Blue Shield sued for 'death spiral' practices

Blue Shield of California has been engaging in "death spiral" tactics by pushing older and sicker members into low-benefit, high-deductible plans, according to a lawsuit filed Wednesday against the company.

Consumer Watchdog sued Blue Shield, claiming the insurer closes certain health plans to new members and then sharply increasing rates for the plans' remaining members until they no longer can afford the prices. This practice effectively forces those members to either to pay the higher rates or switch into policies with less coverage, reported the San Jose Mercury News.

These so-called "death spiral" policies violate a 1993 California law requiring insurers that are closing a health plan to pool the members' health histories with other members to minimize rates increases for those left in the closed plan. That law also requires that insurers offer members the option to switch to a comparable plan, according to the San Francisco Chronicle.

"Death spirals are the result of insurers behaving at their worst," Jerry Flanagan, staff attorney for Consumer Watchdog, said at a press conference announcing the lawsuit. "Instead of providing coverage to loyal customers who have paid their premiums, Blue Shield pushes consumers into skimpier coverage or prices them out of care altogether when they are sick and need insurance the most."

The lawsuit specifically accuses Blue Shield of closing eight policies in 2010 that placed more than 60,000 members in a "death spiral" and of planning to close an additional 23 policies on July 2, affecting more than 250,000 members, the Santa Monica Mirror reported.

Blue Shield officials denied using any death spiral tactics. "The allegations are false," Blue Shield spokesman Steve Shivinsky said. "We comply with all aspects of the block closure law and have since it was enacted."

To learn more:
- read the San Francisco Chronicle article
- see the San Jose Mercury News article
- check out the Santa Monica Mirror article
- see the Consumer Watchdog statement and lawsuit (.pdf)

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