Wisconsin Legislative Update: Major Changes to Administration’s Proposed Break-Up

Ever since the Administration’s initial proposed Budget Bill on February 3, 2015, the status of Wisconsin’s worker’s compensation system has been in doubt. With a recent compromise agreement, we now have a bit of clarity moving forward, yet many questions remain.

Initial Proposal

We previously discussed the proposed changes to the structural integrity of Wisconsin’s worker’s compensation system. Under current law and structure, the WC system is a unified “one-stop-shop” under the Department of Workforce Development (DWD). Administrative Law Judges work within WC Division in close connection with claims management and dispute resolution staff. Judges, who are trained experienced attorneys in WC, have the benefit of 100+ years of case law and Department policy to guide and direct claims administration. (e.gs, does overtime count as “wages” toward WC benefits?; the value for the loss of a finger?; when does an insurer have to submit a final medical report?) Significantly, independent national studies show Wisconsin’s current unified worker’s compensation structure is a major factor in the beneficial metrics of the system compared to the rest of the country: low/stable employer premiums, large number of insurers writing business and making profits, faster return to work rates for workers, low costs per claim, and very low litigation rates.

The Budget proposal was to break up the unified WC Division and split “administrative” functions to the Office of the Commissioner of Insurance (OCI) and “adjudicatory” functions to Division of Hearings & Appeals in Department of Administration (DOA). Administrative Law Judges would move to the DOA. Claims management, customer service, dispute resolution, and wage analyst functions (along with all administrative staff) would go to OCI.

“Drafting” Errors

The initial proposal from February also included a number of substantive changes to the Worker’s Compensation Act, including eliminating the use of court reporters and allowing private settlements. Those—and a huge amount of “drafting” errors—were corrected via the Administration’s Errata report of April 13, 2015. The drafting changes restored the usage of court reporters and the statutory language regarding approving oversight of compromise agreements. The Errata also explicitly acknowledge the impossibility in teasing apart functions of the current unified WC Division, and now proposed using some administrative law judges at both agencies, OCI and DOA. (“although adjudicating functions are being transferred to the Department of Administration’s Division of Hearings and Appeals and administration to the Office of the Commissioner of Insurance, there may be some responsibility for both types of claims at both agencies.”)

Joint Finance Committee: What Actually Happened?

There was a significant amount of lobbying by stakeholders in the system. The Milwaukee Journal Sentinel highlighted questions about the lack of reasoning behind the proposed changes.

In a surprise move on May 27th, the legislature’s powerful Joint Finance Committee agreed to a major change/compromise in the Administration’s proposal for the worker’s compensation system. The WC Division will not be going to OCI; rather, it will stay within DWD (along with a handful of judges). A certain amount of judges, however, will be moving to DOA. Specifically:

  • No transfer to OCI. The transfer of “administrative” functions/personnel from WC Division to OCI was deleted. Thus, entire administrative/wage analyst/dispute resolution staff will remain at WC Division within DWD. 6 worker’s comp ALJs and 2 legal support staff will remain at DWD. (Based on errata language, these ALJs likely to deal with “non-litigated” cases.)
  • ALJs are going to DOA (Div. of Hearings & Appeals). 18 Administrative Law Judges transferred to DOA to do “adjudicatory” functions and hear worker’s compensation cases. The Joint Finance motion specifies that these work comp ALJs must allocate “a minimum of 80%” of their time to worker’s compensation issues. (Thus, appears to allow for alleged cross-training of ALJs. It remains unclear how these positions/functions will be funded if portion of ALJ time is on non-work comp matters).

What’s next?

The Budget Bill, in amended form, now goes to the full legislature. As of June 15th, it still has not passed, and of course, there are many other significant issues in the budget for legislators and the Governor. We still do not have any specific statutory language after the Joint Finance compromise. It will be interesting to see the precise changes to the WC Act.

Overall, we are encouraged that the members of Joint Finance took stakeholder’s concerns into consideration including keeping the administrative functions at the DWD in its Worker’s Compensation Division.

Potential consequences. Assuming the Budget passes, what does these mean for the worker’s compensation system?:

  • Increased litigation? The efficiencies of WC system could be lost by splitting up WC Division. It is no exaggeration that such a change could easily result in delays in claim resolution, less effective oversight, greater confusion, and increased litigation. There are more agencies involved in the process. With degraded active claims management at two agencies, more employers and workers will seek counsel. (When the Legislative Fiscal Bureau analyzed the proposed changes after the Errata revisions: “Because the status of an individual claim can change with some regularity, especially with medical disputes, the transfer of the WC Division …could introduce complexity and confusion to the handling of individual claims …”)
  • Increased employer premiums? Increased litigation means increased claims costs, which is passed on to employers in the form of increased premiums.
  • Delays in medical bill processing? If there is degraded active claims management, medical providers may face greater difficulties and hurdles in the processing and satisfaction of medical treatment expenses.
  • Degraded quality of decision-making? If ALJs are cross-trained, decisions may be less accurate if made by individuals not fully experienced in WC. Further litigation and appeals could result.
  • Hearing procedures unknown. Apparently, DOA judges schedule their own hearings. Current DWD has comprehensive computer system for scheduling hearings throughout the state. The scheduling of hearings via DOA is unknown, with the potential for procedural delay if judges schedule own hearings.
  • Costs? IT costs are unknown. Costs to taxpayers or insurer assessments if IT costs in major reorganization? The Legislative Fiscal Bureau also noted this potential problem.
  • Death knell of the advisory council? The Worker’s Compensation Advisory Council (WCAC) advises the WC Department and legislature on policy matters concerning the development and administration of the worker’s compensation law. The WCAC aims to maintain overall stability of the worker’s compensation system for all stakeholders without regard to partisan changes in the legislative or executive branch of government. While the Budget proposal still allows for use of WCAC, this would be an end-run around the Council and a direct legislative change without Council input. The Council’s viability would be in question. Will WC system now be subject to partisan pendulum of legislature?