Insurance industry leaders are scrambling to design brakes to check the runaway costs of workers compensation programs.

The newest effort is a comprehensive study of the workers comp system, just completed by the American Insurance Association and aimed at providing detailed solutions to cost and other compensation problems."If we can reduce the high cost of health care and litigation, it will help the workers compensation deliver the highest quality benefits to workers," said Georgiana Smith, an association spokesperson.

According to the trade group, the workers compensation system is costing employers $40 billion annually and the rates are rising dramatically each year. Moreover, for the last 17 years, claims costs and expenses associated with them have exceeded premium income.

The losses are even worse than they appear. The National Association of Insurance Commissioners said the system has been unprofitable since 1985, even after investment income is factored in. Industry estimates say the program annually pays out $1 billion more than it takes in.

High medical and litigation costs are among the factors contributing to program's problems. "We need to take lawyers out of the system and closely observe what health care is being delivered and by whom," said Eric Oxfeld, the insurance association's counsel.

The group said that high quality health care is instrumental in keeping health care expenses down, but the inability of insurers to direct claimants to specific providers is driving up the costs. The cost of providing health care to injured workers accounts for 40 percent of the benefit cost in many states.

"Insurers and employers should be authorized to review the proposed and ongoing medical treatment and question treatment plans and services they believe to be inappropriate or not in the injured worker's best interest," said the association.

The best way to keep attorneys out of the system and contain legal expenses, said the group, is to maintain a policy saying that injured workers are entitled to compensation, without having to prove who is at fault.

At present, huge amounts are being spent litigating the extent of injuries and whether the case is work-related, according to the insurance association.

Mr. Oxfeld said that a number of cases that could be routinely handled are being litigated in court. "The alternative to workers compensation would be to return to tort litigation, where injured workers would have to file costly and time-consuming lawsuits seeking uncertain and inequitable compensation and employers would face uncertain and potentially ruinous liability."

Mr. Oxfeld adds that the system could become less adversarial and more efficient if the state administrative agencies were given more resources to assure injured workers they will get the benefits they deserve.

Another factor contributing to the high cost of the system is unnecessary laws, the association said. Some states are mandating that employers and insurance companies provide services in which the cost far outweighs the benefits.

For example, some jurisdictions say that vocational rehabilitation is a necessary benefit, but these benefits are very expensive and are often given to individuals who don't need them, according to the trade group.

The insurance group adds that health conditions that cannot be linked to the workplace are being attributed to impairments that occurred at work.

"Some cases like stress cannot be tied to the workplace," says Mr. Oxfeld.

The association is lobbying state legislators to implement its ideas and act boldly and defend against special interest groups that would be opposed to changes in the system.

Among the groups likely to oppose changes in the system are attorneys, doctors, and those employers who don't want to pay higher premiums.