The Hawaii Medical Service Association plans to raise premiums by an average of 7.8 percent for roughly 11,000 small businesses that buy health insurance for their employees.

The rates, if approved by the state Insurance Division, would go into effect in July. They come as Hawai'i's largest health insurer reports continued financial losses.

"We don't like it, but it's one of the most important things for employees," said Richard Botti, head of the Hawaii Industry Food Association and Legislative Information Services of Hawaii, which represent about 1,100 small businesses.

HMSA has recorded losses during the past four years as benefit use by members and higher payments to hospitals and doctors sapped its finances. The health plan said it realized the state's small business owners are still facing difficult times.

"But the reality is our members' health care costs are continuing to outpace revenue and we must adjust rates to cover costs," said Steve Van Ribbink, HMSA executive vice president.

The proposed 7.8 percent average increase would affect about 120,000 workers employed by small businesses and enrolled in HMSA's Preferred Provider Plan that includes drug, dental and vision.

HMSA proposed even larger increases for other plans offered to small businesses.

This includes an average 15.1 percent rise for its health maintenance organization plan known as Health Plan Hawaii Plus.

Another average 10.5 percent increase is being proposed for the CompMed plan, a program that features a higher deductible and lower benefits for workers.

HMSA said without the increases it would have a shortfall of $64.4 million this year. The state Insurance Division has 60 days to review the request and either grant, or approve a modified rate.

Last year, the rate request for the same small business employer group was modified slightly by the Insurance Division, though still amounted to a double digit increase.

The July 2009 rate increase was higher than the roughly 5 percent average increase nationally last year in family premiums, as reported by the Kaiser Family Foundation.

An Advertiser comparison of HMSA preferred provider rate increases with data from the Kaiser Family Foundation shows HMSA's premiums have surged more than average rates nationally in the past five years.

But over the past decade, HMSA has increased rates at a slower rate.

MORE CHANGES SET

Still, Van Ribbink said the skyrocketing health insurance costs are of great concern to HMSA, which does not see the trend as being sustainable. He said if costs continue to increase at the same pace it will diminish access to quality health care.

As such, HMSA said it will begin changing how it pays doctors, hospitals and other health care providers this year from reimbursements for office visits and other services to a program that looks at health outcomes and efficiency.

Van Ribbink said HMSA doesn't want to interfere with the physician-patient relationship, but is trying to encourage ways to improve patient health while bringing down costs.

"Whether there is healthcare reform or not, this actually needs to be done," said Van Ribbink, who also serves as HMSA's chief financial officer.

That may help in the future, but for now small businesses are facing an increase in health insurance premiums along with other higher costs, notably the at least six-fold increase in average unemployment insurance that's on tap for this year.

Some small businesses split some of the health insurance premium costs with workers, while others pay all the premiums for employees.

"It's just tough doing business right now," said Botti.

"We're all going through hell."