The Hawaii Medical Service Association has proposed an average 12.7 percent hike in rates for small businesses who renew their health insurance polices in July.

HMSA, the state's largest health insurer, announced the increase in rates after it lost $14.2 million in the final three months of 2008. HMSA said earlier this year that costs per member grew by 10 percent in both 2007 and 2008.

The proposed rate hike must be approved by state Insurance Commissioner J.P. Schmidt before it can take effect.