Hawaii Medical Service Association plans to raise health insurance premiums for roughly 84,000 small-business members by 3.8 percent after posting a more than eightfold profit to $43.8 million in 2011.

The rate increase on July 1 applies to the bulk of HMSA members in its predominant preferred provider plan. The state’s largest health insurer also is raising premiums for members in its Health Plan Hawaii managed-care line by 4 percent and by 3.8 percent for CompMed, a program that features higher deductibles and lower benefits.

The proposed increase is the lowest since 1997, when the insurer sought a 3.4 percent raise. Last year the state Insurance Division reduced the company’s 4.2 percent request to 3.7 percent.

Insurance premiums have finally caught up with medical costs after years of rate increases, according to Steve Van Ribbink, company chief financial officer.

"We were chasing a loss for a while there, and now we’ve caught it," he said. "Sometimes people see that we have a positive bottom line, and what they should realize is that it’s a good thing because it means we don’t have to raise rates as much as we would if we had a loss. We know survival is a challenge for small businesses here in Hawaii. That’s why we do extensive analysis of health care cost trends and necessary investment in the health delivery system before proposing any increases."

The proposed rates were filed last week for HMSA’s largest small-business group with the Insurance Division, which regulates health plan rates.

Insurance Commissioner Gordon Ito said the division will "take into consideration HMSA’s health-care loss costs, their projected trends and their financial position in approving or disapproving the rate filings."

Nonetheless, small firms will be taking another hit on top of soaring shipping, gas and electricity prices and other costs of doing business over the past year.

"It really presents a hardship for small businesses and it will impact their bottom line," said Jane Sawyer, district director for the U.S. Small Business Administration, which provides loans, training and contracting assistance for hundreds of firms each year.

"Most small-business owners do want to make sure that their employees are healthy and well, but it becomes a big question of can we sustain our business, offer our products and services at a reasonable cost and make a reasonable profit. This is something that will really have an impact on their decision to keep jobs and continue to do business here."

Tish Uyehara, marketing director for Armstrong Produce Ltd., which renewed HMSA health plans for more than 100 employees last month, said, "It’s just frustrating for everyone, of course, to have these increases, but it is something as a business that we have to just deal with. That’s just the costs that do have to be absorbed and somehow dealt with going forward. So the company will start looking at ways to see if we can make cutbacks."

HMSA’s new pay-for-performance reimbursement model has had a beneficial effect on "bending the cost curve," Van Ribbink said.

"What you’re always trying to balance is where your rate is compared to the health care cost trend and what your reserve level is. Those three have to be fairly close to balance," he added.

HMSA had 692,011 members at the end of 2011 and a reserve of more than $406 million, or $587 per member.

While small-business rate increases have steadily shrunk from a high of 12.7 percent just three years ago, the federal Affordable Care Act, which mandates that as many as 100,000 uninsured residents have medical coverage by 2014, could potentially have an effect.

"That’s kind of the conundrum," Van Ribbink said. "We don’t know (what effect it will have) because they haven’t been insured and we don’t know their health status. The other thing that’s a huge unknown is how is the Prepaid Healthcare Act in Hawaii is going to coexist with the Affordable Care Act. That will have its implications on health-care cost trends."