PROVIDENCE – Blue Cross & Blue Shield of Rhode Island yesterday notified Health Insurance Commissioner Christopher F. Koller that it will not withdraw its request for rate hikes of 13.9 percent for small groups and 16.3 percent for large groups, which Koller has rejected as “unaffordable.”

Koller had called on Blue Cross – along with UnitedHealthcare of New England, which was seeking rate hikes of 13.2 percent and 11.5 percent respectively, and Tufts Health Plan, which sought an unspecified hike – to withdraw their requests in the face of huge public opposition.

He originally gave the insurers until today to accept his decision, or else stick with their proposals and go to public hearings, starting July 14.

The carriers today were given a week’s extension, to the end of next week. Tufts and UHC said they will respond by then.

Blue Cross is the first insurer to formally decline to back off. In a news release Thursday afternoon, the company said it stood to lose about $125 million if Koller’s office did not approve the rate hikes as requested.

“We understand that many of our members are suffering in the current economic conditions, but the fact is that rising medical costs and increased utilization of services are climbing faster than our rates,” said James E. Purcell, president and CEO.

“Quite frankly, the [commissioner’s office] is putting the state’s oldest nonprofit health insurer at financial risk by denying our filing,” Purcell said. “We simply cannot afford to lose $125 million.”

Purcell noted that Blue Cross has already taken steps to reduce its operating expenses, including eliminating 79 positions, renegotiating several large-vendor contracts, freezing employee salaries, reducing reliance on outside professional services and eliminating non-essential programs and services.

Even the company’s “much-contested new headquarters,” the press release said, is expected to save $25 million over the long term.

“Unfortunately, it is not administrative expenses, but medical costs that are the primary drivers of rate increases and which necessitate our rate filing at this time,” Purcell said.

Indeed, Koller has said as much himself, noting that inpatient hospitalization costs are the single biggest cost driver in the Blue Cross request. But Blue Cross also is seeking substantial increases in its administrative costs, especially in the large-group market, where the company expects to lose 75,000 members as more employers become self-insured.

Still, Blue Cross’ request for a 28-percent increase in large-group administrative costs – from $55.96 to $71.64 per member per month – and an 18.3-percent increase for small groups – from $70.69 to $83.60 – has drawn considerable public criticism, as has its request to substantially increase the allocation to reserves, from 1.3 percent to 2.3 percent for large groups and from 1.4 percent to 3.3 percent for small groups.

A spokeswoman for UnitedHealthcare said the company is still “considering options.” Tufts did not immediately respond to a request for comment.

Koller, whose office was targeted for elimination in the initial 2010 state budget approved by the House Finance Committee, won a reprieve from the full House after other state leaders and business groups lobbied for the health insurance commissioner’s post to be saved.

“Rhode Islanders were on the verge of losing an office that provides vitally important protections, making health insurance more affordable and ensuring that those who provide us with medical care are treated fairly,” Lt. Gov. Elizabeth H. Roberts said in a statement yesterday.

“Both the leadership and rank-and-file members of the legislature heard those voices, and I thank them for listening and acting decisively to protect affordability, fairness and health care reform,” Roberts said.