ACC: The need for corrective action
In 1972, the then National government passed legislation to introduce the Accident Compensation Scheme to New Zealand.
This unique, world-leading scheme provided 24-hour, no-fault compensation for the victims of accidents in exchange for our right to sue.
The aim of the scheme is to ensure that the victims of accidents receive medical treatment, support, and compensation for lost earnings without the ordeals of legal process and dispute over who is at fault.
The Accident Compensation Corporation (widely known as ACC) manages claims for accidents in line with rules and policies according to the legislation.
Given that the scheme was introduced by a National government, we have very good reason to ensure that the scheme is affordable, effective, and can be sustained for the long-term.
The ACC scheme is comprised of five claim categories known as ‘accounts'.
The Earners Account is funded by employees through the PAYE system. Claims can be made for injuries incurred outside of work.
The Motor Vehicles Account is funded by car registration fees as well as taxes on petrol.
The Treatment Injury Account covers claims where problems have occurred in the course of medical treatment.
The Work Account is funded by employers and the self-employed. Levies vary based on industry category and claims are made for injuries that occur at work.
In 1999, the Work Account was opened for competition, which saw levies drop from $1.40 per $100 to $1.20.
Even after the previous Government made the ideological decision to reverse competition, the levy trended down to 80c per $100. Today, levies have almost returned to their 1999 levels.
The Work Account is the only account that remains in good shape as a result of the discipline that was introduced during the brief year when people had choice. (In fact, many people do not realise that large companies continue to have choice and can opt to manage their own claims instead of paying the levies set by ACC.)
The Non-Earners Accounts is funded through general taxation and covers claims for people not in employment. It was this account that the National Government had to bail out to the tune of $300 million shortly after taking over the treasury benches.
This budget blow-out was kept quiet before and during the election. It was a nasty surprise that gave us a glimpse into the problems facing ACC affordability after nine years of Labour.
That Labour government extended coverage without planning for funding, and oversaw a culture of extravagant spending. Remember the $5 million television advertising campaign that told us nothing more than that we were covered?
In 1999, ACC adopted a full-funding model, recognising that present claims incur ongoing liabilities. For example, a person who becomes a paraplegic as a result of a tragic accident is likely to stay on the scheme for a long time.
Well established actuarial formulas estimate liability and, over the years, annual levies are set to incorporate this provision. This model ensures that ACC's liabilities will be funded out to the future and introduces financial discipline so that Government can clearly understand the cost of injuries.
The full-funding model was introduced in 1998. In 2000, the then Minister of Finance, Hon Michael Cullen, stated publicly that a catch-up levy of 31 cents to provide for pre-1999 claims would be sufficient to move to a fully-funded position by 2015.
He ultimately set the levy at 35 cents, claiming that this would allow the scheme to move to fully-funded two or three years earlier. After nine years of rising claims, rising costs, extended coverage and worsening rehabilitation rates, we need to extend the timeline to 2019. Labour claims that this is the only change that is necessary. Nothing could be further from the truth.
Nasty surprises have kept on coming. ACC's financial accounts for the 2008/09 years revealed the largest public sector loss in history at $4.8 billion, on top of $2.4 billion last year.
As an accountant, I find it laughable to suggest, as some have, that ACC has made a profit this year. ACC's financial position has been confirmed by the ACC Board, signed off by the independent Audit Office and tabled in Parliament.
The gap between assets and liabilities has grown from $4 billion to $13 billion in just four years. ACC Board Chairman John Judge has rightly reminded us that this means a $3,000 debt for every New Zealander.
The Minister of ACC has taken the steps necessary to ensure that the scheme that was introduced by a National government will be here to stay.
These include changes at the Board level, a stock take of ACC activities, and legislative changes to wind back some of the unfunded coverage extensions.
Our legislative changes ensure that criminals who have received injuries committing an offence resulting in a two year (or greater) jail sentence would not be able to claim compensation. More than that, ACC is undergoing a cultural change focused on taking effective action rather expensive public relations campaigns.
Every year, ACC is required to consult the public on levy increases. This year, the consultation documents have made it clear that without legislative changes, the levies will be, on average, 40 percent higher than those proposed.
Many people, such as motorcyclists, are understandably upset by these proposals, but Labour has left us with real problems to fix.
