Hawaii Medical Service Association narrowed its third-quarter loss to $6.4 million after boosting rates for both small and large business groups over the past year.

But the state’s largest health insurer still plans to increase premiums by 14.6 percent for most of its large employers on Jan. 1.

HMSA’s $6.4 million loss, 1.4 percent of revenue, in the quarter ended Sept. 30 compares to a $23 million loss — its second-largest quarterly loss ever — in the third quarter of 2009.

"We’re encouraged that HMSA has reduced its loss in the third quarter and hope the trend in reducing the losses continues," state Insurance Commissioner Gordon Ito said yesterday.

On average, HMSA spent $426.4 million on benefits — compared with $403.9 million in the third quarter of 2009 — while collecting $452.4 million in member dues, up from $411.1 million.

The insurer recorded a $12.8 million operating loss before taxes and investments, down from a $32 million loss in the year-earlier quarter. Investment income totaled 5.8 million, down from $7.9 million in the 2009 period.

"We have had some significant dues increases over that time frame, which has allowed us to narrow the loss," said Steve Van Ribbink, HMSA chief financial officer.

The insurer said its reserve amounted to $362.9 million, down $18.6 million from $381.5 million in the same period last year.

HMSA said last month that it needs to boost rates 14.6 percent for nearly 100 large employers to counter a rise in medical costs, particularly hospital expenses. Van Ribbink said he originally miscalculated the rate increase for the group at 14.8 percent.

The rate request, which must be approved by the state Insurance Division, covers about 77,500, or 11 percent, of HMSA’s 680,000 members. Van Ribbink added that HMSA likely will boost rates for small businesses next July, but is hopeful that a new "pay-for-performance" model, which reimburses providers for positive patient outcomes rather than volume, will reduce costs in 2011.

The theory behind the new model is that better care will result in fewer re-admissions and unnecessary visits, fewer complications and a "whole host of different savings that will hopefully be realized."

"We are on the right path to making significant improvements to quality and begin to bend that cost curve downwards," he said. "If we can get us back to break even, that means lower rates for the community."