Insurance and the Commerce Clause

I leave it to others to debate Monday’s federal court ruling that says the federal government can’t require a person to buy health insurance.

I just find it interesting that this isn’t the first time that insurance, the Commerce Clause of the Constitution and the state of Virginia have met at a crossroads. Last time, it was an important development in the history of insurance.

In 1869, the Supreme Court ruled, oddly, that insurance is not commerce therefore could not be regulated by the federal government. The case was Paul v. Virginia.

Virginia had passed a law prohibiting insurers from operating without a license. Mr. Paul was an insurance agent for some New York-based companies. He was arrested for selling insurance without a license and ultimately, lost his Supreme Court case as the court ruled that insurance was not commerce.

I frankly don’t remember how the court jumped that hoop, but as a result, all regulation of insurers had to take place at the state level. That is how we got the intricate system of state regulation we have today.

In the 1940s, a court displaying, frankly, common sense, ruled that insurance is indeed commerce and could be regulated by the federal government.

By then, state-based regulation was entrenched. The insurers liked it. The states liked it. Neither wanted it to end. The result: the feds passed the McCarran-Ferguson Act, which allowed states to regulate insurers to the degree that the federal government kept its hands off.

Wikipedia has a brief entry on Paul v. Virginia. The Supreme Court opinion is here.



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