Independence Day Reprieve For Hundreds of Thousands of Consumers Enrolled in Blue Shield Insurance Policies To Be Closed This Week

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Commissioner Dave Jones Sides With Consumers, Echoes Concerns Raised by Consumer Watchdog in Lawsuit Over the So-Called “Death Spiral”

Santa Monica, CA – Consumer Watchdog praised Insurance Commissioner Dave Jones’ announcement today opposing Blue Shield’s plan to close 23 health insurance policies, and echoing concerns raised by Consumer Watchdog in a recently-filed class action lawsuit.

Consumer Watchdog said, however, that as many as 100,000 Californians are still trapped in closed or lower-benefit health plans following policy closures carried out by Blue Shield’s affiliate regulated by the Department of Managed Health Care in 2010.

“Blue Shield is on notice that the company’s plan to close health insurance policies fails to protect consumers as the law requires,” said Jerry Flanagan, staff attorney for Consumer Watchdog. “If Blue Shield decides to go forward with the policy closures, we look forward to working with the company to implement a consumer-friendly plan. We also hope that Blue Shield will ensure that consumers affected by the 2010 policy closures will finally benefit from the protections mandated by law.”

The lawsuit filed by Consumer Watchdog and Whatley Kallas, LLC alleges that Blue Shield 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 lawsuit seeks to stop Blue Shield from 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.

Download the lawsuit filed in San Francisco Superior Court here:

According to legislative records, it was Blue Shield’s own past business practices, resulting in Death Spirals for consumers, that spurred the Legislature to adopt the same 1993 law that Consumer Watchdog and Whatley Kallas, LLC now allege the company has violated.

The policy closures are taking place among certain insurance plans in the individual market. 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.

Two regulatory agencies – the California Department of Managed Health Care (“DMHC”) and the California Department of Insurance (“CDI”) – oversee different segments of Blue Shield’s insurance business. In the lawsuit, Blue Shield is accused of illegally closing eight policies regulated by the DMHC in 2010, and announcing it would close 23 policies regulated by the CDI on July 2, 2012 without offering consumers comparable policies or limiting rate increases as required by law.

Consumer Watchdog and Whatley Kallas, LLC settled a similar class action lawsuit last year targeting Blue Cross of California’s illegal Death Spiral practices. Read more about that lawsuit and settlement here: Under the terms of that settlement, Blue Cross must both offer consumers in the closed policies access to comparable coverage and limit rate increases in the closed policies if consumers choose to remain enrolled in the older, closed policy.

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Consumer Watchdog is a nonpartisan consumer advocacy organization with offices in Washington, D.C. and Santa Monica, CA. Find us on the web at:

WhatleyKallas has earned a national reputation-based on trust, respect, demonstrated commitment and tangible results-in connection with its representation of healthcare providers and members of the organized medicine community. The firm’s lawyers have negotiated settlements with most of the major health insurers in the country on behalf of hundreds of thousands of consumers, physicians and medical associations that resulted in monetary relief and revolutionary practice changes valued in the billions of dollars. These settlements fundamentally changed the way managed care companies do business. The lawyers of WhatleyKallas have been repeatedly recognized in legal publications, such as “The National Law Journal” and “American Lawyer”, by their peers and by leaders of organized medicine for our work in the healthcare field. For more information, go to:

Jerry Flanagan
Jerry Flanagan
Jerry Flanagan is Consumer Watchdog's Litigation Director. Flanagan leads Consumer Watchdog’s litigation efforts in the areas of health insurance coverage and access to treatments. He has over 20 years experience working in public interest and health care policy, legislation and litigation.

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