SAN FRANCISCO (CN) – Blue Shield of California forces older, sicker policyholders into low-benefit coverage with high deductibles, and excludes some from coverage completely, customers claim in a Superior Court class action.
Lead plaintiffs Robert Martin and Deborah Goodwin claim Blue Shield has been manipulating California’s “dual-regulator” health insurance system by closing blocks of health plans under one agency and opening up new ones under the other.
And, they say, the company uses “enormous” rate increases and threats of increases to force “older, sicker” consumers into plans with fewer benefits and higher deductibles.
Closing blocks of plans is called a “Death Spiral,” a term for a block no longer offered to new enrollees. It leaves older ones with pre-existing health conditions with no alternatives but transferring to a policy with fewer benefits and higher deductibles.
“Consumers with pre-existing medical conditions cannot seek other comparable coverage because they cannot pass ‘medical underwriting,’ the process through which a health care service plan or health insurer evaluates a consumer’s insurance risk, and on that basis, determines whether to sell coverage to that individual,” the complaint states.
“Thus, the closed plan, without new applicants, becomes a plan or policy consisting largely of unhealthy and older members. Since rates are set based on medical experience of a block of business, rates in those closed blocks ‘spiral’ up over time. Eventually, many enrollees are priced out of coverage and are frequently left uninsured.”
For example, the complaint states, Blue Shield announced an anticipated 39.5 percent rate increase on eight health plans closed in 2011, causing one enrollee to move his family to the only other plan available to him. The increase never happened and the enrollee sought to return to his old plan, but Blue Shield wouldn’t allow it.
Those who remained with that same plan, about 50,000 consumers, eventually had to pay a 14 percent rate increase.
“The dwindling number of consumers affected by the 2011 rate increase compared to the 2012 rate increase suggests that many consumers succumbed to the Death Spiral and may now be uninsured or underinsured if they were unable to obtain new coverage due to pre-existing conditions,” the complaint states.
The class claims Blue Shield is violating the Health & Safety Code and the Insurance Code, which mandate that insurance companies closing blocks of business provide consumers a fair calculation of premium rates by pooling the closed blocks with an appropriate number of open blocks or transferring them to a plan with comparable benefits.
The class also claims Blue Shield does not warn consumers before it closes health plans, and fails to offer information on how they can obtain comparable coverage.
Enrollees claim the insurance company’s conduct is “unlawful, unfair and fraudulent,” violating the California Business & Professions Code and the Consumers Legal Remedies Act.
“Blue Shield’s conduct also breaches uniform express or implied contractual provisions between Blue Shield and plaintiffs and class members and the implied covenant of good faith and fair dealing,” the complaint states.
The class seeks restitution, disgorgement and an injunction.
Its lead counsel is Jerry Flanagan with Consumer Watchdog, of Santa Monica.