Members claimed that the company tried to send unprofitable business into a "death spiral," leaving them with bare-bones policies — or no coverage.

WellPoint subsidiary Anthem Blue Cross of California has agreed to settle a class-action lawsuit alleging that the company manipulated rates and pressured members to change coverage in a bid to purge unprofitable business.

Anthem denied any wrongdoing. In the agreement, announced June 21, the company pledged to offer plaintiffs and affected members an opportunity to change policies without any medical underwriting and to cap premium increases on those customers.

According to the preliminary agreement filed in California Superior Court, 122,000 Anthem members have the right to be part of the settlement.

The plaintiffs, who filed the lawsuit on March 1, 2010, with advocacy group Consumer Watchdog, claimed that Anthem closed certain lines of business to new customers in September 2009, then misled those who were enrolled in the affected insurance policies about their options.

They alleged that Anthem told them they could change to another type of policy without risking denial of coverage because of a preexisting condition. In fact, they claimed the only types of coverage available had leaner benefits and higher deductibles. If they stayed enrolled in their policies, they were forced to pay much higher premiums, designed to be so expensive that they would be forced to change policies or go without insurance, they claimed.

Such a practice, which has been illegal in California since 1993, is known as sending policies into a "death spiral."

According to the original complaint, Anthem assured plaintiff Mary Feller that her policy would remain in place even though the company would not allow any new customers to sign up for the coverage she had — but then it raised the premium for her and her husband's policy from $1,193 per month to $1,658 per month.

"My husband and I got a letter in the mail from Blue Cross telling us they were closing our policy," Feller said in a statement released by Consumer Watchdog. "We could either stay with our old coverage or switch to a new policy with substantially reduced benefits. What Blue Cross did not tell us was that staying with our better policy would result in bigger and bigger rate increases over time. This settlement provides patients with the choice of a comparable policy that they should have had under the law."

A hearing over final approval of the settlement is scheduled for Aug. 26.

In a separate deal announced June 20, Anthem told the California Dept. of Insurance that it would reduce its planned quarterly rate increases in the small group market from an average 6% increase to an average 3%. The new rates, which took effect July 1, pertain to about 18,000 subscribers enrolled in plans for businesses with two to 50 employees.

Anthem joins other California insurers who have recently made concessions to state insurance regulators and bowed to public pressure to keep insurance affordable. The latest example came in June, when Blue Shield of California announced that it would limit its operating margin to 2%.

Insurance Commissioner Dave Jones welcomed Anthem's decision to reduce its planned rate increase on small-business subscribers. He restated his support for pending legislation that would limit insurers to raising rates once a year and give the commissioner the authority to reject proposed rate increases. Currently, he may review them but cannot force insurers to reduce planned rate hikes.

The bill, which was passed by the California Assembly, was scheduled for a state Senate committee vote at this article's deadline.