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Steven Fanaroff was baffled. As CFO of privately held Magruder Holdings Inc., a well-known grocery store chain in Virginia, Maryland and Washington, D.C., he had watched the premiums on the company’s workers compensation insurance jump in each year for the last several by 25%. The company had been maintaining a payroll of about 600, and it wasn’t as if there were significantly more claims. The problem Fanaroff found was that the average medical bill for each claim seemed to be rising dramatically. “We discovered a cut finger costs more to treat if it occurs at work than if it occurred at home,” says Fanaroff from his Rockville, Md., corporate headquarters.

Fanaroff is not alone in his discovery of how the system works. According to figures provided by Tillinghast Towers Perrin, the inflation in health care costs for workers comp has not only exceeded that for overall medical care–the gap between the two has been growing exponentially. For instance, in 1998-99, the growth in medical care costs for workers comp was not quite double the inflation in overall health care, but by 2000-01, the workers comp number was almost triple the growth in the nation’s medical bill. (See chart on page 30.)

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