VENTURA, Calif. — A consumer group has filed a class-action lawsuit against Anthem Blue Cross of California, alleging the company’s strategy in deploying an average 25% rate increase for individual plan customers violates state law.

The lawsuit was filed by Consumer Watchdog on behalf of two Anthem policyholders who are covered under a program the insurer closed to new enrollees on Sept. 25, 2009. This triggers a "death spiral" as rate increases fall to "those remaining in the closed book of business until they can no longer afford coverage," the lawsuit stated.

Anthem allegedly violated state law in that it did not pool existing enrollees with other open blocks to determine new rates or offer alternative coverage with comparable benefits, according to the lawsuit.

The two plaintiffs, Mary Feller, of San Rafael, Calif., and Randy Freed, of Goleta, Calif., maintain they each faced rate increases of 39% and 33%, respectively. The lawsuit alleges these actions by Anthem Blue Cross’ violated California state law governing unfair business acts and practices, as well as unjust enrichment.

Anthem spokeswoman Peggy Hinz said the company had not seen the lawsuit and could not comment.

Angela Braly, chief executive officer of Anthem’s parent WellPoint Inc., defended the sought-after rate increases amid criticism during a recent U.S. House subcommittee hearing (BestWire, Feb. 24, 2010). Braly said the increases were actuarially supported and in response to rising medical costs and "younger and healthier policyholders dropping or reducing their coverage during tough economic times."

Anthem’s individual market rates were set to increase March 1, but amid controversy from this move the insurer agreed to put the increase off for two months (BestWire, Feb. 16, 2010).

Most WellPoint insurers, including Anthem in California, have current Best’s Financial Strength Ratings of A (Excellent).

Shares of WellPoint (NYSE: WLP) were trading at $62.33 a share the afternoon of March 3, up 0.69% from the previous close.