State budget shortfalls are hindering the resolution of workers compensation cases and may increase employer claims costs as states cut back on judges and other critical staff, risk managers say.

Furloughs of state workers including administrative law judges, auditors and other public employees that handle claims are increasing litigation expenses and even hamper return-to-work efforts, risk managers say.

Other sources say having fewer judges and other state employees dedicated to resolving workers comp claims may be appropriate because there has been a nationwide decline in injury frequency for several years.

But several observers who manage claims say claims resolution problems have increased in the past year as states cut or furloughed staff.

In an April report, the National Conference of State Legislatures said “state budget gaps loom as far as the eye can see.” It said 31 states and Puerto Rico foresee fiscal 2012 budget gaps of at least $73.5 billion, and 21 states project fiscal 2013 budget gaps of at least $64.7 billion. “Including previous amounts, states will have addressed budget gaps in excess of $531 billion since the recession began in December 2007,” according to the report.

The issue is not apparent in all jurisdictions and depends on the state, risk managers say.

In Michigan, for example, seven of 27 magistrates were not reappointed in January because of state budget problems and an ongoing reduction in claims frequency that has led to fewer litigated claims, said Jack A. Nolish, director of Michigan's Workers' Compensation Agency.

Because the reduction occurred in January and other unknown factors, it is too early to determine how the reduction in litigated claims and judges will affect the ability to resolve cases in a timely manner, Mr. Nolish said.

“Obviously, if there are fewer places and people to handle cases, it's going to show,” Mr. Nolish said. “We don't know how long the downward trend will continue in terms of case filings. On the other hand, the budget continues to be a huge problem.”

But Michigan's reduction of judges is causing a case backlog, said Lesley Zielinski, manager of workers comp for Troy, Mich.-based temporary staffing firm Kelly Services Inc.

“It affects the cost of litigation as it takes more time to resolve cases,” said Ms. Zielinski, who also is a board manager for the Michigan Self-Insurers' Assn. Other self-insured employers have expressed similar concerns, she said.

Risk managers say they also are concerned.

During the Risk & Insurance Management Society Inc.'s annual conference last month in Boston, for example, Debra L. Rodgers, vp-global risk management for Philadelphia-based ARAMARK Corp., said legislative changes, the erosion of workers compensation reforms in certain states and a shortage of judges stands to harm her company's risk profile despite its risk management efforts.

“We can't get people back to work because we can't get hearings,” Ms. Rodgers said. “Part of that is driven not just by legislative changes, but is also driven by jurisdictions not having the funds to have enough administrative law judges...to hold court hearings. So we are seeing claims get dragged out a lot.”

In California, courts deciding workers comp cases have reduced the hours of judges, clerks and other court staff, said Fred O. Pachón, vp of risk management for Santa Barbara, Calif.-based Select Staffing Inc.

“This, of course, creates additional costs for employers and insurers as benefits must continue until the courts decide the different disputes,” Mr. Pachón said. “It is the norm now for judges to overload their calendars and, on the day of the hearing, the judge decides unilaterally that the matter cannot be heard because of limited resources and time. Once again, insurers and employers pay the bills for their defense attorneys and translators to be there for nothing.”

This hampers some employees from returning to work, he said.

Meanwhile, senior claims managers for third-party administrators say their adjusters report that some state workers comp agencies are taking more time to respond to claims questions, approve settlements and schedule hearings.

“You can tell the process has slowed down a bit,” said Darrell Brown, workers comp practice lead for Sedgwick Claims Management Services Inc. in Long Beach, Calif. “You can't get the answers like you could, or it's taking a little longer to get an award signed or get a hearing.”

In Ohio, such problems have increased in the past year, said Kay Turney, Ohio workers compensation manager for TransGlobal Adjusting Corp. in Akron.

It is taking longer for Ohio's Bureau of Workers' Compensation to process claims “and it takes them longer to respond back to us if we have a question,” Ms. Turney said. She also is seeing more mistakes in the bureau's handling of claims.

Ohio Bureau of Workers' Compensation employees were forced to take two weeks of unpaid leave in July, a spokeswoman said. In addition, the state agency has not filled several positions during the past few years because improved technology has made it unnecessary, she added.

It is possible that a reduction in judges and support staff in some jurisdictions could amount to “rightsizing” because claims frequency has been declining nationwide since 1995, said Bill Zachry, vp of risk management for Pleasanton, Calif.-based grocery store chain Safeway Inc.

“If you have a drop in frequency, (judges) should be more efficient because they have fewer cases,” Mr. Zachry said.

Last week, the California Supreme Court said it will decide whether Gov. Arnold Schwarzenegger has the authority to furlough nearly 500 employees of the State Compensation Insurance Fund, an outgrowth of a March appellate court ruling that said the governor did not have the authority to order the unpaid leaves.

The California high court, which ordered written arguments filed by July 9, said its decision in the challenge brought by the group representing the furloughed SCIF employees—the California Attorneys, Administrative Law Judges, and Hearing Officers in State Employment—could apply to other furloughed state employees.

Employers are not the only ones concerned about workers comp expense reductions.

In Michigan, injured workers have complained about having to drive farther because some hearing sites closed in recent years, Mr. Nolish said.