“For me this is all about jobs and creating conditions in which small businesses will start hiring,’’ he said. Patrick has also filed legislation that would allow regulators to review contracts between insurers and health care providers, and yesterday he called on hospitals and doctors to help control costs.

During a meeting with 10 small-business owners at Chelsea Clock Co. yesterday, Patrick said escalating health care costs have crippled many companies.

For now, premium rates established last year remain in effect. Because insurers send out bills four to six weeks in advance of the date policies take effect, companies or individuals that already made the new, higher payments will receive a refund or a credit from insurers.

Insurers proposed base rate increases averaging 8 percent to 32 percent for hundreds of separate products, offering different mixes of benefit designs, copays, and deductibles. On top of overall base rates, insurers often add extra costs for each business, adjusting for such things as geography, industry, and the size and age of a workforce. That can drive rates up significantly.

The rates were to have taken effect yesterday for thousands of businesses and individuals in the so-called small group market. That group, created by the state’s 2006 universal health care law, combines businesses employing up to 50 people with sole proprietors and self-employed people who previously bought insurance on their own or were uninsured.

Insurance Commissioner Joseph G. Murphy found that most of the base rates proposed by state health plans were “unreasonable relative to the benefits provided,’’ according to a statement issued by the agency.

“Costs will double in four years if it keeps going on the same trend,’’ said Dennis Franson, whose two-person investment firm in Woburn was facing an 18 percent rate increase. “That’s unsustainable.’’

But small businesses applauded the rejection of higher premiums, saying they can’t continue to endure rapidly escalating insurance bills, especially after the long economic downturn.

“We share the concern about rising health costs, but we don’t think government price controls will solve the problem,’’ said Jay McQuaide, vice president at Blue Cross and Blue Shield of Massachusetts, the state’s largest health insurer.

Insurers said it would usher in an era of price controls, and vowed to appeal to the state or through the courts — a process that could drag on for months.

The rulings, following a review process set in motion by emergency regulations Patrick filed in February, mark the first time the state has used its authority to turn down health premium increases. The action immediately sent ripples through the state health care industry.

Making good on Governor Deval Patrick’s promise to reject health insurance rate increases deemed excessive, the state Division of Insurance yesterday denied 235 of 274 increases proposed by insurers for plans covering individuals and small businesses.

“Health care providers don’t have to wait for a change in the law,’’ he said. “They can engage right now.’’

Under the emergency regulations invoked by Patrick, insurers were required to submit proposed increases — along with actuarial data — 30 days before their effective date so they could be reviewed by Insurance Division staffers and consultants. In the past, the carriers simply notified the division of rate increases on the day they took effect.

The Insurance Division, in letters to carriers, outlined reasons for the rate rejections. Among them were rate proposals that are significantly above the medical consumer price index — a consumer health care spending measure estimated at 4.8 percent — and proposals that failed to explain how insurers set different reimbursement rates.

Several proposals, including those from for-profit, out-of-state insurers such as Aetna , ConnectiCare, and United HealthCare, were approved after the companies worked with Insurance Division staffers on ways to reduce costs. Some of those approved called for increases above 4.8 percent, but insurers offered data justifying the increases, according to the state.

Insurers whose rates were rejected — most of which posted operating losses for 2009 due to job cuts at companies they sell plans to — received yesterday’s decision with anger.

“We’re very disappointed,’’ said McQuaide at Blue Cross-Blue Shield. “The rates we filed reflect expected medical costs of members buying our products. And we were surprised the disapprovals had no actuarial opinions, suggesting this was an arbitrary decision.’’

Lora Pellegrini, president of the Massachusetts Association of Health Plans, said her group was weighing all administrative and legal options with its members, which include nonprofits such as Harvard Pilgrim Health Care, Tufts Health Plan, and Fallon Community Health Plan.

“If we’re not going to be allowed to have our prices cover our costs, that will be a problem for the whole industry,’’ she said.

But Jon B. Hurst, president of the Retailers Association of Massachusetts, which represents 3,100 retailers and restaurants, said the rejections were justified.

“It’s welcome news on Main Street,’’ Hurst said. “They’re not hiring, and they’re seeing double-digit health premium increases every year. The real message is that a line in the sand has been drawn. And big health care in the state has got to get out of its alternative universe.’’

Insurers have up to 15 days to request appeal hearings at the Insurance Division, Murphy said in an interview. Such public hearings would be complex, lasting from a few days to a week. They would examine rate increases proposed for various products, and hearing officers would have 30 days to make their rulings. If the appeals are rebuffed, insurers can go to Superior Court.

Carriers also have the option of filing new rate requests with more modest increases, which would require a 30-day review.

As of now, however, the old rates remain in effect, and insurers must honor the plans they sold.

Several health care industry officials said that as a result of the state’s stance, insurers will probably take a tougher position with hospitals and other health care providers when current contracts expire, in an effort to limit reimbursements.

“The insurers have made it clear that if [the rate rejections are upheld], this is going to have a negative effect on providers,’’ said Peter K. Markell, vice president of finance at Partners HealthCare Systems Inc., the Boston hospital system that owns Massachusetts General and Brigham and Women’s hospitals. “And I think you’re going to see a lot of pushback from providers.’’

But others said state officials would have to freeze or reduce fees charged by hospitals and doctors — not just premiums — if they are serious about easing the burden on small businesses.

“Simply capping the premium rates of insurers doesn’t address the issue of health care cost escalation,’’ said Richard Lord, president of Associated Industries of Massachusetts, the state’s largest employer group. “In the short-term, you just can’t look at premiums. You have to look at underlying medical costs.’’

Robert Gavin and Noah Bierman of the Globe staff contributed to this story. Robert Weisman can be reached at weisman@globe.com.

© Copyright 2010 Globe Newspaper Company.