SAN FRANCISCO — A consumer group has sued Blue Shield, accusing the health insurer of using big rate hikes to force older and sicker people into low-benefit and high-deductible plans, a tactic the group calls a "death spiral."

Consumer Watchdog announced the suit Wednesday during a news conference in front of Blue Shield's corporate headquarters in San Francisco.

The group accuses Blue Shield of closing certain policies to new customers, then sharply raising rates for those remaining in the plans.

People with medical problems often can't switch to comparable policies, so they become trapped and must pay ever-rising premiums until they can no longer afford it, or switch to a policy with vastly inferior coverage, the group alleges.

"Either outcome is good news for the company," said Jerry Flanagan, staff attorney for Consumer Watchdog. "Companies are jockeying right now to only insure healthy people."

Flanagan said insurers hope to make their customer bases as healthy as possible before federal health reforms take effect in 2014. At that time, insurers will no longer be able to turn people away based on their medical conditions.

The suit claims Blue Shield is violating a 1993 state law meant to prevent "death spirals." The law requires insurers that close a plan to new customers to minimize rate increases on the existing ones by broadening the pool of enrollees it uses to calculate rates.

Blue Shield disputes the charges.

"The allegations are false," said company spokesman Steve Shivinsky. "We comply with all aspects of the block closure law and have since it was enacted."

Gilroy farmer Robert Martin said he had never heard of the term "death spiral." But when Blue Shield told him last year it planned to hike his family's premium by 23 percent, from $1,964 a month to $2,411, he said he felt he had no choice except to switch to a bare-bones plan with inferior coverage.

"My policy went up to the point where we couldn't afford it," Martin said.

Because his 23-year-old son has a brain lesion from a sports injury that has proved harmless but needs monitoring, Martin said he knew the family would have difficulty getting other coverage.

So instead of the $2,000 deductible in his old plan, Martin changed to a Blue Shield policy with a $5,500 deductible per person.

Martin said he now avoids seeing a doctor unless he has a serious problem.

"When there's a high deductible, consumers are less likely to use their insurance," Flanagan said. "These new policies that are on the market now have lots of asterisks and footnotes."

When Blue Shield canceled the rate increase on his old plan and boosted the premium on his new one by 14.8 percent, Martin said he tried to switch back but was told he could not because his old plan had been closed to new customers.

"It was incredibly unfair," said Martin, who is a plaintiff in the lawsuit. "I couldn't believe they did this."

The allegations against Blue Shield are similar to those in Consumer Watchdog's 2010 lawsuit against Anthem Blue Cross. That suit was settled last year and requires Anthem Blue Cross to offer consumers in closed policies access to comparable coverage and to limit rate increases in the closed policies for those who remain, Flanagan said.

The lawsuit notes that Blue Shield has closed eight policies regulated by the Department of Managed Health Care and has announced that on July 2 it will close 23 policies regulated by the California Department of Insurance. Consumer Watchdog claims the company will do this without offering consumers comparable coverage or limiting rate increases for those remaining in the closed plans.

Consumer Watchdog is asking the court declare the suit a class action and order Blue Shield to halt such practices and pay damages to affected customers.

"These are loyal customers," Flanagan said. "These are folks that have been paying their bills. …  They're using these death spirals to trap people between a rock and a hard place."

Contact Sandy Kleffman at 510-293-2478.