Three health insurance policyholders recently filed a putative state-wide class action lawsuit against Anthem Blue Cross (“Anthem”) in California state court, claiming that the insurer breached certain individual plan contracts when, in the middle of the plan year, it “unilaterally and dramatically” increased plan deductibles, premiums and out-of-pocket maximums.  The complaint, filed on November 14, 2011 in Los Angeles County Superior Court, also alleges that Anthem breached the implied covenant of good faith and fair dealing, and violated certain California health and safety and consumer protection laws.

Plaintiffs are three California residents enrolled in various Anthem Preferred Provider Option (PPO) health plans, which are all regulated by the state’s Department of Managed Health Care (DMHC).  Plaintiffs purport to represent all those “currently enrolled or [previously] enrolled in [an Anthem] individual plan contract whose calendar-year deductible and other annual out of pocket costs were unilaterally increased mid-year and/or whose policies were reduced to one month in duration.” 

The plan changes at the heart of the dispute were announced in a February 2011 letter from Anthem to its policyholders.  Citing “an effort to lessen the impact of rising health care costs,” Anthem stated in that letter that, as of May 1, 2011, it would be increasing annual deductibles, premiums and out-of-pocket maximums for its PPO plans then in effect.  Later, in a subsequent plan “endorsement,” Anthem stated that, effective August 1, 2011, it would be changing its PPO policy periods from one year to one month and that Anthem could modify plan terms (e.g., further adjust deductibles and/or premiums) upon sixty days’ notice.  Plaintiffs also allege that Anthem had planned to implement similar mid-year rate hikes for “nearly identical policies” regulated instead by the California Department of Insurance (CDI), but ultimately put that plan on hold.

At the core of plaintiffs’ allegations is their assertion that the annual deductible is an essential component of any health insurance plan.  Indeed, plaintiffs point out, the actual numerical deductible amounts were incorporated into the Anthem plan names.  For example, Anthem’s “PPO Share 2500” plan had a deductible of $2,500—which was later increased to $2,950.  Plaintiffs claim that these non-negotiated changes in the economic terms and the duration of the individual plan contracts, only months into the plan year, constituted a breach of contract and a breach of Anthem’s duty of good faith and fair dealing.

Plaintiffs also allege a violation of California’s Knox-Keene Act (Health & Safety Code § 1340 et seq.), which sets out a regulatory framework governing “health care service plans.”  Among other things, the Act empowers the DMHC to require health insurers to disclose to its customers certain key information regarding their health plans.  This information, plaintiffs say, must be in a “coverage matrix” format that lists the annual deductible before any other plan details.  Moreover, plaintiffs cite portions of the Act forbidding insurers from marketing their plans in a deceptive or misleading manner.  Plaintiffs further allege that by increasing annual deductibles during the plan year, Anthem engaged in false advertising and sold them a product that turned out to be different than what Anthem had represented it to be.  (That virtually identical CDI-regulated Anthem plans were not also subject to mid-year rate increases, plaintiffs suggest, makes Anthem’s conduct even more egregious.)  Plaintiffs then allege, inter alia, that the Knox-Keene violation amounts to “unfair competition,” which is prohibited by California statute.

Plaintiffs are seeking declaratory and injunctive relief, restitution, disgorgement, as well as punitive damages.

A copy of the class action complaint is available by clicking here.