Hawaii Medical Service Association narrowed its loss to $4.1 million in the second quarter as health care costs continue to climb.

The shortfall was an improvement from the $16.8 million net loss the state’s largest health insurer posted in the year-earlier period.

"Over the last couple years, we have been able to get larger dues increases than we have gotten previously to narrow the distance between our costs and revenue," said Steve Van Ribbink, HMSA’s executive vice president and chief financial officer.

HMSA increased premium rates on July 1, 2009, for 11,000 small businesses by an average 12.1 percent for its most popular preferred provider plan and 4.2 percent for health maintenance organization plan members. Last month, HMSA raised rates again by 7.8 percent for the PPO plan and 15.1 percent for the HMO plan.

"We’re encouraged to see that the second-quarter loss has been reduced significantly. This we hope will translate into more moderate rate increases," said Gordon Ito, state Insurance Commissioner. "We realize the impact health rate increases have on businesses and we’ll continue to monitor the health insurers."

Second-quarter revenue was $425.3 million, and the company’s operating loss was $8.3 million. That was partially offset by investment gains of $3.6 million.

For the same period a year ago, revenue totaled $408.3 million.

Hawaii’s dominant health insurer reduced administrative expenses by 9.9 percent, or $4.3 million, to $39.5 million, as a result of unfilled positions and a cut in outside professional fees, as well as wage freezes for most salaried employees, Van Ribbink said.

HMSA’s reserve fund, which is used for special initiatives and to protect members, employers and providers from losses and emergencies, totaled $340 million, or $498 per member.

The nonprofit company insures the bulk of the Hawaii employees, with 683,187 members.