In May, California health care giant, Anthem Blue Cross, initiated a large increase in premiums and deductibles on several hundred thousand policyholders. The move was widely met with criticism from the government and state insurance regulators, but the increases were put through as planned. Some California residents received increases of close to 20% on their policies.
Consumer Watchdog, a consumer advocacy group that is based in Santa Monica, filed a class action lawsuit against Anthem Blue Cross on behalf of the customers whose rates were increased, alleging that Anthem utilized this procedure to push policyholders into purchasing lower-benefit, higher deductible health care plans. Every lawsuit member used one of the four PPO medical plans that Anthem Blue Cross had closed to any new customers, which intimates that since those policyholders were targeted for increases there could be foul play involved.
Apparently, the courts agree with them, because a Ventura County California Superior Court judge gave their preliminary approval to the settlement agreement which the plaintiff and defendant had hammered out. The class action suit represents more than 122,000 customers.
This type of practice, of closing certain policies, is a big moneymaker for health insurance companies. The reason is that younger, healthier policyholders will leave that particular plan in order to save on their health insurance. Older, sicker policyholders will stay, usually because they have to, due to pre-existing condition concerns, states Jerry Flanagan, the attorney for Consumer Watchdog. Once the plans have closed, new customers aren’t going to come into the policy’s risk pool, spreading out the burden of the costs. Instead, the older policyholders must pay higher costs or leave the plan. Either way, the customer is victimized.
“The insurance industry calls it the ‘death spiral,’” Mr. Flanagan said at a local news conference on Tuesday in the Sunset Park area. “The policy pool shrinks, and those with health conditions are trapped.” To paraphrase, these policyholders are trapped because if they want to try to switch to different plans, they will likely be rejected for almost any kind of preexisting conditions.
Flanagan pointed out that conditions as common as asthma and even as minor as certain kinds of toenail fungus have been used as reasons to reject clients from new health plans.
Consumer Watchdog and law firms Whatley, Drake & Kallas, the Consumer Law Group and the Stuart Law Firm filed a lawsuit on March 1, 2010 alleging that the practice of closing plans without giving clients the opportunity to switch to a different plan violated a 1993 law ensuring that those clients would either get a cap put on their premiums or the ability to move to a comparable plan.
Whatley, Drake and Callas law firm, the Stuart Law Firm, Consumer Watchdog, and the Consumer Law Group filed the lawsuit on March 1, 2010, when the plan closings and rate hikes were publicly admitted by Anthem Blue Cross. The changes did not go into effect until May. During this time, Anthem backed down from other policy increases. The company’s practices were censured by insurance regulators, but it was a non-binding statement, and Anthem continued with the increases. The law firms and Consumer Watchdog allege that Anthem Blue Cross did not allow their customers the chance to switch over to a different and comparable plan before closing their old one. This violates a law laid down in 1993, which ensures that clients in this situation would either receive a cap on the premium prices, or they could move to a comparable plan within the company’s offerings.
“Blue Cross didn’t do either,” Flanagan stated.