Employers should demand transparency.

THE current system by which employers are providing health care for their employees is fundamentally flawed by its very nature.

It's a system in which an employer works with a broker who contacts a select few insurance providers (typically ones that he or she has a relationship with) and shops for the best deal--not fair pricing based on a scientific model. In recent years, these costs have been rising by double digits. A study by the non-partisan Center for Studying Health System Change concludes that premiums will increase 50 percent by 2006.

Inevitably, leaders in the industry respond to the howls of complaint by employers and by workers who are being asked to pay ever-increasing percentages of the cost by saying that the technology and drugs are increasing in sophistication and cost, and that they are simply raising rates to keep up.

Look deeper, and a more sinister reason appears. Health care providers are reaping enormous profits while they cry poor and raise rates by double digits every year. In 2002 HMOs reported an 81 percent increase in profits. In the first three quarters of 2003 profit margins of the nation's life and health insurers reached 86 percent.

These profit margins are highly unusual in any business except perhaps casino gambling and the illegal drug trade.

While the premiums continue to rise, it turns out that the actual cost of health care is not keeping pace. Health insurance premiums jumped an average of 13.9 percent the same year, according to a study by the Kaiser Family Foundation. Meanwhile, insurance companies and brokers over-estimated the increase in costs by nearly 7 percent. That might account for some of those hefty profit margins.

Employers need to be able to examine and challenge the enormous increases in their health care premiums, but the insurance companies make it so complicated that it is almost impossible to follow their calculations.

Introducing legislation requiring greater transparency of claims/underwriting formulas and ease of understanding of how costs are calculated would be a great help to employers swimming in the shark-infested waters of health insurance coverage.

In the meantime, employers would do well to find themselves an advocate who truly understands and can audit their health care plans at least on an annual basis.

Health care costs are usually a company's second-or third-biggest line item behind payroll. With some help from a professional advocate who understands how the insurance companies overcharge consumers and with some well-crafted legislation, more employers could cover their employees health needs, stay in California and grow.

Kim Parker is executive vice president of the California Association of Employers, a statewide not-for-profit association that assists small and medium-sized companies with human resource-related issues and employer-employee negotiations.