PROVIDENCE – Blue Cross & Blue Shield of Rhode Island filed for a rate increase of 10.5 percent for both small and large group employers for plans renewing Jan. 1, 2012.

The rate increase will still leave the company 2 percent short of its projected costs for the year, Blue Cross officials said.

The filing with the R.I. Office of the Health Insurance Commissioner reflected Blue Cross’s anticipated 6 percent increase for member’s medical and dental claims, 2 percent for administrative costs, and 2.5 percent to help bolster the company’s dwindling reserves.

“We don’t expect our customers and members to be happy about any rate increase,” said Dr. Gus Manocchia, vice president and chief medical officer at Blue Cross. “But what’s really concerning is that if it weren’t for the many cost reduction efforts that Blue Cross has undertaken over the last two years, we would have been filing rate factors for a 20 percent increase. The reality is that health insurance premiums are simply a reflection of the ever-increasing cost of health care – and health care today is simply too expensive.”

Last year, Blue Cross posted a $14 million loss for 2010. In 2009, it lost $100 million, the health insurer said. Payments for members’ medical and dental claims in 2010 were $1.4 billion, about 89 percent of the company’s overall expenses. As a result, Blue Cross’s reserves, which are funds set aside to ensure its ability to pay members claims, fell to about 15 percent of premium revenue.

In response, Blue Cross created a new formulary to encourage the use of lower-cost generic drugs, with savings projected to reach $22 million, company officials said. Blue Cross also said it had made significant changes in the way it pays hospitals to rein in costs, rewarding quality standards. The health insurer also changed the way it pays doctors, with compensation and care models based on patient outcomes, instead of volume. Blue Cross also signed agreements with 25 percent of the state’s primary care physicians to establish patient-centered medical homes.

“What’s really frustrating is that by the end of 2011, these and other efforts will have successfully reduced our administrative costs by $35 million and medical costs by about $63 million – nearly $100 million in cost savings – and it still won’t be enough,” said Manocchia. “We’ve laid a great foundation for change over the last two years, but with the underlying cost of care continuing to escalate, we need to accelerate our efforts to make higher quality, more affordable health care a reality for everyone.”