Hawaii Medical Service Association has the go-ahead to implement an average 7.8 percent rate increase for small businesses in the state.

The state Hawaii Insurance Division approved the request on Thursday. HMSA requested in March for the rate increase for its Preferred Provider Plan after seeing a $64.4 million loss in 2009, its worst annual loss ever.

“;We are certainly keenly aware at HMSA of the pressures that face small businesses today and their employees,”; said Elisa Yadao, HMSA's vice president of community affairs. “;It's only after a great deal of evaluation and analysis that we institute rate increases.”;

The state's largest insurer, which counts 11,000 businesses among its customers, has attributed rising hospital and physician costs to the increase.

“;We really had to do this in order to cover costs,”; Yadao said.

HMSA had a 12.1 percent rate increase go into effect last July. The current increase will go into effect July 1 for the company's small-business groups, which employ about 133,000 people.

HMSA is also seeking a 15.1 percent average increase for Health Plan Hawaii Plus and an average 10.5 percent increase for HMSA CompMED.

Many small businesses in Hawaii are expected to catch a tax break this year. President Barack Obama's health care reform law will give businesses with 10 or fewer employees a tax credit of 35 percent of the company's insurance premiums for employees.

That credit starts this year and will increase to 50 percent of premiums by 2014.