Blue Shield of California policyholders and consumer advocates have filed a class action lawsuit against the insurer, claiming it used enormous rate hikes, and the threat of rate increases, to force patients into lower-benefit and higher-deductible health coverage in violation of state law.

The Blue Shield class action lawsuit alleges the insurer is illegally gaming the health insurance system by alternately closing older policies and opening new ones in order to push older, sicker consumers who are more expensive to insure into lower benefit, higher deductible coverage that requires consumers to pay more out of pocket.

The class action lawsuit is seeking to stop Blue Shield’s alleged illegal practice of shoving its policyholders into what is known as a “Death Spiral” -- the industry term for what happens when a health insurer "closes" certain insurance policies to new customers, and later raises rates to those remaining in the closed policy until those enrollees can no longer afford coverage. Since consumers with preexisting conditions cannot switch to a comparable or better policy, consumers trapped in the closed policies must either accept greatly inferior coverage or face bigger and bigger premium increases.

One of the lead Plaintiffs in the Blue Shield of California class action lawsuit says the company closed his family’s policy and then threatened them with a 23% premium increase, forcing them to switch to “the only bare bones policy Blue Shield offered us.” When Blue Shield canceled the original rate increase, the company refused to allow the Plaintiff to transfer back into his old, higher benefit policy. Then Blue Shield allegedly raised the rate of the new policy by 14.8%.

"It's just plain unfair. Blue Shield is pushing families like mine with pre-existing health conditions out of their health plans -- either into higher deductible coverage or into the ranks of the uninsured," said the Plaintiff.

California law requires that when health insurers close a policy the insurer must either offer consumers new comparable coverage, or minimize rate increases on the closed policies. The class action lawsuit accuses Blue Shield of illegally closing eight policies regulated by the California Department of Managed Health Care, and announcing it will close 23 policies regulated by the California Department of Insurance on July 2, 2012, without offering consumers comparable policies or limiting rate increases as required by law.

"Instead of providing coverage to loyal customers who have paid their premiums, Blue Shield pushes consumers into skimpier coverage or prices them out of care altogether when they are sick and need insurance the most,” said Jerry Flanagan, staff attorney for Consumer Watchdog.

 

The consumer advocacy group is suing Blue Shield along with Whatley Kallas, LLC on behalf of Blue Shield policyholders. The two organizations settled a similar class action lawsuit last year targeting Blue Cross of California’s alleged illegal Death Spiral practices.