In what may be a precursor of life with Obamacare minus the individual mandate, a class-action suit has been filed against Blue Shield of California over claims that it is forcing older, sicker policyholders into low-benefit, high-deductible coverage by manipulating the state’s dual-regulator health insurance system.

The lawsuit, filed June 12 in San Francisco Superior Court by the advocacy group Consumer Watch, alleges that the insurance company has been closing blocks of health plans regulated by either the Department of Insurance or the Department of Managed Health Care and opening new ones in the other. Insurers can screen customers based on their health history when they switch from a policy regulated by one department to one handled by the other, allowing insurers to reject some people for potentially costly medical reasons.

Department of Insurance Deputy Commissioner Janice Rocco told the San Francisco Chronicle that Blue Shield has applied to close 25 individual plans in July, leaving three policies open for enrollees. Blue Shield is also applying to increase the number of individual policies regulated by the Department of Managed Health Care from nine to 20, she said.

Blue Shield is accused in the suit of violating a 1993 state law requiring health insurers to pool members of a closed block with other enrollees to minimize rate increases of those left in the old policy. The larger the pool of enrollees, the lower the rates. That is the main argument behind inclusion of the individual mandate in the Obama administration’s health care plan now being reviewed by the U.S. Supreme Court.

If the Supreme Court were to reject the mandate requiring that all Americans purchase health coverage or pay a penalty, but leaves other popular provisions—such as guaranteed coverage for pre-existing conditions—intact, the system could find itself with too many patients and too little money. New York and New Jersey are often cited as examples of states that reformed their insurance systems in the 1990s to prohibit discrimination against the sick, but did not include a mandate for wider participation. Lawmakers were forced to intervene to prevent a “death spiral” in their insurance markets.

–Ken Broder

To Learn More:

Class Claims Blue Shield Prices Out the Sick (by Philip A. Janquart, Courthouse News)

Blue Shield Sued Over Insurance Policy Shifts (by Victoria Colliver, San Francisco Chronicle)

Without Mandate, an Insurance ‘Death Spiral’? (by Alex Wayne, Bloomberg News)