PROVIDENCE — Three private health insurance providers have been rebuffed in their quest to win state approval for rate hikes that, in some cases, would have exceeded 16 percent.

After hearing citizens, activists, business leaders and elected officials decry the requested rate increases in recent weeks, Health Insurance Commissioner Christopher S. Koller on Thursday asked Tufts Health Plan, UnitedHealthCare of New England and Blue Cross & Blue Shield of Rhode Island to withdraw their proposals. Many of the same players praised his decision.

But what happens next is uncertain following the unveiling Wednesday of the proposed fiscal 2010 state budget, which unexpectedly called for eliminating the commissioner’s office and the statute that created it.

On Thursday, Koller sent letters to Tufts, Blue Cross and UnitedHealthCare saying their requests were “unjustified” based on the documents they submitted to him. He said “Rhode Island employers and employees have reached a tipping point with respect to their ability to pay for health insurance. We are in a crisis … If accepted, [the rates] would only exacerbate the current cost spiral by further raising business costs. This is simply not acceptable.”

But on Wednesday, the House Finance Committee voted for a $7.6-billion budget for the next fiscal year that would save $700,000 by dismantling the commissioner’s office, which was established just four years ago. Koller, who is paid $168,000 annually, oversees a staff of three. The office would be eliminated at the start of the fiscal year, on July 1.

Koller said Thursday that if the insurers don’t withdraw their requests, existing law requires that a formal rate hearing — a quasi-judicial proceeding in which evidence is submitted and witnesses are called to testify and are cross-examined — begin by July 14, with the attorney general’s office a party to the proceedings. If his office is eliminated, he said, the responsibility for completing the rate-setting process “would rest with DBR [Department of Business Regulation] … It would be up to DBR to determine how they would want to handle rate requests.”

Richard W. Berstein, executive counsel for DBR, would not comment on the matter.

Blue Cross has proposed rates hikes of 13.9 percent for small employers and 16.3 percent for large employers, while United is seeking increases of 11.6 percent and 13.2 percent, according to figures provided by the commissioner’s office. No comparable figures for Tufts were available because the company did not participate in rate hike requests a year ago. Tufts only entered the Rhode Island market last fall. All of the requested rates would go into effect Oct. 1.

On Friday, Blue Cross objected to Koller’s decision in a statement.

“We appreciate the desire of the Office of the Health Insurance Commissioner to hold the line on health-care costs, especially in light of the current economic climate,” said Rick Farias, chief operating officer for Blue Cross. “Yet, we also have a fiduciary duty to ensure the financial stability of the company, as well as to ensure that we are able to provide the coverage our members and customers need. The vast majority of our request is a result of increases in claims expense. Additionally, the request is based on the fact that previous requests were denied or reduced by [the commissioner’s office]. Simply put, the costs of health care are outpacing the rate of increase in premiums.”

Koller wouldn’t say when he first learned about the proposal to eliminate his office. There had been no apparent indication in recent months that it was on the chopping block in a difficult budget year. However, in April 2008, House leaders, including the chairman of the Finance Committee, Steven M. Costantino, D-Providence, discussed such a move. Costantino and others said at the time that they were concerned that the commissioner’s office may have been advocating too heavily for the insurance industry instead of consumers.

On Thursday afternoon, Koller could be seen questioning Costantino in a tense exchange in a State House hallway outside the House chamber.

Afterward, Koller said Costantino refused to give him an explanation for targeting his office for elimination. And Costantino, in an aside to a reporter, said that he didn’t give Koller an answer because “I said I’m not going to have a discussion with you in the middle of 500 people.”

The legislator said, “I think there’s a sense that the responsibilities of that office can be handled by existing [offices],” including the attorney general and the Department of Business Regulation. “Before that office [of the health commissioner], did the world end?”

Koller on Thursday wouldn’t comment on the possible elimination of his office.

“I’m in the middle of this [rate] decision” he said. “I’ve got to do a good job.”

With reports from Steve Peoples and Cynthia Needham, Journal State House Bureau.

rsalit@projo.com