Hawaii Medical Service Association will be boosting rates for small businesses by the greatest amount in 20 years after getting approval from the state Insurance Division to raise premiums an average 12.1 percent for its most popular Preferred Provider Plan.

The state's largest health insurer, which lost $13.9 million last quarter and $35.8 million in 2008, had requested a 12.7 percent increase to keep up with soaring medical costs.

Gordon Ito, the state's chief deputy insurance commissioner, said nearly all of HMSA's request was approved due to the losses that the insurer has sustained over the last several quarters and its continued projections.

“;The standard we review rates is to deem whether their rates are excessive, inadequate or unfairly discriminatory,”; he said. “;The rate that was approved was what the actuary deemed to be not excessive.”;

Ito said the slight reduction from HMSA's initial request will save small businesses about $2 million.

Nevertheless, HMSA's increase was its largest since raising rates 18.6 percent in 1989.

The new rates, which go into effect July 1 for about 11,000 companies (with fewer than 200 employees), include drug, dental and vision coverage.

“;It's going to be another economic blow to small business, in particular because we remain the only state in the union with the compulsory prepaid health-care act,”; said state Sen. Sam Slom (R, Hawaii Kai), president and executive director of SmartBusiness Hawaii, formerly Small Business Hawaii, with 1,500 business members through the state.

Besides the 12.1 percent increase for the Preferred Provider Plan, HMSA also is raising rates an average 12.1 percent for its HMSA CompMED members and an average 4.2 percent for its Health Plan Hawaii Plus members.

“;We appreciate how difficult it is for business owners during this economic downturn, and the last thing we want to do is make things harder,”; said Steve Van Ribbink, executive vice president and chief financial officer for HMSA. “;But the fact is that this adjustment is necessary, and it's good to know that an outside independent party like the state Insurance Division agrees that it is necessary.”;

The increases will affect about 103,000 employees, more than a third who are enrolled in the Preferred Provider plan. Overall, HMSA had 703,477 members at the end of March.

“;We are currently in a situation where double-digit increases in health-care costs are outpacing increases in member dues,”; Van Ribbink said. “;We're working hard to keep our administrative expenses low, increase our operational efficiencies and generate the greatest value for our members.”;

In 2008 HMSA paid health-care providers 95.2 percent of every dollar collected in member dues.