Saying Goodbye to Chevron Deference: An Insurance Perspective

What the loss of a 40-year-old precedent means for the insurance industry

On June 28, 2024, the U.S. Supreme Court overturned a 40-year-old legal framework known as Chevron Deference or Chevron Doctrine. The ruling directly impacts federal agencies, limiting their role in policymaking and giving more power to the courts. 

What is Chevron Deference?

Chevron Deference, derived from the 1984 Supreme Court case Chevron U.S.A. v. Natural Resources Defense Council, determines how federal agencies interpret ambiguous language in their regulations when a dispute arises. 

In 1981, Natural Resources Defense Council (NRDC), an environmentalist advocacy group, challenged the U.S. government’s interpretation of the word “source” as it pertained to pollution emissions in the Clean Air Act of 1963. The Environmental Protection Agency (EPA), had recently changed its interpretation of the word “source” to mean only an entire factory, rather than an individual pollution-emitting machine or building. Under the new interpretation, companies could build projects that created new air pollution without being subjected to a lengthy new-source review process, as long as they made other changes to their factories that’d offset emissions by the same amount. 

When the NRDC challenged the legality of this new interpretation in the U.S. Court of Appeals for the District of Columbia Circuit, the judge ruled in their favor, stating that the EPA’s new definition was invalid. However, the Chevron Corporation appealed the lower court’s decision to the Supreme Court, where it was reversed. The Supreme Court ruled that policy decisions aren’t up to U.S. federal judges to decide, and that if a law is ambiguous, the courts must apply a two-step process known as Chevron Deference. 

In applying Chevron, judges have to first decide whether the language under question is actually ambiguous. If the language is clear, the matter is settled and the law or statute must be followed as is. But, if the language is ambiguous, the Chevron Deference states that the federal agency gets to decide how to interpret and carry out the law. 

Arguments for Chevron Deference 

Proponents of Chevron argue that it makes more sense for federal agencies to interpret and implement regulations because they are the subject-matter experts. For example, regulators for the Food and Drug Administration (FDA), likely have a better understanding of which prescription and non-prescription drugs are safe and effective than the courts do. They’re also more likely to be equipped with relevant data to inform their decisions. 

Arguments against Chevron Deference

Opponents of Chevron take the position that federal agency administrators shouldn’t have the authority to make policies in the same way members of Congress do. Administrators are frequently replaced, and so too are the regulations they issue. Just look at the EPA’s changing definitions of what constitutes a pollution “source.” These regulatory changes cause confusion for industry stakeholders and the public. Opponents of Chevron argue that giving ‌courts the power to interpret laws creates a more stable regulatory environment for everyone. 

Why was Chevron overruled?

For 40 years, Chevron was used to evaluate the ambiguity and interpretation of laws but, in June 2024, the Supreme Court overruled it in Loper Bright Enterprises v. Raimondo. The case centers around the National Marine Fisheries Service (NMFS) interpretation of a rule that requires fishing boats to keep a government-appointed inspector onboard to monitor activities and help prevent overfishing. The plaintiffs in the case argued the cost of a monitor would negatively impact their business and that the NMFS has no authority to force them to pay to keep a monitor onboard. 

Applying Chevron, the district court deferred to the NMFS’s interpretation that the fishing company must pay the monitor’s salary. The plaintiffs appealed to the Supreme Court, which decided that, instead of deferring to federal agencies to interpret ambiguous language in their regulations, federal judges should have the authority to decide how to interpret the law. 

How does overturning the Chevron Deference impact insurance regulations?

Now you may be thinking, “Air pollution and fishing…what does any of this have to do with insurance?” The decision to overturn Chevron has a wide impact. It’ll affect every industry, including financial services and healthcare, two industries heavily linked to insurance.  

The end of Chevron Deference and its impact on healthcare 

When it comes to the healthcare industry, federal agencies govern everything from Medicaid and Medicare to drug prices and pharmaceutical regulations, pandemic response plans, and much much more. While the real-world implications of overturning Chevron remain to be seen, moving forward, we expect an uptick in legal challenges to both new and existing agency regulations. Federal agencies like the Food and Drug Administration and Centers for Medicare and Medicaid Services (CMS) will likely err on the side of caution when drafting new regulations to avoid ambiguous language. 

We could see recent regulations like ‌Medicare drug price negotiations under the Inflation Reduction Act and the CMS’s Medicare and Medicaid minimum staffing standards come under legal scrutiny in the immediate future. And with the job now on the courts to decide how to interpret regulations, we’re also likely to see an influx in contradictory rulings across jurisdictions, further clouding the already complex regulatory landscape of the healthcare industry. 

The impact on financial services

The financial services industry is just as heavily regulated as healthcare, so we can expect a similar increase in regulatory uncertainty. While the specifics remain to be seen, there’s no denying that the decision to overthrow the Chevron Deference minimizes the Securities and Exchange Commission (SEC), the Department of Labor (DOL), and every other financial federal agency’s ability to set and enforce rules.

Because of this, regulatory agencies will likely face more legal challenges, especially when it comes to regulations for newer products of the financial services market like crypto-currencies. 

Entering an era of uncertainty

Without Chevron, the ball is in the courts’ court to interpret Congressional mandates on behalf of federal agencies. The aftershocks of the landmark decision are yet to come but, all in all, the direct hit to agency power spells victory for those looking to challenge federal regulations and increased litigation and uncertainty for agencies. 

As the full effects of the Supreme Court decision come to light, AgentSync will continue providing up-to-date information on its impact on our industry. While we may not be able to control the uncertainty surrounding the U.S. regulatory environment, we can help you take the uncertainty out of your producer compliance. Learn what AgentSync Manage can do for your insurance business.