Small businesses in Massachusetts say they are seeing little relief on their health insurance bills, despite the headline-making health care premium rate settlements between Governor Deval Patrick’s administration and state insurers.

The news comes as the state continues to be in the spotlight over health care: Its health insurance mandate was cited in the endless debates leading up to the signing of President Barack Obama's health care reform law.

While the state’s biggest three insurers agreed to raise base rates no higher than 12.9 percent, out on Main Street, small businesses continue to see rate increases up to 40 percent. The discrepancy between the rate regulation and the reality shows government has little power to rein in health costs because insurers may tack on extra charges based on variables such as the firm’s size, age of employees, and location.

“It would be a nice story if I could tell you that my rate increase went from 50 percent to 15 percent, but I can’t tell you that,” Joe Kowalik, CEO of software firm Graphx Inc. in Woburn, Massachusetts, said. Kowalik faced a premium rate hike of 56 percent this spring and was able to slice that down to 27.8 percent by buying a lower-cost Blue Cross Blue Shield of Massachusetts plan with higher deductibles for his four enrolled employees.

Kowalik said there’s been no drop in that rate since the settlements reached over the summer between the state Division of Insurance and all but one of the state’s insurers. Blue Cross agreed to rate hikes between 0.4 percent and 12.9 percent; Harvard Pilgrim Health Care, between 8.3 percent and 11.7 percent; and Tufts Health Plan, between 5.8 percent and 12.8 percent. The settlements followed a four-month dispute after the DOI froze most rates at 2009 levels. Settlement rates were set to take effect September 1, but companies contacted for this article reported increases over last year of between 13 percent and 40 percent for the same plans.

“If you had rates going up 20 or 30 percent, you are just not going to see your rate increase drop to 8 or 10 percent,” David Shore, vice president for employee benefits at the Protector Group Insurance Agency, with offices in Worcester and Wellesley, Massachusetts, said. “Rate caps don’t work.” Small-business clients should not expect too much from the settlements, Shore said, because rates won’t really go down until the cost of care at hospitals is addressed.

Some of those who have been hardest hit are restaurants. For instance, Two Brothers Pizza in Sandwich, Massachusetts, is still facing a rate increase of 40 percent, while Sam Diego’s Mexican restaurants in Plymouth and Hyannis, Massachusetts, received a September bill with a 35 percent increase over last year, according to their broker, Bill Fields of Forestdale, Massachusetts-based Health Plan Solutions. Finz restaurant in Salem, Massachusetts, meanwhile, renewed its plan in February, so it is not eligible for the settlement rates. Owner George Carey said the company added deductibles of $2,000 for individuals or $4,000 for families to sidestep an increase of 27.8 percent, but still must pay 18.9 percent more. “We deal only with the base rates,” Division of Insurance Commissioner Joe Murphy said. “Insurers then add rating factors—which are allowed by the regulations—like the size of the business, the location of the business, and the age of the employees.”

Murphy said one factor during a time of layoffs is that companies shed younger workers—worsening overall risk profiles.

He said that per the governor’s economic-development bill, the DOI will develop regulations to lessen the rate shock small companies feel when employees reach milestone birthdays.

Cornelia Jacquier and Jeff Kaplan are considered two of the “luckier” ones, receiving rate increases of 13 and 15 percent respectively. Their companies got no relief from the rate settlements, and they say the rates make it impossible to create jobs at a time when the state is counting on employers like them to lead the recovery.

“It’s a big incentive for us to hire only part-time workers, since we don’t have to offer them insurance,” Kaplan, owner of Innuwindow window treatments in Natick, Massachusetts, said. Jacquier, who owns Jacquier Auctions in Southwick, Massachusetts, had worse news.

“We’ve had to let two full-time employees go and just hire people on a per diem basis because we just can’t pay the insurance,” Jacquier said.

Some employers that have successfully reined in their health care costs did it by opting for plans with higher deductibles and fewer benefits, not by receiving lower rates from insurers for the same plans. Nancy Fitzgerald, controller at S2 Security Corp., said she was faced with a total health cost increase in April equal to the salary of an engineer—$80,000 to $110,000—for her 50-employee Framingham, Massachusetts, company. So she decided to move to a high-deductible plan with Blue Cross and then partially reimburse workers.

Retailers Association of Massachusetts president Jon Hurst acknowledged many members of the organization have not seen substantial rate reductions, but said that this is one battle in a long war.

“What the DOI process was about was drawing a line in the sand, sending a message to insurers that these double-digit rate increases are unsustainable and just wrong in this economic climate,” he said.

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Julie M. Donnelly is a reporter for the Boston Business Journal.