Blue Cross Sued for Illegally Raising “Annual” Deductibles in Middle of the Year

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Santa Monica, CA – More than 100,000 California Blue Cross consumers are part of a class action lawsuit brought by the non-profit Consumer Watchdog targeting the health insurer’s May 1 increases to “annual” deductibles and other out of pocket costs. The suit also targets other recent changes that allow Blue Cross to alter any terms of consumers’ contracts on just 60 days’ notice, including which health care services and benefits are covered, rendering the contracts “illusory,” according to Consumer Watchdog.

Download the complaint – case number BC 473408 – filed in Los Angeles Superior Court here:

“When Blue Cross changes ‘annual’ deductibles and other costs and coverage at a whim the result is a moving target. Consumers are left with no certainty about what they will have to pay and what coverage they’ll receive,” said Jerry Flanagan, staff attorney for Consumer Watchdog. “When consumers purchase health insurance they carefully consider the price they’ll pay and the coverage they’ll receive. If Blue Cross is allowed to boost profits by changing prices and reducing coverage every two months, then the ‘contract’ is worthless.”

Consumer Watchdog said by making the unilateral changes to consumers’ health insurance contracts Blue Cross breached those contracts and violated provisions of state law barring deceptive and misleading insurance policies, as well as other laws barring “unconscionable” contract terms.  The lawsuit targets two changes that Consumer Watchdog said render the contracts “illusory”:

  • In February—just two months into the year—Blue Cross sent its California customers a letter notifying them that as of May 1 the company would dramatically increase “annual” deductibles and other “annual” and “yearly” out of pocket costs, including “annual” copays and the total amount consumers must pay out of pocket each year.
  • In May, Blue Cross implemented the mid-year increases announced in February and sent another notice to consumers—this time informing them in the fine print of the contract endorsement that as of August 1 Blue Cross could make changes to any “terms and conditions” of consumer contracts, including which health care services and benefits are covered, on just sixty days’ notice.

Blue Cross claimed that the mid-year changes to “annual” and “yearly” out of pocket costs were necessary to protect consumers from premium increases, yet Blue Cross:

  • Simultaneously increased premiums by up to 20% or more.
  • Had five times the required reserves (tangible net equity [“TNE”])—$1.2 billion in excess of state-mandated TNE—as of June 30, 2011 while the company paid $525 million in dividends to shareholders in 2010.

At least eleven polices are affected by the mid-year deductible changes: PPO Share 500, PPO Share 1000, PPO Share 1500, PPO Share 2500, PPO Share 3500, PPO Share 3500-R, PPO Share 5000, PPO Share 7500, Individual HMO, Individual Select HMO, and Individual HMO Saver.  (Note: The number in the plan name denotes the “annual deductible.”)

“Years ago I was diagnosed with breast cancer.  Even though I have other coverage through my husband’s employer, I have held on to my Blue Cross policy because I know that with my pre-existing condition I won’t be accepted by another insurance company,” said Janet Kassouf of Hayward, one of the lead plaintiffs in the lawsuit. “I have paid big premiums and rarely went to the doctor. Now, Blue Cross is dramatically increasing my premiums and reducing my coverage in the middle of the year.  That’s not fair. If I told Blue Cross that I decided to pay them a smaller premium in exchange for the reduction in coverage, Blue Cross would drop me!”

On May 1, Blue Cross increased Janet Kassouf’s:

  • Premium by 22%
  • Deductible from $1,500 to $1,750
  • “Yearly Maximum Copayment/Coinsurance Limit” – the total amount that a consumer must pay each year including annual deductible and copays – from $6,000 to $7,050
  •  “Annual” prescription drug deductible from $250 to $275

“I feel like Blue Cross is stealing from us by charging us more for less coverage and there’s nothing we can do. Since October of 2010 we’ve had premium increases of 46% and on top of that they have increased our co-payments and annual deductibles. Our costs are spiraling out of control and yet they are allowed to change our coverage every two months,” said Alison Heath of San Francisco, another of the lead plaintiffs in the lawsuit. “We feel like hostages, unwilling to give up our health insurance and frightened to imagine what they’ll try next. They know we are trapped and will try to take whatever they can from us.”

On May 1, Blue Cross increased Alison Heath’s:

  • Premium by 26%
  • Deductible from $2,500 to $2,950
  • “Yearly Maximum Copayment/Coinsurance Limit” – the total amount that a consumer must pay each year including annual deductible and copays – from $7,500 to $8,800
  •  “Annual” prescription drug deductible from $500 to $575

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Consumer Watchdog is a non-profit and non-partisan consumer advocacy group with offices in Santa Monica, CA and Washington, D.C.  Visit us on the web at:

Consumer Watchdog
Consumer Watchdog
Providing an effective voice for American consumers in an era when special interests dominate public discourse, government and politics. Non-partisan.

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