National signalled long before the general election last year
that the accident compensation scheme was in its sights.
It can be no surprise, then, that ACC's annual report tabled
in Parliament last week, showing a loss of $4.8 billion
following a $2.4 billion loss for the year before, provides a
convenient moment for the Government to consent to much
higher levies and to promise further reforms.
But statements that the scheme is "financially unsustainable"
need to be viewed with scepticism. That might be true if
nothing was done to change the way ACC is funded. The gap
between its assets and liabilities has been affected by lower
investment returns during the recession, but these will
recover.
There have also been book- keeping changes. Of greater
concern is the growth of future liabilities, from $9.4
billion to $23.8 billion in four years, and a good deal of
the responsibility for widened and costly coverage can be
laid at the door of the Clark government.
An example is the physiotherapy benefit, which for most
clients meant treatment was mostly without charge. Only in
August this year did ACC decide to reduce from next month the
subsidy paid to practitioners, saying the costs were
"unaffordable for levy payers".
According to the Government, the subsidy introduced by Labour
in 2004 and budgeted to cost $9 million a year had by this
year risen to $139 million and was projected to rise to $225
million by 2011-12, with no equivalent rise in rehabilitation
rates.
It has quoted other examples of how the scheme has developed
far beyond its original concept to cover diseases like
leptospirosis and brucellosis and medical conditions like
asthma, when, it argues, these should instead be paid for out
of Vote Health.
To these might be added trauma of various kinds suffered by
victims and perpetrators resulting not from accidents but
from criminal acts, mental injury arising from workplace
trauma, and sports injuries.
When it began with the 1972 Accident Compensation Act, only
those who were employed were entitled to claim for workplace
accidents. That soon changed to cover all accidents,
including motor vehicle accidents, regardless how injury
occurred.
The principle of lump-sum compensation for permanent
disability was established, along with earnings-related
benefits for accident victims while they recovered. In 1992,
a National government imposed more stringent constraints: a
greater emphasis on rehabilitation was required, along with
an expansion of funding to levy all persons in employment.
Six years later, National removed ACC's monopoly rights, only
for these to be restored when Labour came into power in 1999.
Labour, intent on increasing the "take-up" of ACC benefits,
also reintroduced lump-sum payments in 2002. Since 2004, in
fact, Labour's additions to the scope of the scheme have
added $537 million to ACC's liability.
Clearly, though, some matters are beyond the control of the
corporation: the increasing number of claimants due to the
ageing population, greater injury rates, costly medical
advances which allow people disabled by serious injury to
live longer, and rising wage costs for doctors and nurses.
Increasing levies is but a short-term response to these
problems.
In political terms, the Government has been overstating ACC's
problems in order to justify higher levies and to promote its
case for partial privatisation. It could re-open the
employers' account to competition, although employers have
shown little enthusiasm.
It could do something about improving the scheme's
deteriorating performance in rehabilitation, which affects
its long-term liabilities. Yet the greatest liabilities
(other than those resulting from accounting changes) are
caused by the estimated long-term cost of treatment for
existing claimants, but which will not become due for some
time and which, supposedly, are to be met by the
corporation's substantial reserves.
The Government has long signalled levy rises to meet the 1999
decision to ensure the scheme is fully funded by 2014, that
purpose being to produce sufficient reserves to cover the
lifetime costs of all existing injuries - but it is likely
now to extend the deadline to 2019, as had intended the Clark
government.
Whatever further changes and entitlement reductions the
Government makes to ACC, it stands to suffer grave political
risks if by so doing the core purposes and strengths of the
no-fault compensation scheme are threatened. Considerable
care will be required.
