Much-touted report on health care costs is actually a figment of reality.

It looked like another reason to abandon Los Angeles as a place to do business: According to a national study, recently emblazoned on the cover of the Los Angeles Times business section, the average employee health insurance premium here is $631 a month.

Based on the study, produced by the New York-based actuarial firm Milliman & Robertson, a local company with 45 employees paid $143,600 a year more for health insurance than the national average for a same-sized company.

But, in fact, the Milliman & Robertson study is wildly off the mark of what most health plans here actually charge, because it does not reflect marketplace realities.

Case in point: Giant Woodland Hills-based insurer Blue Cross of California has a plan for small employers -- and small groups are the most difficult to insure -- that covered 556 new groups in September for an average of $186.60 per employee, per month. Moreover, among the 556 small groups were 47 employer groups which were high-risk groups, because of industry they were in, or because of the medical conditions of some of their employees. Too, the $186.60 figure includes dependent coverage.

The average deductible for the small groups covered, per member, was under $500, and as low as $100. Employees make "co-payments" on doctor and hospital bills of up to 20 percent, up to a ceiling of $1,500.

Given the monthly premium under this plan -- intended for the difficult-to-insure -- the $631 premium projected by the Milliman & Robertson study is regarded as outlandish by industry experts.

"I don't know where that $631 (monthly premium) figure came from," snorted Leonard Schaeffer, Blue Cross chairman, in a recent interview. "You can certainly get insurance from us for a lot less, and for a small employer. It (the $631 figure) is certainly not an average of what employers are paying."

Other industry veterans concur with Schaeffer. Bruce Hill, president of Woodland Hills-based West Coast Multiple Services, one of the nation's largest insurance wholesalers, said last week: "There are plenty of plans in Los Angeles that offer coverage for between $100 and $200 per single employee per month. The $631 figure sounds high, even for family coverage."

Hill, a 15-year veteran of the industry, should know. His company connects health insurance brokers to health plans, and he sees thousands of policies and companies every year.

In a recent "typical" case, Hill said he recently placed a group of 50 workers, in central Los Angeles, into an HMO for $118.95 a month for single employee, and $327.06 per family.

The plan included $8 co-payments per doctor visit, and $5 per prescription, but was otherwise comprehensive. "That was just an ordinary case; in fact, because it was in central Los Angeles, it was more expensive than if the group had been (in another part of Los Angeles County)."

Precisely because of the expensive nature of traditional health insurance studied by Milliman & Robertson, the Southland health-care market today is a battlefield of HMOs, preferred provider organizations (PPOs) and other health plans, each fighting for market share.

By most estimates, about 80 percent of covered Southlanders under the age 65 are in HMOs, PPOs, or other "managed care" health plans, and only 20 percent in the traditional indemnity type of plan studied by Milliman & Robertson.

The managed care health plans have been aggressive in haggling down hospital rates and doctor bills, reviewing doctor decisions on such major-ticket items as surgery, and in asking employees to pick up part of the tab through co-payments.

The big difference between HMO or PPO coverage, and traditional indemnity coverage is this: In an HMO or PPO, the enrollee goes to plan-approved doctors and hospitals, who charge approved fees, or discounted fees. In some HMOs, providers get fixed monthly payments, per enrollee, regardless of care provided.

In the old-fashioned indemnity insurance, patients go to whatever doctors they like, who charge their "normal and customary fees."

Thus, the small employers who join Blue Cross' small group coverage pool must go to Blue Cross-approved doctors and hospitals, as they are enrolled in Blue Cross' Prudent Buyer PPO, or its CaliforniaCare HMO.

There are a variety of managed care plans in Southern California, and they are increasing their dominance of the healthcare financing picture with each passing year. Some predict traditional insurance will be all but phased out within the decade.

For example, HMO industry giant Kaiser Permanente, which will cover small groups down to five enrollees, now has more than 2 million enrollees, and is in the midst of a multi-billion dollar capital expansion program to build and upgrade hospitals.

Kaiser Permanente can insure single employees for between $130 and $150 a month for single employees, and between $343 and $383 for family coverage, regardless of family size. Kaiser is a staff-model HMO, with its own doctors and hospitals -- technically, it is a doctor-run institution.

"With no co-payment or fees for prescriptions, basically its going to run for about $150 a month for a single employee," explained Michael Leggett, district manager for Kaiser Permanente in the Southern California region. "With a $10 co-payment for a doctor's office visit and $5 co-payment on prescription, we can get it down to around $130 per enrollee."

At Health Net, the Woodland Hills-based HMO with about 845,000 enrollees, coverage is available for between $100 and $150 a month per enrollee, with co-payment ranging up to $20 per doctor's visit, and up to $10 for prescriptions, said Jim Lucas, who declined to be more specific about rates.

The author of the Milliman & Robertson study, Mark Alan Chesner in New York, last week made no pretense that his research reflected the Los Angeles health care marketplace.

His research sampled "rich" traditional indemnity plans, and was based upon rate manuals provided by 16 large, nationwide insurers, he said. "I am not saying they are selling a lot of this insurance in Los Angeles," said Chesner, "What I wrote might not have much applicability in California."

He surveyed no Southland companies, or HMOs or PPOs, about rates or health care costs.

Chesner did research the cost of an indemnity plan which had a low, $100 a year deductible. The plan covered maternity expenses, some mental health benefits, chiropractic services, pre-existing conditions, prescriptions, extended skilled nursing care and other expenses.

In such a traditional indemnity plan, beneficiaries are entitled to select their own doctors and hospitals, who charge their normal and customary fees. In short, the doctor bills and the insurers pay -- generally speaking, there is no incentive for anyone to hold down costs or the amount of care provided.

Ironically, because HMO and PPO penetration is greater in California than the rest of the nation, local employers may actually be able to find less expensive coverage than employers in other cities, who may feel compelled to use traditional indemnity coverage, given the relative lack of alternatives, said some market experts.

"HMO and PPO penetration rates are less on the East Coast," said Lucas of Health Net. "Employers here have a wider choice of HMOs and PPOs than in almost any other part of the nation."

Indeed, Chesner of Milliman & Robertson reports that he got phone calls from reporters in Green Bay and Minneapolis asking why the rates he reported for those cities were so low. "They said they had readers who said it cost more to get insurance than I reported," said Chesner.

Based on his study, it costs $266 per employee per month to get health coverage in Green Bay, and $321 in Minneapolis.

And yet, by the standard of Los Angeles area HMOs and PPOs, such rates would be quite high. "I can't understand why that (Milliman & Robertson) study got so much coverage," said Mike Odom, San Francisco-based spokesman for Blue Shield of California. "It doesn't seem to apply to California."