A consumer advocate group has filed suit against Anthem Blue Cross, claiming that the insurer's recent California rate hikes illegally blocked coverage to scores of policyholders.
Consumer Watchdog, a Santa Monica-based nonprofit, filed the class action in Ventura County Superior Court on Monday. The complaint says that Anthem, California's largest for-profit health insurer, used enormous rate hikes to force patients into lower benefit and higher deductible health coverage in violation of state law.
Lead plaintiffs Mary Feller and Randy Freed both received letters from Anthem telling them that their policies were no longer being offered to new customers and that, as a result, their premiums would significantly increase. As a consolation, Anthem assured them that they could switch to any Anthem Blue Cross individual health plan with no underwriting required.
Unfortunately, all of the alternative plans available to Feller and Freed had some combination of higher premiums, higher deductibles, and/or inferior coverage compared to their canceled plans.
Rate hikes led to death spiral
The suit alleges that Anthem's actions -- closing certain health plans to new customers without providing comparable coverage to existing members -- illegally trap those existing customers in their too-expensive policies and lead to the dreaded insurance death spiral.
That term refers to the phenomenon whereby rates go up, forcing consumers out of their current plans, which leads to a smaller pool of customers and, predictably, another rate hike. A 1993 California law prohibits insurance companies from putting customers in this situation.
Still, Jerry Flanagan, a health advocate with Consumer Watchdog, says that the practice is all too common.
It's a very profitable practice, and what we know is the insurance industry is very focused on short-term returns, Flanagan said.
Double-digit rate increases
The Fellers saw their rates jump 39%, pushing their annual premium from around $14,000 to nearly $20,000. Their 26-year-old daughter, a breast cancer survivor, also saw a 38% spike in her coverage costs.
Blue Cross has a gun to our heads, Feller said. We could either stay with our old coverage or switch to a new policy with much lower benefits. What Blue Cross did not tell us was that staying with our better policy would mean a 39 percent rate increase.
Feller's family is paying almost $25,000 a year in premiums, more than the mortgage on their home in high-end Marin County, California.
I think for the first time, we're really scared that we're going to be without health insurance, Feller said.
Ironically, Anthem's announcement last month that it would be raising premiums to as high as 39% is credited with reigniting the push for health care reform. President Obama counted himself very disturbed by the announcement, and Kathleen Sebelius, the Secretary of Health and Human Services, demanded a detailed justification for the hike. California Insurance Commissioner Steve Poizner is also investigating.