The two largest health insurance companies in Hawaii rebounded in the first quarter to post their highest profits in at least three years due to rate increases and improved investments that helped boost earnings.

Hawaii Medical Service Association, the largest insurer, recorded its best quarter since 2006 with a profit of $8.35 million, up from net income of $1.52 million a year ago.

Kaiser Permanente Hawaii posted earnings of $2.8 million, its highest first-quarter profit since 2008 and a reversal from a $700,000 year-earlier loss.

Both raised premiums in January: HMSA by 14.8 percent for large businesses and Kaiser by 12.6 percent.

HMSA will impose another 3.7 percent premium increase for small businesses on July 1.

"It feels like there’s too much greed involved; it’s kind of a bad time to show off on big profits when everybody else is just scraping by," said Tommy Silva, president and chief executive officer of T&T Tinting Specialists Inc., which pays about $7,000 a month for HMSA and Kaiser insurance for 25 workers. "In the same year we’re having state unemployment increases as well as HMSA and Kaiser increases, it’s just making it harder to do business. The downside is it’s actually driving businesses out of business."

HMSA yesterday attributed its profit to net operating income of $3.97 million coupled with investment gains of $3.92 million.

Revenue from premium dues totaled $519.04 million, up from $433.88 million a year ago. Benefit expenses paid to physicians, hospitals and pharmacies totaled $472.01 million, compared with $400.89 million a year ago.

HMSA said the increases are primarily due to the more than 20,000 members who enrolled in a new Medicare program on Jan. 1 and that total profit represents just 1.6 percent of revenue.

"It’s hard to get much closer to break-even than that," said Steve Van Ribbink, HMSA’s chief financial officer. "Just because we have a gain for the first quarter doesn’t necessarily mean we’ll have gains throughout the year. We hope these financial results will continue, because that will take some of the pressure off premium hikes."

To put it in perspective, HMSA posted a total net loss of $99.6 million, or negative 1.2 percent of dues income, from 2006 through 2010, he said. Its reserve, which protects members and employers from losses and emergencies, totaled $391.15 million, or $563 per member.

The insurer, with 694,436 members, passed on some fairly substantial rate increases in 2010, while at the same time health care costs began to moderate, a trend that has continued through the first quarter, Van Ribbink said.

Kaiser, whose membership grew by about 3,800 to 231,097, reported operating income of $1.5 million and investment gains of $1.3 million, which helped turn around first-quarter losses for the past two years.

Its profit represents a 1.1 percent return on quarterly revenue of $261.4 million, up from $238.4 million at the end of March 2010. Operating expenses rose to $259.9 million from 240.7 million a year ago.

"It appears operating losses incurred over the last several years has ended and financial stability has returned," said Gordon Ito, commissioner of the state Insurance Division, which regulates insurance rates. "The insurance division hopes this financial stability continues and will translate into rate stabilization."

Kaiser, the largest health maintenance organization in Hawaii, attributed the quarterly earnings largely to benefits reaped from its so-called integrated care model, including electronic medical records, that promote patient involvement in medical monitoring and preventive care through online tools.

The industry as a whole is moving toward this model of coordinated care to help improve continuity of treatment and eliminate duplication of services, which leads to additional costs.

"We’ve been working hard for the last several years to tighten our belts and improve quality because we believe high-quality medicine is the most cost-effective," said Laura Lott, Kaiser spokeswoman. "Over the last few years we’ve outperformed average cost trends. Instead of waiting until (a member) has a big heart attack … you monitor their health and deal with chronic conditions so they don’t end up having a stroke."

But while both insurers’ financial performance has improved, rates continue on an upward trend, which is frustrating small businesses.

On May 1, Kaiser’s premium dues jumped 22 percent over last year for 22 employees of Screens and Things Inc., which has had to pass on some of that to consumers with 5 percent increases in product prices over the past four months, said Mike Lum, president and owner.

"You combine freight increases, medical increases, unemployment taxes and rent and it gets crazy," Lum said. "We have just a very few entities that determine costs in this state. If it’s between HMSA and Kaiser, who are two major players, no matter which one you’re with, you get caught in the price squeeze. Ultimately the consumers pay. That’s why we have cost of living the way it is, because we’re victims."