The Hawaii Medical Service Association, the state's largest health insurer, is hiking premiums for small businesses and their workers by the largest amount in three years to address rising healthcare costs.

The insurer said yesterday that rates for its popular preferred provider plan will rise 6.6 percent on July 1. The increase affects more than 11,000 small businesses with a total of 143,000 employees. HMSA also announced it was raising rates for its health maintenance organization plan by 5.1 percent on the same date.

The increase follows a 3.8 percent increase last year and comes as HMSA forecasts a full-year loss for 2007. The Honolulu-based nonprofit yesterday said it had a net loss of $687,382 in the first quarter and said it may have red ink in each of the other three quarters this year.

Steve Van Ribbink, HMSA's chief financial officer, said the insurer is trying to keep rate increases as low as it can while trying to make sure members have access to quality and affordable healthcare.

He said the insurer has had to cope with rising healthcare usage as Hawai'i's population ages and with higher costs for new drugs and technology. Van Ribbink said the insurer is trying to increase payments to physicians and hospitals this year while being mindful that employers can't handle large premium increases.

HMSA said its preferred provider program increases have averaged 6.4 percent over the past six years. During that time businesses have complained about the rising cost of providing coverage to workers, while doctors have criticized the insurer, saying its low reimbursements were forcing some to move from the state.

Tim Lyons, executive director of the 1,200-member Hawaii Business League, said companies will either have to increase prices or absorb the increases.

"We're stuck between a rock and a hard place," Lyons said.

The increase means the annual cost for the average individual preferred provider plan with medical, drug, dental and vision coverage will rise to $4,346 a year from $4,075.

For family coverage, it will increase $813 to $13,039. In both cases, an HMSA member could see increases higher or lower than the average increase.

6.6% CALLED MODEST

Still, the 6.6 percent hike was called modest by Gary L. Lee, a Mercer Health and Benefits principal who consults on healthcare issues with employers. Lee said a national survey by Mercer of 3,000 employers found small businesses had a 7 percent increase in healthcare premiums last year and projected a similar increase this year.

"HMSA deserves some kudos in bringing in 6.6 percent despite what some employers may say," Lee said.

Hawai'i businesses are required to provide healthcare coverage under the state's Prepaid Health Care Act to workers who put in at least 20 hours a week for four weeks. While companies must pick up most of the cost of the employee's coverage, they may or may not offer insurance for the worker's spouse or family. Lyons said many firms choose to offer coverage for benefits to retain or attract workers in the current low unemployment environment.

Independent physicians said they hope HMSA will pass on more of the increase than they have with past rate hikes. Dr. Linda Rasmussen, president of the Hawaii Medical Association, said previously there has been no correlation between HMSA premium increases and how much the insurer reimburses doctors. She said in some instances the company has cut reimbursements.

For example, Rasmussen, a Kailua-based orthopedic surgeon, said HMSA's reimbursement for a shoulder stabilization procedure was $1,582 in 2003, and declined to $1,432 last year. This year the insurer increased the reimbursement to $1,461, but it remains below 2003 levels, she said.

"That's the irony of the whole thing," Rasmussen said, noting some doctors have cited HMSA reimbursements as the reason why they are relocating to the Mainland.

LAST UNREGULATED HIKE?

The rate increase may be the last for HMSA's small business group that goes into effect without a review by the state. The Legislature passed a bill this year, as yet unsigned by Gov. Linda Lingle, that would reinstate rate regulation by the Hawai'i Insurance Commissioner.

Yesterday, Insurance Commissioner J.P. Schmidt said he couldn't say whether the rate increase was justified.

"It's very difficult to render any kind of opinion on it because we don't have all the information we would have in a filing," Schmidt said.

He said HMSA's rate increases generally have been lower than those occurring nationally. Premiums also tend to be lower than those in other states, he said.

"We need to strike an appropriate balance," Schmidt said. "We need to make sure our doctors are properly recompensed. I don't think we're there at this time."

Reach Greg Wiles at gwiles@honoluluadvertiser.com.