Under the settlement, 122,000 policyholders of California's largest for-profit health insurer whose plans were closed to new customers will see rate increases no more than the average for all closed plans. Affected policyholders can also choose new plans without further medical scrutiny.

Settling a class-action lawsuit, California health insurer Anthem Blue Cross has agreed to limit rate increases for 122,000 policyholders whose plans have been closed to new customers.

Affected policyholders for the first time would also be able to switch plans without having their medical histories reviewed.

Consumer groups had accused the state's largest for-profit health insurer of closing some insurance plans to new members and then forcing existing customers into a financial "death spiral" by dramatically raising rates without offering comparable options as required by state law.

Anthem policyholders and healthcare advocates said the practice often trapped older customers or those with preexisting health conditions in policies they could not afford but also could not leave.

"This is a huge relief," said Mary Feller, 57, an Anthem customer from San Rafael, Calif., and a plaintiff in the lawsuit who plans to pick a new policy after the tentative settlement is finalized this summer.

The lawsuit stemmed from Anthem's decision to close individual "Share" policies to new business in September 2009.

Under the settlement, those policyholders who stick with their closed plans will see rate hikes no more than the average for all closed plans.

"It is important to note that this settlement admits no wrongdoing on behalf of Anthem," the company said in a statement.

A judge must still give final approval to the settlement in August.

"This suit is a shot over the bow of other insurers who want to close policies," said Jerry Flanagan, Consumer Watchdog's staff counsel. "It tells other companies that they better abide by state law or they will get hauled into court."

Anthem, meanwhile, announced Monday that it would cut in half July 1 rate hikes — to 3% on average from 6% — for nearly 18,000 policyholders at small businesses.

The insurer acted after California Insurance Commissioner Dave Jones reviewed the quarterly increases, calling them a burden for struggling companies. The reductions will apply to small-business policyholders with "Solution" plans.

Anthem defended its small-business rate hikes as reasonable, saying it lowered them at Jones' request.

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