Anthem settles lawsuit, stops 'death spiral' policies

Anthem Blue Cross in California has settled a class-action lawsuit, agreeing to stop dramatically rising premiums for about 122,000 of its members. The WellPoint (NYSE: WLP) subsidiary also will allow those members to join new Anthem plans without having their medical histories reviewed.

The nonprofit organization Consumer Watchdog and several Anthem consumers accused California's largest for-profit health insurer of closing certain policies without first notifying them of the closures or allowing them to change plans, the Los Angeles Times reports. They alleged the practice violates state law, which requires health insurers that close a policy to either offer consumers new comparable coverage or minimize premium increases, according to the settlement.

In a tactic often referred to as a "death spiral," insurers close a certain health plan to new enrollees while raising premium rates paid by the remaining members until they can no longer afford it. In this case, consumers alleged that Anthem then increased premium rates without offering comparable options, thus trapping older customers and those with pre-existing conditions into policies they couldn't afford but also couldn't leave, the LA Times notes.

"The policy pool shrinks, and those with health conditions are trapped," Consumer Watchdog spokesperson Jerry Flanagan said, adding that health plans have rejected consumers from new plans for conditions as common as asthma or minor as toenail fungus, the Santa Monica Daily Press reports.

California Superior Court preliminarily agreed to the settlement. It will be finalized at a hearing in August, notes the Daily Press.

To learn more:
- see the settlement agreement (.pdf)
- read the Los Angeles Times article
- view the Santa Monica Daily Press story

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