ACC’s liability grows by $4.8 billion in 12 months
ACC Media Release
9 October 2009
ACC’s liability grows by $4.8 billion
in 12 months
ACC’s liability grew by $4.8 billion in the year to June 2009, Chairman John Judge announced today.
The Scheme’s claim liability (the future cost of existing claims) now stands at $23.8 billion – against current net assets (the money ACC has ‘in the bank’ to cover those future costs) of $11 billion. The gap is $12.8 billion.
Mr Judge said the key drivers of the liability growth were:
• an historic growth in claims
numbers of 4% per annum - outstripping population growth
• healthcare and rehabilitation costs rising in some
cases at 20% per annum - faster than inflation
•
declining rehabilitation rates
• increases in the
scope of the Scheme and entitlements
• a revaluation of
the assumptions underpinning the liability to take a more
realistic view of future claims costs.
“Historically the focus has been on current costs rather than the long-term cost implications of accidents. That’s at the root of our problem,” said Mr Judge.
“The gap between ACC’s assets and liabilities of $12.8 billion is the equivalent of 3.6 times our annual levy income. Five years ago, the gap was only one year’s levy income.
“The lack of focus on long-term costs, and the under-funding has meant the gap has been growing at an alarming rate,” Mr Judge said. “This is not a sustainable position for New Zealand and a programme of actions to address this serious problem must be put in place.
“We have got to a point where the continued existence of the Scheme is under threat. We must act now to protect it for the sake of all New Zealanders.
“The risk of failure is not immediate, since a significant proportion of our liability consists of ongoing costs associated with longer-term serious injury claims, which don’t have to be met for some years yet.
“However, failure is a very real prospect if we don’t put in place a series of actions that will result in funding to cover our liabilities. The problem is of such a magnitude that I believe the programme of actions will take about 10 years to recover the situation.”
Mr Judge said that ACC had begun implementing wide-ranging measures aimed at reducing external cost pressure and improving rehabilitation performance.
For example:
•
improving the way we manage claims
• negotiating better
value for money and outcomes from health
professionals
• being tougher on the extent and
duration of ACC support, such as weekly compensation
•
ensuring we’re not providing more or less than we are
legally required to provide
• encouraging more personal
responsibility for “getting-back-on-your-feet” after an
injury
• reducing administrative costs
ACC is targeting savings of over $2 billion.
“These are meaningful savings, but nowhere near sufficient on their own to close the gap of $12.8 billion and achieve long-term sustainability for the Scheme,” Mr Judge said.
“We are working with Government on the need for legislative and regulatory change to ensure that ACC has the ability to properly manage the costs of the Scheme. In addition, the Minister has recently announced a “stock-take”, which is fully supported by the Board.
“However, in addition to all of these measures, substantial levy increases are also required, particularly for motor vehicle owners, and earners (i.e. those in the paid workforce).”
ACC will begin consulting next week on its 2010/2011 levy proposals.
“The prospect of levy increases will be unpalatable to many New Zealanders,” Mr Judge said, “especially since this is a time when people are hurting as a result of the current economic climate. However, if we don’t improve ACC’s financial position now, the gap will continue to grow and we will simply be passing the problem on for future generations to deal with.
“After public consultation on levies, the Board of ACC will make recommendations on any increases to the Minister and the Government will make the final decision.
“The ACC Board strongly supports the principles of the ACC Scheme, but we need to make it right for the times and right for the future.”
Ends
Questions and Answers
Snapshot of the
problem
Q What’s the
issue?
A ACC’s claims liability (what ACC must
pay to meet all the future costs of the claims on our books)
is growing increasingly larger than our assets (the funds
we’ve set aside to pay claims costs).
Our current
claims liability is $23.8 billion, against assets of $11
billion - a shortfall of $12.8 billion.
Q Why is
this a problem?
A If ACC’s claims liability
continues to outgrow its assets, then at some point in the
future it will be unable to meet its financial obligations
– in other words, we simply won’t be able to pay for the
help we are required, by legislation, to provide for people
following injury. The growing gap between assets and
liabilities must be bridged to ensure the ACC Scheme is
sustainable.
Q How urgent is the
problem?
A ACC’s claims liability is made up
of future costs (ie, ongoing costs associated with
longer-term, serious injury claims). Because these costs
don’t have to be met for some years yet, there’s no
immediate risk to ACC’s solvency. However, we can’t
just ‘park’ this problem – it demands immediate action
to avert a crisis a few years from now.
Q What
does this all mean if I am receiving ACC
now?
A There is no impact on current claims or
entitlements.
Q Why must future costs be paid for
now?
A ACC operates on what’s called a
‘fully funded’ basis. This means each year, we’re
responsible for collecting enough funds to meet the lifetime
costs of all claims we receive that year.
The fully
funded approach ensures future generations aren’t
‘burdened’ with the injury costs of previous generations
- since funds to meet these costs have already been set
aside.
Q Given that we are in a recession, why
don’t we delay the need to fully fund residual claims for
a few years?
A This is a decision for Government
to make, it is not a decision for ACC. But one of the
reasons we are facing large levy increases now is because
hard decisions on levies have been put off in the past. We
can’t keep doing that.
Q How long has the
problem been building?
A A number of factors
have contributed to the problem which has been building over
a number of years. Until recently, claims were increasing
at a faster rate than population growth, highlighting the
need for all New Zealanders to take greater care to prevent
injuries. Treatment costs have increased markedly as they
have in the broader health sector and it’s been taking
longer to rehabilitate people. This has meant that the
Scheme has effectively been dipping into its assets to meet
its costs, further increasing the gap between its assets and
liability. To some extent, healthy returns on ACC’s
investments have masked the size of the
problem.
Q Why has the problem only now come to
light?
A The new Board of ACC was appointed to
bring a greater level of actuarial, financial and investment
management expertise to the ACC Scheme.
The Minister for
ACC has asked the Board to operate the Scheme in a more
business-like way. There has therefore been a fundamental
reassessment of the Scheme’s current financial health and
long-term sustainability.
Causes of the
problem
Q What’s behind ACC’s
growing liability?
A A number of factors have
contributed to the growing gap between ACC’s assets and
liability. The main ones are:
Increased
number of claims
Until recently, the rate of
growth in new claims easily outstripped New Zealand’s
population growth each year. While there’s no clear
reason for this, the ageing population; improved
understanding and awareness of the Scheme; and people
surviving serious accidents and living longer with serious
injuries due to improved technology; are all likely to have
played a part in the increase in claim
numbers.
Increased time taken to recover and
get back to work or independence
On average,
it’s taking longer for people to get back on track
following injury. This is a worldwide trend with a number
of reasons behind it but no single factor responsible.
Increasing costs of medical treatment and
rehabilitation
The costs of medical
treatment and rehabilitation services have been increasing
at rates well above inflation. Improved (and more
expensive) technology; broader ranges of products and
services; and shortages of skilled practitioners; have all
contributed. These trends are likely to
continue.
Broader entitlements and access to
coverage of the Scheme
In recent years, the
scope of the ACC Scheme has been expanded, both by including
new categories of injuries, and by extending the
entitlements available. This expansion has been driven by
legislative change, as well as decisions made in the
Courts.
Solving the problem
Administration and operation of the Scheme
Q How does ACC
plan to tackle the situation?
A Addressing the
gap between our assets and liability demands action on a
number of fronts. Our plans include:
• Major changes to
the way we manage claims and work with treatment providers,
aimed at improving rehabilitation outcomes and achieving
greater value for money
• Reducing administrative
costs
• Proposed levy increases.
In addition to the
changes ACC is making ‘on the ground’, the Government
has announced a “stocktake” of the ACC Scheme which will
be a thorough examination of all ACC accounts covering motor
vehicles, earners, employers, non-earners, treatment injury
and residual claims. It will investigate the drivers of
cost increases, alternative options for service provision
and funding, and monitoring of ACC.
Q What
internal changes has ACC made?
A Several parts
of ACC’s business have been reorganised, and we’ve begun
a major drive to achieve greater value for money of our
operating and Scheme costs. Work in this area is
ongoing.
Q How is ACC changing the way it manages
claims?
A The trend towards longer
rehabilitation (which is a worldwide phenomenon) must be
addressed if the ACC Scheme is to become more
sustainable.
Better at
work
Keeping people at work or getting them
back to work as soon as possible after an injury has been
proven by international research to significantly improve
their recovery. Once people become dislocated from their
workplace it can be harder for them to return or to find
alternative work.
ACC has been working with GPs in Taupo and with other practitioners nationwide who specialise in helping people return to work. This work has introduced two new programmes: “Better@work” and “Stay at work”. Both of these programmes help injured people to stay connected with their workplace by brokering arrangements between the injured worker, their employer and their treatment provider.
Service
delivery
ACC has reviewed its approach to
service delivery and introduced the following key
changes:
• upfront ‘triage’ of new claims
•
improved processes at the front end
• a new service for
managing long-term claims
• more specialised assistance
for those with serious injuries.
The new triage approach
involves streaming new claims according to expected
rehabilitation complexity, to help us immediately identify
and assign the appropriate level of intervention required. A
major benefit of this approach will be that clients with
more complex needs receive timely and comprehensive help, to
prevent their rehabilitation from becoming unnecessarily
protracted.
The new service for longer-term claims is
aimed at better meeting the complex physical and
psycho-social needs that these clients often have, while an
enhanced service for seriously injured clients is aimed at
increasing their independence and self-reliance in a more
sustainable way.
These changes have already begun showing significant improvements in enhancing rehabilitation outcomes and reducing unnecessary time off work.
Q How is ACC changing the way it works with
treatment providers?
A How much it costs to
treat and rehabilitate injured people has been increasing at
rates which far outstrip inflation and are unsustainable.
Wage and price inflation in the health sector, supply
pressures and increases in the number and the type of
services provided have all contributed to increased
costs.
ACC has therefore introduced new arrangements for
how it purchases health and rehabilitation services, focused
on outcomes and value for money, and a new way of monitoring
the performance of providers. Already progress is being
made in areas like physiotherapy, high-tech imaging and
elective surgery.
Q What financial impact will
these changes have?
A The Board has set some
challenging targets for ACC’s management. It’s also
initiated an independent review to determine the optimal
performance outcomes that can be achieved from management of
the Scheme.
Q Are there other changes in the
wings?
A The Government has commenced a major
stocktake to examine the fundamental nature of the ACC
Scheme. Any change to ACC policy is a matter for
Government, but ACC will support the Government in any
initiatives or changes that result from the
stocktake.
Q What can we all do to reduce pressure
on the ACC Scheme?
A The growing cost of the ACC
Scheme is evidence of the enormous economic burden that
injury represents for our country.
Everyone in New
Zealand can play their part in reducing this burden, by
taking steps in their everyday lives to prevent
injury.
At the end of the day, an injury on the road, in
the home or on the sports field is something we all pay for.
Levy proposals for 2010
Q Why
are levy increases
necessary?
A The increasing gap
between ACC’s assets and liability means levy increases
are needed to help bridge the gap.
The ACC Board
appreciates there’s a limit to how much New Zealanders
should be expected to pay in ACC levies, and that many will
view the prospect of levy increases at this time with
dismay.
We wish to stress, therefore, that levy
increases are not seen as the only answer to the challenges
confronting the ACC Scheme – the focus must be on other
ways to make the Scheme more sustainable and affordable in
the long-run.
Q When will new levy increases
happen?
A ACC will begin
consulting on proposed levy increases next week. We will
make a recommendation to Government on levy increases later
in the year, and after this the Government will make a final
decision on what the rates will be. New levies will take
effect from 1 April 2010, except for motor vehicle levies
which take effect on 1 July 2010.
Q Is it certain
that there will be levy
increases?
A As it does every
year when it sets levy rates for the year ahead, ACC is
consulting with the public over its proposed levy changes
for 2010/11 before Government makes a final
decision.
However, given the Scheme’s current
financial circumstances it is difficult to see how levy
increases can be avoided, though the final amount of any
increases may differ from those
proposed.