A consumer watchdog group filed a lawsuit Monday against California's largest for-profit health insurer on behalf of policyholders, claiming they were pushed to take coverage with fewer benefits and higher deductibles.

In the case filed in Ventura Superior Court, Anthem Blue Cross is accused of violating a California law requiring health insurers to offer new, comparable coverage or minimize premium increases when they close a policy.

According to the lawsuit, plaintiffs Mary Feller and Randy Freed received similar form letters from the Woodland Hills-based insurer, stating their policies were closed and they could "switch to any Anthem Blue Cross individual health plan with no underwriting required."

The lawsuit alleges that the few plans Anthem would allow Feller and Freed to switch into had higher premiums, higher deductibles, less coverage, or a combination of those undesirable traits.

Anthem Blue Cross spokeswoman Peggy Hinz said the insurer hasn't yet reviewed the case, declining further comment.

Consumer Watchdog, a Santa Monica-based consumer advocacy group, filed the case on behalf of Feller and Freed. The lawsuit seeks class action status.

When the practice was outlawed in 1993, legislative analysts called it a "death spiral" because rates inevitably increased until policyholders could no longer afford coverage. As the coverage pool shrank over time, rates went up and up.

"It's a very profitable practice, and what we know is the insurance industry is very focused on short-term returns," said Jerry Flanagan, a health advocate for Consumer Watchdog.

With her family's premiums up to nearly $25,000 a year, Feller says she, her husband and daughter — a cancer survivor — are spending more on health insurance premiums than they do on their mortgage, "and we live in Marin County, California, which is one of the costliest real estate markets in the country."

"I think for the first time, we're really scared that we're going to be without health insurance," she said.

The lawsuit comes on the heels of government scrutiny of a steep Anthem Blue Cross rate hike for roughly 700,000 individual policyholders in California. The hikes average 25 percent — some premiums will rise as much as 39 percent — but implementation of the hike has been delayed until May 1 while a state regulator investigates.

Anthem executives have blamed the current economic climate, flaws in the national health care system, high costs of health care and fewer young, healthy people holding onto insurance policies for the rate hikes.

The Obama administration has called Anthem's hike a harbinger of rising premiums in its arguments for health care reform.

In special hearings last week, California legislators and the U.S. House of Representatives questioned executives from Indianapolis-based WellPoint, Anthem's parent company, about proposed premium hikes in California, Maine and elsewhere.