Hawaii Medical Service Association, poised to raise rates again at the start of the year, posted earnings of $12.9 million in the third quarter, which continued its return to profitability but raised some eyebrows over the magnitude of its financial turnaround.

"When you have businesses going out of business left and right and people being laid off, companies downsizing or cutting hours just to survive, you have to question, Is that kind of an exorbitant profit to be making?" said Greg Culver, president of Pua Lani Landscape Design Inc., which has 46 employees. "These increased costs and profits are on the backs of small business right now. If everyone was making lots of money and the economy was booming, it’s a little easier to take — but it’s not."

The state’s largest health insurer, which is boosting rates by an average 3.6 percent for large businesses in January, has seen its profit swell to $27 million through the first nine months of the year after losing roughly $100 million in the previous five years during the economic slump.

Rival Kaiser Permanente Hawaii, which is seeking an 8.8 percent rate hike in 2012, lost $800,000 in the quarter ended Sept. 30, though year-to-date earnings total $4.8 million.

Rising health care costs have finally tapered off after several years of surging as members used more medical services in fear of losing their jobs — along with health insurance — when the economy was shaky.

"We’ve come off a period of time where people were using a lot of health care services; this is the natural reversion to a more normal state," Steve Van Ribbink, HMSA’s chief financial officer, said Tuesday. "We were operating at a substantial operating loss — an unsustainable operating loss — previous to this year. Revenue’s gone up as we’ve had rate increases that were necessary over the past couple of years to cover health care costs."

The insurer also said the new pay-for-performance reimbursement model — which ties payments to patient outcomes and the quality of service delivered by health care providers — is having a favorable effect on medical costs.

HMSA collected $512.3 million in premium dues revenue, which was up nearly $60 million from $452.4 million in the same period last year. It paid $465.2 million to medical providers for its 689,913 members, up from $426.4 million the year earlier, resulting in an operating gain of nearly $7 million. Investment earnings of $5.4 million — down slightly from $5.8 million the year before — boosted HMSA’s bottom line to $12.9 million, compared with last year’s third-quarter loss of $6.4 million.

HMSA’s reserve grew to $375.5 million from $362.9 million in the year-earlier quarter but fell substantially from the $567.6 million in 2006.

"Every insurer, whether they’re considered a nonprofit or a for-profit, they have to at a minimum break even and have to show some profit in order to maintain a surplus to carry them through the bad years," said health benefits consultant Paul Tom, president of Benefit Plan Solutions Inc. "Just the drop shows you they spent money to weather the deficit years. If they didn’t have a retained surplus, they would have a real problem staying in business."

HMSA also expects a profitable fourth quarter and year, which should result in lower rate increases in the future for businesses and consumers.

"What we’re trying to do is rate the product to achieve a break-even operation," Van Ribbink said. "When you’re in a loss situation (as in the previous years), you’ve got to substantially raise rates to get back to a break-even. Now we’re in that position, it appears, which means hopefully we won’t need large rate increases going forward."

Meanwhile, Kaiser — the state’s largest health maintenance organization — reported revenue of $267.7 million, compared with $242.6 million in the year-earlier quarter. Expenses totaled $269.6 million, up from $241.1 million, resulting in an operating loss of $1.9 million. Investment income of $1.1 million, down from $1.5 million, helped to reduce the HMO’s net loss to $800,000, down from a year-ago profit of $3 million. Kaiser’s reserves for the Hawaii region total $137.6 million.

"We continue to focus on cost management in order to provide our customers and our members the greatest value for their health care dollar," said Thomas Risse, chief financial officer of Kaiser, which has more than 227,000 members.

Honolulu psychiatrist Stephen Kemble said Hawaii’s health insurers haven’t been particularly predatory with pricing compared with mainland health plans.

"I would have a problem if they were making unreasonable profits over time," he said. "Health insurance often tends to be cyclical. It would be a problem if it were a trend."