existing state regulation, the conclusion that at least some provider agreements were intended to be within the “business of insurance” is inescapable.
Logic compels the same conclusion. Some kind of provider agreement becomes a necessity if a service-benefits insurer is to meet its obligations to the insureds. The policy before us in this case, for example, promises payment of benefits in drugs. Thus, some arrangement must be made to provide those drugs for subscribers.15 Such an arrangement obtains *247the very benefits promised in the policy; it does not simply relate to the general operation of the company. A provider contract in a service-benefit plan, therefore, is critical to “the type of policy which could be issued” as well as to its “reliability” and “enforcement.” It thus comes within the terms of SEC v. National Securities, Inc., 393 U. S., at 460. That case explained that the “business of insurance” involves not only the “relationship between insurer and insured,” but also “other activities of insurance companies [that] relate so closely to their status as reliable insurers that they too must be placed in the same class.” Thus, “ [s]tatutes aimed at protecting or regulating . . . [the insurer/insured] relationship, directly or indirectly, are laws regulating the 'business of insurance.’ ” Ibid, (emphasis added).
The Congress that passed McCarran-Ferguson was composed of neither insurance experts nor dictionary editors. Rather than use the technical term “underwriting” to express its meaning, Congress chose “the business of insurance,” a common-sense term connoting not only risk underwriting, but contracts closely related thereto.16 Since Congress knew of service-benefit policies, and viewed them as insurance, it would strain common sense to suppose Congress viewed con*248tracts necessary to effectuate those policies’ commitments as being outside the business it sought to exempt from the antitrust laws.
IV
The remaining question is whether the provider agreement in this case constitutes the "business of insurance.” Respondents contend that even if some contract between Blue Shield and the pharmacies is necessary, this one is not. Under the contract at issue, the druggist agrees to dispense drugs to Blue Shield’s insureds for a $2 payment, and Blue Shield agrees to reimburse the druggist for the acquisition cost of each drug so dispensed. The pharmacy is thus limited to a $2 "markup.” With support from the Court of Appeals, respondents argue that only the first half of the bargain is necessary for Blue Shield to fulfill its policy obligations. Those are fulfilled when Blue Shield binds the pharmacy to dispense the requested drug for $2. The second' half of the agreement, the amount Blue Shield reimburses the druggist, is assertedly irrelevant to the policyholder. As an alternative to the existing plan, the respondents and the Court of Appeals suggest that Blue Shield could simply pay the pharmacist his usual charge (minus the $2 paid by the policyholder). The present plan, which limits reimbursement to acquisition cost and freezes the markup at $2, is said to set a “fixed” price. From this premise respondents argue that such fixed-price plans are “anticompetitive,” and therefore not the “business of insurance.”
Respondents’ argument is directly contradicted by history. The service-benefit plans available when the McCarran-Ferguson Act was passed actually “fixed” more of the payment to their participating providers than does the plan here, which “fixes” only the markup. Those early plans usually paid established and equal amounts to their participating hospitals, rather than paying whatever each hospital charged. Rorem I, p. 64. Moreover, under the typical state enabling Act, those *249payments were subject to the approval of the state department of insurance.17 The 1937 Pennsylvania statute, for example, provided that “all rates of payments to hospitals made by such [service-benefit plan] corporations . . . and any and all contracts entered into by any such corporation with any hospital, shall, at all times, be subject to the prior approval of the Insurance Department.” 1937 Pa. Laws No. 378. Therefore, as insurer/provider fee agreements were part of the system of state regulation which the McCarran-Ferguson Act sought to preserve, there is no historical reason to exclude Blue Shield’s Pharmacy Agreements from the ambit of the exemption; there is instead a good historical reason for including them.
Nor does respondents’ claim that the Pharmacy Agreements are “anticompetitive” exclude them from constituting the “business of insurance.” The determination of whether Blue Shield’s Pharmacy Agreements actually involve antitrust violations or are otherwise anticompetitive has been held in abeyance, pending final decision as to whether the agreements fall within the scope of the McCarran-Ferguson Act. But even if the agreements were anticompetitive, that alone could not be the basis for excluding them from the “business of insurance.” An antitrust exemption by its very nature must protect some transactions that are anticompetitive; an exemption that is extinguished by a finding that challenged activity violates the antitrust laws is no exemption at all.
While this reason for excluding the Pharmacy Agreements from the circle of exempt provider agreements is unconvincing, there are substantial reasons, in addition to history, for including them within that circle. First, it is clear that the contractual arrangement utilized by Blue Shield affects its *250costs, and thus affects both the setting of rates and the insurer’s reliability. This is definitely a factor relevant to the determination of whether a transaction is within the “business of insurance.” See SEC v. National Securities, Inc., 393 U. S., at 460. See also Proctor v. State Farm Mutual Automobile Ins. Co., 182 U. S. App. D. C. 264, 561 F. 2d 262 (1977). True, that factor alone is not determinative, for as argued by the Court, innumerable agreements, including the lease on the insurance company’s offices, affect cost. This contract, however, has more than a mere incidental connection to the policy and premium. It is a direct arrangement to provide the very goods and services whose purchase is the risk assumed in the insurance policy. It is therefore integral to the insurer’s rate-setting process, as the correlation between rates and drug prices in a drug-benefits policy is necessarily high. Moreover, the ability of state insurance commissioners to regulate rates, an important concern of the Act, is measurably enhanced by their ability to control the formulas by which insurers reimburse providers.18 The same is true of state efforts to ensure that plans are financially reliable. See Travelers Ins. Co. v. Blue Cross of Western Pennsylvania, 481 F. 2d 80, 83 n. 9 (CA3 1973) (quoting the Pennsylvania Insurance Commissioner). This close nexus between the Pharmacy Agreements and both the rates and fiscal reliability of Blue Shield’s plan speaks strongly for their inclusion within the “business of insurance.” See generally Proctor v. State *251Farm Mutual Automobile Ins. Co., supra, at 271-272, 561 F. 2d, at 269-270.
Another reason, in addition to this nexus to basic insurance elements, also supports the conclusion that fixed-price provider agreements are the “business of insurance/’ Such agreements themselves perform an important insurance function. It may be true, as the Court contends, that conventional notions of insurance focus on the underwriting of risk. But they also include efforts to reduce the unpredictable aspects of the risks assumed. Traditional plans achieve this end by setting ceilings on cash payments or utilizing large deductibles. R. Mehr & E. Cammack, Principles of Insurance 222 (6th ed. 1976). Even if the insurer cannot know how often a policyholder might become ill, it can know the extent of its exposure in the event of illness. The actuarial uncertainty, therefore, is greatly reduced. A fixed-price provider agreement attempts to reach the same result by contracting in advance for a price, rather than agreeing to pay as the market fluctuates. The agreement on price at least minimizes the variance of the “payoff” variable, even if the probability of its occurrence remains an unknown. Indeed, if examined carefully, this function comes within the latter half of the definition of “underwriting” offered by the Solicitor General: “spread[ing] risk more widely or reducing] the role of chance events." See n. 12, supra. Of course, the Pharmacy Agreements in this case do not totally control “the role of chance” in drug prices since acquisition costs may fluctuate even if “markup” is fixed, but they are at least an attempt to reduce the role of chance to manageable proportions.19
Moreover, a service-benefit plan which “pay[s] the cost. . . whatever it might be,” as hypothesized by the Court of *252Appeals, 556 F. 2d, at 1381, would run grave risks of bankruptcy. Since it would expose the insurer to unknown liability, it would measurably increase the probability that an incorrect assessment of exposure would occur. This could lead to a failure to cover actual losses with premiums. Respondents argue that this fiscal-reliability problem could be solved by placing a dollar limit on benefits. But such a plan would be almost indistinguishable from a cash-indemnity policy. It would not be the full-service-regardless-of-price plan for which the policyholders bargained.20 The Pharmacy Agreements are thus “other activities of insurance companies relate [d] so closely to their status as reliable insurers that they too must be placed in the same class.” SEC v. National Securities, Inc., supra, at 460.
Y
The process of deciding what is and is not the “business of insurance” is inherently a case-by-case problem. It is true that the conclusion advocated here carries with it line-drawing problems. That is necessarily so once the provider-agreement line is crossed by holding some to be within the “business.” But that is a line which history and logic compel me to cross. I would hold that the concept of a provider agreement for benefits promised in the policy is within the “business of insurance” because some form of provider agreement is necessary to fulfill the obligations of a service-benefit policy. I would hold that these provider agreements, Blue Shield's Pharmacy Agreements, are protected because they (1) directly obtain the very benefits promised in the policy21 and therefore *253directly affect rates, cost, and insurer reliability, and (2) themselves constitute a critical element of risk “prediction.”22 The conclusion that these kinds of agreements are the “business of insurance” is that reached by every Court of Appeals except the Court of Appeals in this case.23
I would not suggest, however, that all provider agreements come within the McCarran-Ferguson Act proviso. Given the facts found by the District Court upon summary judgment, this is not a case where the petitioner pharmacies themselves conspired to exclude others from the market, and either pressured Blue Shield to go along, or were voluntarily joined by the insurer. See also Government Brief 13 n. 6. Such an agreement among pharmacies, itself neither necessary nor related to the insurer’s effort to satisfy its obligations to its policyholders, would be outside the “business of insurance.” An insurance company cannot immunize an illegal conspiracy by joining it. Cf. Parker v. Brown, 317 U. S. 341, 351-352 *254(1943). Moreover, since in this case the Blue Shield plan was offered to all San Antonio pharmacies and was in fact agreed to by at least 12, I am not called upon to decide whether an exclusive arrangement with a single provider would be so tenuously related to providing policyholder benefits as to be beyond the exemption’s protection. See generally Proctor v. State Farm Mutual Automobile Ins. Co., 182 U. S. App. D. C., at 270 n. 10, 561 F. 2d, at 268 n. 10.24
Finally, the conclusion that Blue Shield’s Pharmacy Agreements should be held within the “business of insurance” 25 *255does not alone establish whether the agreements enjoy an exemption from the antitrust laws. To be entitled to an exemption, petitioners still would have to demonstrate that the transactions are in fact truly regulated by the State, 15 U. S. C. § 1012 (b), and that they do not fall within the “boycott” exception of 15 U. S. C. § 1013 (b). The District Court held for petitioners on both issues. Neither issue was reached by the Court of Appeals, however, in light of its holding that the contracts were not the “business of insurance.” Accord*256ingly, I would reverse the judgment of the Court of Appeals and remand the case for further proceedings.26

 Section 2 (b) of the Act, as set forth in 15 U. S. C. § 1012 (b), provides:
“(b) No Act of Congress shall be construed to invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance, or which imposes a fee or tax upon such business, unless such Act specifically relates to the business of insurance: Provided, That after June 30, 1948, the Act of July 2, 1890, as amended, known as the Sherman Act, and the Act of October 15, 1914, as amended, known as the Clayton Act, and the Act of September 26, 1914, known as the Federal Trade Commission Act, as amended [15 U. S. C. 41 et seq.], shall be applicable to the business of insurance to the extent that such business is not regulated by State Law.”
Section 3 (b), as set forth in 15 U. S. C. § 1013 (b), provides:
“(b) Nothing contained in this chapter shall render the said Sherman Act inapplicable to any agreement to boycott, coerce, or intimidate, or act of boycott, coercion, or intimidation.”

 The Court argues that the silence with respect to agreements between insurers and third parties, coupled with the fact that Congressmen did discuss horizontal agreements between insurance companies, establishes by negative inference that third-party agreements were not considered “the business of insurance.” There is, however, a compelling explanation for the lack of mention of provider agreements. As the Court has noted in several cases, see, e. g., SEC v. National Securities, Inc., 393 U. S. 453, 459 (1969); St. Paul Fire & Marine Ins. Co. v. Barry, 438 U. S. 531, 538-539 (1978), the McCarran-Ferguson Act was a reaction to the decision in United States v. South-Eastern Underwriters Assn., 322 U. S. 533 (1944). See infra, at 236-237. That case involved an organization of fire insurance companies, and much of the congressional discussion accordingly concerned alleged abuses by and regulation of such companies. See, e. g., 91 Cong. *235Rec. 1091-1092, 1479 (1945); 90 Cong. Rec. 6449-6455, 6527 (1944). Indeed, health insurers did not even participate in the hearings on the Act. See Joint Hearing before the Subcommittees of the Committees on the Judiciary on S. 1362 et al., 78th Cong., 1st Sess. (1943). Since fire insurers paid their policyholders cash indemnities, these companies had no reason to contract with third parties for the provision of goods or services. That fact fully explains the absence of discussion of such contracts in the congressional debates. Such absence no more indicates a congressional intent to exclude provider agreements from the “business of insurance” than does the absence of any mention of health insurance companies indicate a congressional intent arbitrarily to exclude all health insurance from the “business of insurance.”

S. 12, 79th Cong., 1st Sess. (1945), would have specified
“any agreement or concerted or cooperative action between two or more insurance companies for making, establishing, or using rates for insurance, rating methods, premiums, insurance policy or bond forms, or underwriting rules.” (Emphasis added.)
See also § 4 (b) of a draft bill of the National Association of Insurance Commissioners, 90 Cong. Rec. A4406 (1944). A significant Senate floor debate with regard to such limiting bills is the following:
“MR. PEPPER. Would it not be better that those agreements, if there are such that are legitimatized, be identified in the statute?
“MR. O’MAHONEY. I quite agree with the Senator, and I endeavored to the very best of my ability to induce the committees of Congress to write into the law specific exemptions from the antitrust law, but I was unable to prevail in the Committee on the Judiciary and I was unable to prevail on the floor of the Senate.” 91 Cong. Rec. 1444 (1945).
The Court challenges the conclusion that Congress intended to phrase the exemption broadly by referring to the legislative history of one obscure amendment to an early House version of the Act. Ante, at 222-223, n. 29. Closer examination of the short debate surrounding that amendment reveals only the Representatives’ repeated expressions of their confusion over what the amendment meant. See 90 Cong. Rec. 6562 (1944) (remarks of Reps. Summers, Hobbs, and Fernandez).

 There can be no quarrel with the Court’s statement, ante, at 220, and n. 24, that the McCarran-Ferguson Act was not intended to restore the law, in all respects, to what it had been before South-Eastern Underwriters. But the principal differences between pr e-South-E astern and post-McCarran-Ferguson law are irrelevant for purposes of this case, and do not detract from the Court’s oft-repeated statement that the purpose of the Act was to preserve state regulatory schemes as they existed before South-Eastern Underwriters.
Before South-Eastern, insurance companies might boycott, coerce, and intimidate without violating federal antitrust statutes since insurance was not considered “commerce” and hence was beyond the reach of federal law. For the same reason, even unregulated insurance transactions were free from antitrust attack. Finally, Congress, because of the “commerce” problem, could not otherwise regulate insurance. None of these elements survived the decision in South-Eastern, and none was revived by McCarran-Ferguson. These differences between pr%-South-Eastern and post-McCarran-Ferguson law were what Senator Ferguson had in mind when he answered “no” to Senator McKellar’s question, cited by the Court, ante, at 220 n. 24, asking whether the effect of the Act was to re-establish the law as it stood prior to South-Eastern. This is revealed by quotation of Senator Ferguson’s full answer to Senator McKellar.
“MR. FERGUSON. No. I would say that subsection (b), at the bottom of page 2, would allow the provisions of the Sherman Act to apply to all agreements or acts of boycott, coercion, or intimidation, and subsection 4 (a) would suspend the application of the provisions of the Sherman Act and the Clayton Act, insofar as States may regulate and tax such companies, until certain dates or until Congress may act in the meantime in respect to what Congress thinks should be done with the business of insurance.” 91 Cong. Rec. 478 (1945).
These discrete differences between pr e-South-E astern and post-McCar-ran-Ferguson law are not applicable here, and do not conflict with the holdings of this Court’s prior opinions that, with respect to state-regulated *238insurance practices not constituting boycotts, McCarran-Ferguson was intended to preserve pre-existing state insurance regulation.
This analysis also explains, and renders irrelevant for this case, Congress’ rejection of the “total” exemption bills cited by the Court, ante, at 218-219, and n. 21. Those bills, unlike the one that passed, would have exempted boycotts and unregulated transactions. It was this aspect of the “total” exemption bills to which the National Association of Insurance Commissioners objected. See 90 Cong. Rec. 8482 (1944). These bills were rejected not because of a decision to narrow the scope of the nonboy-cott activities to be exempted, but because Congress determined that the business of insurance should be exempted only where regulated by the States, rather than unconditionally.

 See SEC v. National Securities, Inc., 393 U. S., at 460 (“The relationship between insurer and insured, [and] the type of policy which could be issued . . . [are] the core of the ‘business of insurance’ ”). (Emphasis added.)

 See 1935 Ala. Acts No. 544; 1935 Cal. Stats., ch. 386; 1939 Conn. Pub. Acts, ch. 150; ch. 698, 53 Stat. 1412 (1939) (District of Columbia); 1937 Ga. Laws, p. 690; 1935 Ill. Laws, p. 621; 1939 Iowa Acts, ch. 222; 1938 Ky. Acts, ch. 23; 1939 Me. Acts, ch. 149; 1937 Md. Laws, ch. 224; 1936 Mass. Acts, ch. 409; 1939 Mich. Pub. Acts No. 109; 1936 Miss. Gen. Laws, ch. 177; 1939 N. H. Laws, ch. 80; 1938 N. J. Laws, ch. 366; 1939 N. M. Laws, ch. 66; 1934 N. Y. Laws, ch. 595; 1939 Ohio Leg. Acts, p. 154; 1937 Pa. Laws No. 378; 1939 R. I. Acts, ch. 719; 1939 S. C. Acts No. 296; 1939 Tex. Gen. Laws, p. 123; 1939 Vt. Laws No. 174; 1939 Wis. Laws, ch. 118,

F. Hedinger, The Social Role of Blue Cross as. a Device for Financing the Costs of Hospital Care 51 (1966). The additional statutes were: 1945 Ariz. Sess. Laws, ch. 13 (1st Spec. Sess.); 1939 Fla. Laws, ch. 19108; 1941 Kan. Sess. Laws, ch. 259; 1940 La. Acts No. 267; 1941 Minn. Laws, ch. 53; 1941 Neb. Laws, ch. 43; 1941 N. C. Pub. Laws, ch. 338; 1943 N. D. Laws, ch. 103; 1945 Tenn. Pub. Acts, ch. 98; 1940 Va. Acts, ch. 230; 1943 W. Va. Acts, ch. 8.

See 91 Cong. Rec. 483 (1945) (remarks of Sen. O’Mahoney).

 Debate arose during this period as to whether service-benefit plans were technically insurance. See ante, at 225-230. Most state insurance commissioners ruled during the 1930’s that the plans constituted insurance, and therefore had to meet the capital stock, reserve, and assessment requirements applicable to the commercial stock and mutual insurance companies which offered cash indemnity policies. Eilers 101. In addition, this meant that the plans were subject to special state taxation. Ibid. Such holdings limited the feasibility of the plans at a time when they were widely perceived as being socially beneficial. Moreover, it was argued that these rulings were inappropriate to service-benefit plans, which were generally “nonprofit,” and often included guarantees by hospitals to provide services regardless of the financial state of the insurer— potentially an adequate substitute for the cash reserves needed by indemnity plans. Id., at 135-136, 239.
Some courts, and even some Blue Cross-type organizations, attempted to *242surmount these barriers to effectuation of plans deemed to be in the public interest by arguing that the plans were not technically “insurance” subject to the jurisdiction of state insurance commissioners, and hence were not bound by the requirements of the stock and mutual insurance companies. See, e. g., Jordan v. Group Health Assn., 71 App. D. C. 38, 107 F. 2d 239 (1939). But see Cleveland Hospital Service Assn. v. Ebright, 142 Ohio St. 51, 49 N. E. 2d 929 (1943) (hospital service plans are insurance); McCarty v. King County Medical Service Corp., 26 Wash. 2d 660,175 P. 2d 653 (1946) (same). But contemporary commentators questioned the soundness of such views and argued that the plans should be treated as insurance, although as a special kind not subject to the traditional requirements. See, e. g., Note, The Legal Problems of Group Health, 52 Harv. L. Rev. 809, 815 (1939); Comment, Group Health Plans: Some Legal and Economic Aspects, 53 Yale L. J. 162, 172 (1943). The 35 state enabling Acts governing service-benefit health plans reflected the States’ agreement that the plans were “a special type of insurance” differing from the stock and mutual companies. Rorem II, p. 534; Sinai 48. This is most clearfi' demonstrated by the fact that the vast majority of the state statutes, while relieving the plans of “other” insurance law requirements (primarily the reserve requirements and special insurance taxes), subjected their activities to the control of the state insurance commissioner. The 1939 New Mexico Statute, for example, amended the State’s Insurance Code by adding a new section entitled "Non-Profit Hospital Service Plans.” The amendment subjected the plans, and in particular both their premiums and rates of payment to hospitals, to the approval of the Superintendent of Insurance, while exempting them from “all other provisions of the insurance law.” 1939 N. M. Laws, ch. 66 (emphasis added). This approach was in accord with the commonly held view that such plans were forms of “insurance,” as reflected by the statements of numerous Congressmen in the congressional hearings on the proposed National Health Program, see infra, at 243. And everyday meaning, rather than some technical term of art, is what Congress intended by its use of the word “insurance” in the McCarran-Ferguson Act.

 Messages of two Presidents to the Congress on the subject of national health care also referred to service-benefit plans as forms of insurance. Message from the President of the United States, Report and Recommendations on National Health, H. R. Doc. No. 120, 76th Cong., 1st Sess., 63 (1939); Message from the President, A National Health Program, H. R. Doe. No. 380, 79th Cong., 1st Sess., 9, 10 (1945).

 The respondents do not argue this view. They agree that some provider contracts may constitute the “business of insurance.” Brief for Respondents 33.

 “Underwriting,” the Solicitor General argues, means “spread[ing] risk more widely or reduc[ing] the role of chance events.” Brief for United States as Amicus Curiae 17 (hereinafter Government Brief). For purposes of argument I will assume that this is a correct definition of “underwriting.” But see R. Holtom, Underwriting Principles and Practices 11 (1973).

 The effort to distinguish insurer/agent transactions from provider agreements on the ground that the former are “wholly intra-industry” while the latter are not, ante, at 225 n. 32, constitutes argument by tautology. -The former are “intra-industry” and the latter not, only because the Court so holds today.

 See, e. g., 1935 Cal. Stats., ch. 386; 1939 Iowa Acts, ch. 222; 1937 Md. Laws, ch. 224; 1939 Me. Acts, ch. 149; 1939 N. H. Laws, ch. 80; 1939 S. C. Acts No. 296. See also Rorem I, pp. 67-68; Sinai 48-49. Such provisions were often quite extensive, e. g., requiring approval by the insurance commissioner of contracts between hospitals and the corporation, including rates of payment, ibid.; requiring that the contracts contain guarantees of services by the hospitals to policyholders despite financial difficulties of the insurer, Rorem I, p. 67; or even limiting the kind of hospitals with which contracts could be made, id., at 68.

 Indeed, unions negotiating for drug-coverage plans have requested that the plans include contractual arrangements with pharmacies, in order to guarantee that the policy’s promises are kept. See Brief for Motor Vehicle Manufacturers Assn, as Amicus Curiae 10-11.
It might be argued that the drug-benefits policy could operate successfully without any agreement between Blue Shield and the pharmacies. The consumer could simply pay the pharmacist his full price, whereupon he would normally receive the drugs without hesitation. Blue Shield could then reimburse the policyholder for the full price minus the $2 deductible. This would not, however, be the policy bargained for in this case. That *247policy guarantees provision of drugs upon a minimal $2 payment, without requiring the policyholder to advance the full price when the contingency of illness occurs — a time when he may not be able to afford the out-of-pocket payment. Moreover, such cash-reimbursement plans almost inevitably include payment ceilings, again distinguishing them from the full-coverage service plan bargained for in this case. See discussion, infra, at 252, and n. 20.

 The Court errs in its reading of SEC v. Variable Annuity Life Ins. Co., 359 U. S. 65 (1959). There a “variable annuity” plan was held not to be “the business of insurance” because all risk remained on the policyholder and no underwriting of risk occurred. The key to Variable Annuity is that neither the agreement at issue nor any with which it was involved effectuated a transference of risk. Id., at 71. That is not the case here, where the policyholder has successfully transferred his risk by trading his premium for the certainty of benefits in the event of illness.

 Sinai 49. See, e. g.: 1937 Ga. Laws, p. 690; 1939 Iowa Acts, ch. 222; 1939 Mich. Pub. Acts No. 109; 1939 N. M. Laws, ch. 66; 1939 Tex. Gen. Laws, p. 123. The same is trae of the modern state statutes. See Eilers 106-107.

 Indeed, some state insurance commissioners have made aggressive use of their authority over provider contracts as a means of controlling premium rates. See Frankford Hospital v. Blue Cross of Greater Philadelphia, 417 F. Supp. 1104, 1106 (ED Pa. 1976), aff’d, 554 F. 2d 1253 (CA3), cert. denied, 434 U. S. 860 (1977); State of Michigan, Commissioner of Ins., No. 77-R-101 (Mar. 3, 1977); State of Illinois, Dept. of Ins., Hearing No. 1607 (Apr. 8, 1977). This may also explain why the Federal Government, in programs in which it functions as a health insurer, requires that its provider agreements include specified fee formulas. See, e. g., 42 U. S. C. §§ 1395u, 1395x (v) (Medicare).

 The pharmacist respondents would not be better off if Blue Shield set acquisition cost as well as markup. In that event they might not even meet the cost of their own outlays.

 The plan here was “bargained for” in the literal sense. It had its origins in a 1967 collective-bargaining agreement between th-e United Auto Workers and the three largest domestic automobile manufacturers. Brief for Petitioners 6.

 The Solicitor General suggests that this test could be subverted by an insurer’s decision to list all kinds of incidental and even unrelated *253transactions in its policy. As with other forms of antitrust immunity, I have no difficulty concluding that “sham” arrangements should not be honored. Cf. Eastern Railroad Presidents Conference v. Noerr Motor Freight, Inc., 365 U. S. 127, 144 (1961); California Motor Transport Co. v. Trucking Unlimited, 404 U. S. 508 (1972).

 These factors together are sufficient to decide this case. I need not decide whether either would independently suffice, nor whether in the absence of these factors others might also be capable of bringing a provider agreement within the exemption.

 See Proctor v. State Farm Mutual Automobile Ins. Co., 182 U. S. App. D. C. 264, 561 F. 2d 262 (1977), aff’g 406 F. Supp. 27 (DC 1975), cert. pending, No. 77-580; Doctors, Inc. v. Blue Cross of Greater Philar delphia, 557 F. 2d 1001 (CA3 1976), aff’g 431 F. Supp. 5 (ED Pa. 1975); Frankford Hospital v. Blue Cross of Greater Philadelphia, 554 F. 2d 1253 (CA3 1976), aff’g 417 F. Supp. 1104 (ED Pa.), cert. denied, 434 U. S. 860 (1977); Anderson v. Medical Service of District of Columbia, 551 F. 2d 304 (CA4 1977), aff’g 1976-1 Trade Cases ¶ 60,884 (ED Va); Travelers Ins. Co. v. Blue Cross of Western Pennsylvania, 481 F. 2d 80 (CA3), aff’g 361 F. Supp. 774 (WD Pa. 1972), cert. denied, 414 U. S. 1093 (1973).

 Such an arrangement could not be suspect simply because it would be anticompetitive, see discussion, supra, at 249. Rather, that means of providing policy benefits might be regarded as so unnecessary, and so likely to have its principal impact on pharmacies rather than policyholders,’ as to cross the boundary line of what constitutes the “business of insurance.” I intimate no view upon the question.

 The analogies to other antitrust exemptions referred to by the Court, ante, at 231-232, are inapt. It is true that as a general rule an “exempt” party loses its immunity when it makes an agreement that is outside the scope of the exemption. But that general rule has no application here unless one assumes what the respondents need to prove — that the Pharmacy Agreements are outside the scope of the McCarran-Eerguson Act. Reference to the eases under the Capper-Volstead Act is not helpful on the matter, as that Act limits its exemption to those who are “engaged in the production of agricultural products as farmers, planters, ranchmen, dairymen, nut or fruit growers.” 42 Stat. 388, 7 U. S. C. §291 (emphasis added). As a result, this Court has held that agreements involving nonfarmers are not exempt. National Broiler Marketing Assn. v. United States, 436 U. S. 816 (1978). As the Court emphasizes, however, the McCarran-Ferguson Act exemption was not written in terms of “insurance companies,” but extends instead to the “business of insurance.” Hence, the participation of pharmacies does not automatically vitiate the exemption, as does the participation of nonfarmers in the Capper-Volstead “analogy.”
Nor is reference to the labor exemption helpful to the Court. The quotation from Mine Workers v. Pennington, 381 U. S. 657, 665-666 (1965), cited by the Court, ante, at 232 n. 39, is in complete accord with what I would conclude here: “[A] union [read ‘insurer’] may make wage *255[pharmacy] agreements with a multi-employer bargaining unit [a group of pharmacies] .... But . . . [o]ne group of employers [pharmacies] may not conspire to eliminate competitors from the industry and the union [insurer] is liable with the employers [pharmacies] if it becomes a party to the conspiracy.” The labor exemption is a particularly poor analogy for the Court to stress because in yet another footnote, Pennington expressly approved a set of transactions virtually identical to those complained of in this case. Here, respondents contend that Blue Shield adopted a uniform fee policy, even though it may have suspected that some pharmacies would not be able to compete if required to limit their markup to that demanded by Blue Shield. There was, however, no additional evidence of a conspiracy among the participating pharmacies to drive out their less able brethren, which Blue Shield then joined. This was precisely the set of circumstances held by the Pennington Court to be within the scope of the exemption:
“Unilaterally, and without agreement with any employer group to do so, a union may adopt a uniform wage policy and seek vigorously to implement it even though it may suspect that some employers cannot effectively compete if they are required to pay the wage scale demanded by the union. The union need not gear its wage demands to wages which the weakest units in the industry can afford to pay. Such union conduct is not alone sufficient evidence to maintain a union-employer conspiracy charge under the Sherman Act. There must be additional direct or indirect evidence of the conspiracy.” 381 U. S., at 665 n. 2.
Thus, the approach taken by the Court today does not merely “narrowly” construe “insurance” in accordance with our general practice. Rather, that approach actively discriminates between kinds of insurance, effectively confining “insurance” to traditional forms and effectively excluding forms that provide full-service coverage via provider agreements. It thereby places a significant obstacle in the path of the latter.

 The Court argues, ante, at 232 n. 40, that provider agreements may have anticompetitive consequences which could lead to escalation of healthcare costs. The argument is not without force, but I must note that the very purpose of an antitrust exemption is to protect anticompetitive conduct. The argument, therefore, is better directed to the legislature, which has the power to modify or repeal McCarran-Ferguson, rather than to this Court. Referral to the legislators is particularly appropriate in this case, as the policy aspects may not be as one-sided as those painted by the Court. There is authority for the proposition that provider agreements, far from increasing costs, constitute an effective means for reduction in health-care prices and premiums. Council on Wage and Price Stability, Employee Health Care Benefits: Labor and Management Sponsored Innovations in Controlling Cost, 41 Fed. Reg. 40298, 40305 (1976). And the argument that “there is little incentive on the part of Blue Shield to minimize costs, since it is in the interest of the providers to set fee schedules at the highest possible level” overlooks the vital consideration that many if not most of these plans originate in collective-bargaining agreements where “the consumer power and negotiating expertise of organized labor” combine to “reduce the unit price of health services.” Ibid. Control over provider agreements by state insurance commissioners constitutes a second “incentive” operating in the same direction. See n. 18, supra. Whether or not the potential anticompetitive impact of McCarran-Ferguson outweighs these positive effects on health-care costs is a judgment properly to be made by Congress.