The company tried to bar the claim but Los Angeles Superior Court Judge Jane Johnson said the case can proceed.
Blue Cross of California sells insurance plans with certain benefits and annual out-of-pocket costs, but its contracts include provisions that allow the insurer to change any term or benefit with 60 days notice.
"This is a classic 'bait-and-switch': advertise it in one way, charge a premium based on the coverage that's being provided, but then one month later, raise the price and take away the benefits; that's illegal under state and federal law," Flanagan argued.
Anthem Blue Cross spokesman Darrel Ng maintained adjusting benefits is not a breach of contract and said that the move can help lessen premium increases.
Consumer Watchdog will ask the court to certify the case as a class action lawsuit, which would allow it to represent all affected Blue Cross members.