Anthem Blue Cross Consumers in “Death Spiral” Will Have Options to Change Coverage, Benefit from Rate Caps Under Class Action Settlement

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Santa Monica, CA — A California Superior Court judge has preliminarily approved the settlement of a class action lawsuit alleging that Anthem Blue Cross, the California subsidiary of the nation’s largest health insurer, WellPoint Inc., used enormous rate hikes to force patients into lower-benefit and higher-deductible health coverage in violation of state law.
Under the settlement, class members will be allowed to move to any new coverage they want or have their rates capped if they chose to stay in their existing policies.  Consumer Watchdog praised Blue Cross for giving patients the rights they were due under the law.

“My husband and I got a letter in the mail from Blue Cross telling us they were closing our policy,” said Mary Feller of San Rafael, one of the plaintiffs representing the class action. “We could either stay with our old coverage or switch to a new policy with substantially reduced benefits. What Blue Cross did not tell us was that staying with our better policy would result in bigger and bigger rate increases over time. This settlement provides patients with the choice of a comparable policy that they should have had under the law.”

The lawsuit, filed on March 1, 2010, by the nonprofit organization Consumer Watchdog, and the law firms of Whatley, Drake & Kallas, the Consumer Law Group, and the Stuart Law Firm, sought to stop Blue Cross from shoving its policyholders into what is known as a “Death Spiral”–the industry term for what happens when a health insurer “closes” certain health coverage policies to new customers, and later raises rates to those remaining in the closed policy until those enrollees can no longer afford coverage. Since older patients or those with preexisting conditions often cannot switch to a comparable or better policy under existing law, they are trapped in the closed policy and subject to bigger and bigger premium increases until they are forced to accept greatly inferior coverage or drop coverage altogether.

“The settlement with Blue Cross is very positive news for consumers like my husband and myself who have been trapped in policies with spiraling rate increases.  Now we will have the option to move to another policy without underwriting,” said Donna Freed, another plaintiff also representing the class action.

Under California law, health insurers that close a policy must either offer consumers new comparable coverage, or “pool” rates in order to minimize premium increases on the now-closed policies. The settlement requires Anthem Blue Cross to provide consumers both the option to move to a new policy and to limit rate increases—thus providing benefits in excess of what is required by law.  All transfers to new policies will be allowed without medical underwriting writing—i.e. regardless of medical condition or health history.

The key terms of the settlement include:
• Blue Cross consumers who remained in enrolled in closed health policies – PPO Share 500, PPO Share 1000, PPO Share 1500, and PPO Share 2500 – will benefit from a cap on their rate increases.  Consumers’ rates in these plans will be limited to the lower of the rate attributable to their own closed plan, or the average rate of all closed plans, whichever is lower, minus an additional 2%.

• All consumers who were enrolled in any of the four closed plans, including those that transferred to other Blue Cross coverage, will have the opportunity to switch coverage, without medical underwriting, to any open policy regulated by the California Department of Managed Health Care.  In addition, class members may switch to 12 additional policies regulated by the Department of Insurance.  Consumers will be given the option to switch later this year, in 2012 and 2013.
Download the settlement agreement here:

Download the lawsuit here:

The benefits provided under the class action settlement announced today will be in place through December 31, 2013, after which the “guaranteed issue” provisions of the federal Patient Protection and Affordable Care Act are expected to be fully implemented.  Under those provisions, beginning in 2014, a person’s health condition or health history cannot be used as a basis for denying health coverage.  As a result, any consumer enrolled in a policy that is subsequently closed will be able to transfer to any open policy.

A final approval hearing on the settlement will occur on August 26, 2011.


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

Whatley Drake & Kallas is one of the largest plaintiffs’ law firms in the country. It regularly brings its resources to bear to remedy corporate abuses. In recent years the revolutionary settlements that Edith Kallas and Joe Whatley negotiated with most of the managed care companies in the country, with extensive injunctive relief allowing doctors to practice medicine with protections from the abuses of managed care provide the most noted examples of the firm using litigation to achieve meaningful change.  For more information, go to:

Alan Mansfield, of the Consumer Law Group, has specialized in the area of national consumer class action and public interest litigation since 1991, focusing on telecommunications and consumer privacy issues. He has been involved over the years in numerous significant matters, including the Joe Camel teen smoking case, Mangini v. R.J. Reynolds Tobacco Co. (1994) 7 Cal. 4th 1057, and the DMV motor vehicle Smog Impact Fee refund case (Jordan v. Department of Motor Vehicles (1999) 75 Cal. App. 4th 449). Mr. Mansfield was previously responsible for several years for the consumer law group in the San Diego office of the largest class action firm in the United States, Coughlin Stoia Robbins Geller & Rudman.  For more information, go to:

At the forefront of its consumer practice, Stuart Law Firm brings justice to people who have been harmed by fraudulent health insurance marketing practices.  Stuart Law Firm is a national leader in this quickly evolving area of litigation. Sham insurers have convinced hundreds of thousands of American policyholders—who believe they have purchased peace of mind—to buy policies that leave all their personal assets exposed in the event of a serious illness. 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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