Commissioner Dave Jones Sides With Consumers, Echoes Concerns Raised by Consumer Watchdog in Lawsuit Over the So-Called “Death Spiral”

Santa Monica, CA – Consumer Watchdog praised Insurance Commissioner Dave Jones’ announcement today opposing Blue Shield’s plan to close 23 health insurance policies, and echoing concerns raised by Consumer Watchdog in a recently-filed class action lawsuit.

Consumer Watchdog said, however, that as many as 100,000 Californians are still trapped in closed or lower-benefit health plans following policy closures carried out by Blue Shield’s affiliate regulated by the Department of Managed Health Care in 2010.

“Blue Shield is on notice that the company’s plan to close health insurance policies fails to protect consumers as the law requires,” said Jerry Flanagan, staff attorney for Consumer Watchdog. “If Blue Shield decides to go forward with the policy closures, we look forward to working with the company to implement a consumer-friendly plan. We also hope that Blue Shield will ensure that consumers affected by the 2010 policy closures will finally benefit from the protections mandated by law.”

The lawsuit filed by Consumer Watchdog and Whatley Kallas, LLC alleges that Blue Shield is illegally gaming the health insurance system by alternately closing older policies and opening new ones in order to push older, sicker consumers who are more expensive to insure into lower benefit, higher deductible coverage that requires consumers to pay more out of pocket.

The lawsuit seeks to stop Blue Shield from shoving its policyholders into what is known as a “Death Spiral”-the industry term for what happens when a health insurer “closes” certain insurance policies to new customers, and later raises rates to those remaining in the closed policy until those enrollees can no longer afford coverage. Since consumers with preexisting conditions cannot switch to a comparable or better policy, consumers trapped in the closed policies must either accept greatly inferior coverage or face bigger and bigger premium increases.

Download the lawsuit filed in San Francisco Superior Court here

According to legislative records, it was Blue Shield’s own past business practices, resulting in Death Spirals for consumers, that spurred the Legislature to adopt the same 1993 law that Consumer Watchdog and Whatley Kallas, LLC now allege the company has violated.

The policy closures are taking place among certain insurance plans in the individual market. California law requires that when health insurers close a policy the insurer must either offer consumers new comparable coverage, or minimize rate increases on the closed policies.

Two regulatory agencies – the California Department of Managed Health Care (“DMHC”) and the California Department of Insurance (“CDI”) – oversee different segments of Blue Shield’s insurance business. In the lawsuit, Blue Shield is accused of illegally closing eight policies regulated by the DMHC in 2010, and announcing it would close 23 policies regulated by the CDI on July 2, 2012 without offering consumers comparable policies or limiting rate increases as required by law.

Consumer Watchdog and Whatley Kallas, LLC settled a similar class action lawsuit last year targeting Blue Cross of California’s illegal Death Spiral practices. Read more about that lawsuit and settlement here. Under the terms of that settlement, Blue Cross must both offer consumers in the closed policies access to comparable coverage and limit rate increases in the closed policies if consumers choose to remain enrolled in the older, closed policy.

– 30 –

Consumer Watchdog is a nonpartisan consumer advocacy organization with offices in Washington, D.C. and Santa Monica, CA. Find us on the web at: http://www.ConsumerWatchdog.org

WhatleyKallas has earned a national reputation-based on trust, respect, demonstrated commitment and tangible results-in connection with its representation of healthcare providers and members of the organized medicine community. The firm’s lawyers have negotiated settlements with most of the major health insurers in the country on behalf of hundreds of thousands of consumers, physicians and medical associations that resulted in monetary relief and revolutionary practice changes valued in the billions of dollars. These settlements fundamentally changed the way managed care companies do business. The lawyers of WhatleyKallas have been repeatedly recognized in legal publications, such as “The National Law Journal” and “American Lawyer”, by their peers and by leaders of organized medicine for our work in the healthcare field. For more information, go to: http://www.whatleykallas.com/

Over the past twenty years, one of the key gains by the Wall Street Wing of both the Republican and Democratic Parties has been the slow chipping away of consumer rights especially with respect to tort deform.  Even in our so-called liberal bastion on the “left coast” we have some really crappy consumer protection laws.  And Assemblywoman Nicole Parra (D-Bakersfield) and our Progressive Democratic Governator want to further protect corporations from what they have done in AB1505 by greatly limiting class action lawsuits.

More on AB1505 over the flip:

You can’t blame the Wall Streetists for this attempt, I mean it is in their financial best interest to do so. But for too long the progressive movement has refused to fight on this issue, ceding consumer rights for fear of looking like they were too friendly with the evil trial lawyers.  You know those evil people who have been fighting for hundreds of years to promote justice and protect consumers.  Pretty much the opposite of Bush’s pick to head the Consumer Products Safety Comission, Michael Baroody, the head of the National Association of Manufacturers, who withdrew his name from consideration.

See, the thing is that the tort system is something that nobody envisions themselves using. That’s for the poor lackeys who get hurt, but not me.  And so, “consumers” don’t really care when short-sighted legislators like Asm. Parra bring corporatist attacks upon the tort system.  Fortunately, AB 1505 was blocked in the Assembly Judiciary Committee, but this is not dead, as there is a reasonable expectation that they will bring this back as a ballot proposition.

But this isn’t just about attorneys. This issues is about organized labor, and removing a powerful tool available to unions.  This is about the rights of workers at Wal-Mart to sue the behemoth on one front instead of single fights only.  This is at the heart of collective strength and the organization model.  Quite simply if many of these cases can’t go through class-action procedures, they just won’t happen.  The resources just aren’t there.

But now, the left is slowly awakening to the fact that these protections are not trivial.  And they stood up to defeat Parra’s corporatist intentions:

The bill, AB 1505 by Assemblywoman Nicole Parra, was summarily defeated this month in the Assembly Judiciary Committee. The death of the bill, which would have made it more difficult to file class actions, came as little surprise in the Democrat-controlled Legislature.

But Capitol insiders believe it may serve as a leverage point for proponents who seek to raise money for a ballot initiative next year. Sources say discussions are under way, although none cared to publicly discuss their progress, if any. The list of backers and opponents of the Parra bill reads like a Who’s Who of California’s most powerful political players. Opponents include the California Nurses Association, AARP, the trial lawyers, the SEIU State Council, and consumer and labor groups. Supporters include the California Chamber of Commerce, the Farm Bureau, the grocers, hospitals, retailers, Hewlett Packard, Intel and insurers, among many others.

“We haven’t foreclosed any options,” said Vince Sollitto, Chamber of Commerce spokesman. “We always try to work with the Legislature, and we will continue to do so now. Nothing is ever really dead in the Legislature. While this particular bill didn’t clear policy deadlines, the issue isn’t going away.” (Capitol Weekly 5/24/07)

This isn’t going away, and we need to turn the tide.  We need stronger protections for consumers against global corporations that have been able to swat away lawsuits like gnats on a horse’s ass, not weaker protections.  While progressives were asleep at the switch on Prop 64 we can no longer afford to rest.  If hard-ball is how the multi-nationals want to play, time to start bringing some of our propositions to the ballot. As George Bush says, “we’re going to stay on the offense.”