employers and employees. Compared to current federal regulation of health benefits, state insurance regulation tends to be more extensive and explicit.

To some extent, state regulation of health insurance and federal regulation of health benefits overlap and at times conflict. ERISA's preemption provisions, which are discussed below, coordinate the relationship between these concurrent systems for regulating health benefits. The nature of that coordination has important practical consequences for those being regulated.

LEGAL FOUNDATIONS OF STATE INSURANCE REGULATION

The role of the states as regulators of insurance evolved from the nineteenth-century view expressed by the Supreme Court of the United States in Paul v. Virginia1 that "commerce" under the Commerce Clause of the U.S. Constitution did not include making an insurance contract. Because an insurance contract was not interstate commerce, the Supreme Court upheld state regulation of insurance within state borders. With the blessing of the Supreme Court, the states for the next 75 years incorporated domestic insurance companies of every type, regulated and taxed foreign insurance companies within state borders, licensed their products, and regulated the relationship between the insurer and the insured. During this same period, the federal government did not regulate insurance companies.

In 1944 the Supreme Court decided United States v. South-Eastern Underwriters Association2 and redefined dramatically the federal state balance in the regulation of insurance. In United States v. South-Eastern Underwriters Association, the Supreme Court reviewed a direct appeal from a federal district court that had dismissed an indictment against 200 insurance companies for fixing prices in interstate commerce in violation of the Sherman Anti-Trust Act. In order to maintain the paradigm of insurance regulation established by Paul v. Virginia and its sequelae, the South-Eastern Underwriters case would have required the Supreme Court to limit an act of Congress rather than regulatory efforts by a state. The Supreme Court reviewed 75 years of decisional law that held that insurance contracts were "local" commerce and not "commerce" under the Commerce Clause. Then the Court reviewed the size, complexity, and volume of insurance transactions and observed that only a "technical legal conception" rather than a ''practical one, drawn from the course of business" could continue to sustain the doctrine of Paul v. Virginia.3 The Court concluded that modern insurance transactions were "commerce" subject to the Sherman Act and the Commerce Clause.

The states and the insurance industry were stunned by the "precedent-shattering decision in the South-Eastern Underwriter case." Together, they gave their "overwhelming endorsement" to remedial legislation intended to



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