An aging population, expensive new medical technology and pricey drugs are pushing up the cost of healthcare and could lead to higher insurance rates next year.

Medical costs "seem to rise faster than we can raise our retail prices," said Paul deVille, president and chief executive officer of retailer Hilo Hattie. "I certainly would add my voice to that of the entire business community that rising healthcare costs are a concern."

Healthcare is just one of a growing list of goods and services that are fueling inflation and putting a squeeze on household budgets. Gasoline, electricity and housing costs are all contributing to a rise in the cost of living. State economists expect the rate of inflation this year to rise to 3.4 percent in Hawai'i from 3.3 percent last year and 2.3 percent in 2003.

"Our population is aging faster than any other state in the country and as you get older you use more healthcare," said HMSA spokesman Michael Stollar. "Drug costs have for the last several years been a major driver of rising costs and then there's the increased utilization by the general population."

HMSA, which has about 690,000 members, reported net income fell 39 percent from a year earlier to $6.4 million. Kaiser, which has 226,000 members, reported profit plunged 65 percent to $1.5 million as it spent more to care for patients at hospitals other than its own and as costs to provide care rose.

Rising healthcare costs have plagued HMSA for three quarters, with costs climbing by at least 7.6 percent in each of the periods. For a second quarter in a row the insurer said it will be forced to consider higher health plan rates next year if the trend continues.

Stollar declined to say if HMSA will be seeking a rate increase on the same magnitude as the healthcare cost increases when it files a rate application with state Insurance Commissioner J.P. Schmidt in January.

HMSA had about $516 million in reserves early this year and has been criticized for continuing to raise rates when it has so much money in reserve. HMSA's reserves equaled about 35 percent of its annual expenses early this year, and the company says the reserves are needed in the event of an emergency.

HMSA increased rates by up to 4.9 percent in July for businesses with fewer than 100 workers on its Preferred Provider Plan.

Kaiser is waiting to hear from the state on a 3 percent premium increase it proposed for next year for Hawai'i businesses and government agencies. It is seeking the increase because of rising healthcare costs and planned capital improvement projects.

The higher rate would apply to about 174,000 of Kaiser's members, including state, federal and private workers. Individual plans and those under Medicaid, Medicare and Quest would not be affected.

Kaiser's increase was the lowest it has proposed since 2000, while HMSA's 4.9 percent increase was the smallest since 1998. The two insurers face competition from Summerlin Life and Health Insurance Co., which started operations here a year ago.

HMSA said its third-quarter administrative costs rose 8.9 percent from a year earlier to $33.21 million as it spent on a project to upgrade its information technology systems and federal and state-mandated programs, Stollar said.

HMSA's income from investments rose to $6.88 million from $4.91 million in the 2004 third quarter. Dues revenue increased 8.3 percent to $439.3 million.

Kaiser said its operating revenue also increased, rising 5.9 percent to $209 million. The nonprofit said net investment income was $3.2 million, or more than double a year earlier.