Hawai'i's two largest health insurers are opposing continued state oversight of their premium rates, saying they favor letting a three-year-old law requiring the regulation to expire at the end of June.

The Hawaii Medical Service Association and Kaiser Permanente Hawaii earlier this month testified against a proposal to extend oversight, saying the market would best be served without the regulation.

Proponents of the oversight regulation include state Insurance Commissioner J.P. Schmidt, who said businesses and consumers have saved at least $18 million because of the law. Since the law went into effect in 2003 six rate hike proposals have been turned down, according to Schmidt's office.

The law was passed in 2002 after legislators heard arguments for and against regulation. HMSA testified this month against an extension, saying the rates weren't proven to be unfair or discriminatory during the past three years. HMSA also testified the law has not slowed the increase in healthcare costs.

"We don't believe it's necessary," said Cliff Cisco, spokesman for HMSA, which has 65 percent of Hawai'i's health insurance market, according to the state Insurance Division. "We oppose regulation generally."

Under the law, health insurers must file proposed rate adjustments with Schmidt's office, which has 90 days to review or approve them.

The law was enacted by legislators who said the commissioner was to turn down requests that were excessive, inadequate or discriminatory.

The state similarly has oversight of workers' compensation, automobile, homeowners and hurricane insurance rates, Schmidt said.

Kaiser, like HMSA, favors a market that operates free of regulation. Hawai'i's premium rates were favorably priced compared to the Mainland before passage of the current law in 2002, said Chris Pablo, Kaiser director of government and community affairs.

"The market influences what we can charge and that's fair enough," Pablo said. Kaiser increased its rates 3 percent this year, while HMSA this week proposed a 3.8 percent rate hike for small businesses.

Others disagree, including Summerlin Life & Health Insurance, a Nevada company that entered the small-business insurance market last year.

It believes government oversight would prevent existing carriers from cutting rates dramatically in an effort to keep it from gaining business, said 'Eleu Kane, a government affairs representative for the insurer.

"With that in place the company knows it's going to get a fair shake," Kane said.

The Hawaii Association of Realtors also has testified in favor of making the oversight permanent. Tim Lyons, executive vice president of the Hawaii Business League, which represents 1,200 small businesses, said it appears that the regulation is working.

"I think we've seen the approval process work quite well," said Lyons. "We're basically in favor of it."

Schmidt's regulatory efforts include turning down a 14 percent rate increase by Kaiser and 11 percent by HMSA in 2003. Instead, the insurers were granted increases of 11 percent and 9.9 percent, respectively.

Sen. Ron Menor, D-17th (Mililani, Waipi'o), said he intends to hold a hearing next week on the extension and expects the Senate to support the act.

"It's not surprising that the healthcare plans may have concerns about making the regulation permanent because their primary concern is their bottom line," Menor said.

Reach Greg Wiles at gwiles@honoluluadvertiser.com.