Despite the reduced size of the increase this year, small-business representatives were not pleased.

"Any increase in cost is a problem for any company," said Carol Pregill, president of Retail Merchants of Hawai'i. "Companies are doing better across the board, and the economy is better, but it reaches a point when any progress is lost in the increase in bills."

Some businesses, particularly retail shops, restaurants and grocery stores, make a much smaller profit margin than other businesses, Pregill said. "It's eroding the prosperity of a company, all these increased costs."

HMSA, a nonprofit organization, said to help keep coverage affordable, it would voluntarily use 100 percent of its annual investment income from reserves. By state law, health insurance plans are required to use 80 percent of their annual investment income from reserves to offset dues.

HMSA also said a $40 million investment to upgrade its claims processing system and information management capabilities will be paid for entirely by HMSA's reserves. The project, which began late last year, will take three to four years to complete.

HMSA's reserves of about $516 million have become a target for business owners and politicians looking for ways to keep down healthcare costs in the state. HMSA keeps money in reserve in case of emergencies and to cover costs when premiums fall short.

Legislators are considering a bill that would force HMSA to reduce its reserves. The measure would require managed care plans to return money to members if reserves go above 30 percent of annual expenses. State statute currently sets the ceiling at 50 percent. If the bill passes, HMSA would have to give back an estimated $68 million — or about $100 per member.

"Obviously, I think they are reacting to the legislation, which is in front of us today," said Sen. Will Espero D-20th ('Ewa Beach, Waipahu) and a member of a Senate committee that heard the bill. "If it (the lower rate increase) benefits businesses and the residents, then that's good news."

The senator added that the bill faces an "uphill battle" in the Legislature.

HMSA's rate increase means the proposed monthly dues would increase to $981.30 for a family on the Preferred Provider Plan, $893.88 for Health Plan Hawaii Plus and $929.70 for CompMed. The rates include medical, drug, dental and vision benefits.

Small businesses on the CompMed plan — introduced last year — also would see an average 4.9 percent increase while those on Health Plan Hawaii Plus would see a 4.5 percent hike on average.

HMSA said the proposed rate increase was lower this year in part because of lower-than-expected increases in medical costs. Last year, HMSA rates increased by an average of 7.8 percent for small businesses on its Preferred Provider Plan with medical, drug, dental and vision benefits.

"The cost of healthcare did not rise as steeply as we thought it would," said Steve Van Ribbink, chief financial officer of HMSA.

Still, small businesses say they are smarting under rising health insurance costs.

"It's really hard to digest an increase when supposedly they're nonprofit and yet they have that reserve," said Audrey Hidano of Hidano Constructions Inc. and former president of the Building Industry Association.

Hidano said that just because the economy is doing well doesn't mean all businesses — in particular, small businesses — are prosperous.

"You can't assume that people are busy and making money," said Hidano, who employs about a dozen workers. "There are many businesses that are still struggling."