The state’s two largest health insurers improved their financial results in the fourth quarter in the wake of rising medical costs.

Hawaii Medical Service Association swung a $14.3 million profit from a $10.7 million loss in the year-ago period, while Kaiser Permanente Hawaii narrowed its loss to $2.3 million from $7 million in the 2009 fourth quarter.

HMSA’s large fourth-quarter gain boosted it into the black for the year with a profit of $5.3 million, compared with a loss of $64.4 million in 2009, its worst-ever annual loss.

"We passed on some fairly substantial rate increases during calendar year 2010, and at the same time health care costs began to moderate so that we had a lower trend," said HMSA Chief Financial Officer Steve Van Ribbink. "If not for a strong fourth quarter, we would have seen a net loss for the year."

HMSA will raise rates for its preferred provider plan in July, though the adjustment will be lower than the 7.8 percent hike implemented last July, said Van Ribbink, declining to give a specific number. The insurer plans to file a proposed rate increase on March 15 with the state Insurance Division.

The state’s largest health insurer, which has 676,801 members, continued the freeze on hiring and executive compensation implemented in 2009 due to the weak economy. Annual compensation for Bob Hiam, HMSA’s president and CEO, totaled $855,331, a decrease of more than 30 percent from a salary of $1.3 million in 2009.

HMSA collected $452 million in dues revenue while paying $401 million in medical expenses during the fourth quarter. A year earlier, HMSA received $425.2 million in premium dues and paid $412.4 million in benefit expenses.

The health plan’s quarterly net operating gain was $3.4 million, up from a loss of $29.2 million in 2009. Investment income grew to $8.8 million, up from $6 million in the year-earlier quarter. HMSA’s reserve also rose to $389.6 million from $356.1 million at the end of 2009.

Meanwhile, Kaiser’s improved fourth-quarter loss also helped narrow its full-year loss to $5.1 million from $8.7 million in 2009. Annual revenue grew to $957 million from $902.4 million in 2009.

Operating revenue in the fourth quarter rose to $241.1 million from $194.8 million, while expenses jumped to $244.8 million from $201 million in the year-earlier period. The state’s largest health maintenance organization cut its operating loss to $3.7 million last quarter from a $6.2 million loss in the 2009 quarter. Kaiser had an investment gain of $1.4 million compared with an $800,000 loss a year earlier.

"The 2010 loss can be attributed in part to rising health care costs and low reimbursement rates of government programs such as Medicaid, which do not cover the cost of care," said Kaiser spokeswoman Laura Lott. Kaiser raised premium rates by 12.6 percent in January. Lott declined to speculate about future rate increases.

The HMO also said it trimmed losses and grew membership in 2010 and is investing in new facilities, including a recently opened South Kona clinic on Hawaii island.