The problem, Sanford says, is that the cost of premiums for workers' compensation -- the system that pays for the treatment of those with job-related sickness or injuries -- has shot out of control in recent years and is threatening to drive businesses and jobs out of the state.

The state's average workers' comp premium, though still low compared to other states, climbed from 49th-lowest in the nation in 1999 to the 42nd-lowest in 2002.

To arrest the upward trend, the governor is pushing a plan aimed at wringing out inefficiencies that elevate the cost of workers' compensation to small businesses. The effort is part of a larger economic stimulus package introduced by the governor earlier this month.

Specifically, the governor wants to cut the number of claims that make it to court each year by half. He says two basic changes can accomplish that.

First, he proposes to require that all workers provide medical proof of job-related sickness or injuries before being eligible for benefits. Under the current system, a worker who complains of pain can receive benefits even without medical proof.

Second, the governor wants to channel all valid claims through an out-of-court settlement process before they are eligible for review in the courtroom.

He said reducing the number of costly court cases would decrease the total payout that insurance companies must make each year and help them to keep rate hikes at bay.

"That would be a big help because it would free up money for businesses like ours to spend on other things like investment and health insurance and some other basics that everybody needs and wants," said Reed Wilson, owner of CDI Construction Inc., a Charleston-based commercial builder that employs about 20 workers.

"The system really needs reform because right now it's the most expensive overhead we have -- more than the rent, light and all that other stuff put together," Wilson said.

He said his company now spends close to $20,000 a year in workers' compensation premiums, up steeply from just a few years ago.

"We're doing everything we can to minimize accidents and keep our premiums low," he said, adding that in many cases that means settling small mishaps out of pocket rather than reporting them and risking hefty increases in premium costs.

Frank Knapp, president of the South Carolina Small Business Chamber of Commerce, said the cost of workers' compensation has grown as a concern for many small businesses that employ laborers.

He said any reform that lowers the cost of doing business would be a boon to South Carolina's small companies.

"The overall theme here is to improve our state's competitiveness in attracting businesses," said Tom Davis, the senior policy adviser to Sanford who developed the plan.

"Nobody wants to enter a state with high workers' compensation premiums and slow, inefficient claims processing," he said.

He added that claims filers in South Carolina, due to a backlog in the courts, must wait 10 months between filing a claim and getting it processed. "That means tremendous administrative and legal costs, and that pushes premiums higher," Davis said.

He said North Carolina is a good example of a state that was able to drastically reduce its workers' compensation cases by setting up a mediation process.

According to Robert Hartwig, chief economist with the Insurance Information Institute, workers' compensation costs are rising nationwide because of rising health care costs.

The average medical cost of a workers' compensation claim in the United States rose 12 percent to $15,320 in 2002, a 51 percent jump from 1997 levels.

Meanwhile, claim costs have also become increasingly medically related. The average claim in 1982 was about 40 percent medical and 60 percent for lost wages. Today, the medical portion of claims is nearly 55 percent.

"It's become more and more of a medical-care financing scheme," Hartwig said.

He added that the weak job market has also hurt, spurring many people to file false or exaggerated claims for fear of being laid off without any benefits at all.

"In the last few years we've seen millions of jobs disappear and wages remain flat," Hartwig said. "People are exaggerating their injuries or staying out longer than they have to because of the job situation."

As part of his reform plan, the governor has also proposed several other measures, including the elimination the state's secondary injury fund, which insurers must pay into each year.

The fund was created to encourage the hiring of disabled workers but has become obsolete after the passage a decade ago of the Americans with Disabilities Act.

The governor has proposed measures aimed at increasing workers' responsibility for on-the-job accidents and injuries, especially those related to the use of alcohol, drugs or reckless behavior.

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