“No evidence” says report on ACC reforms

A report by economist Peter Harris released today by the ACC Futures Coalition, challenges the practicality of the government’s proposals for reforming ACC, and raises serious questions about whether there is even a problem that needs to be fixed in this way.

“There is very little evidence of a problem with ACC that any of the solutions being proposed need to address”, said Mr. Harris, “ and even less that any of the solutions will have positive benefits”.

Consultation closes today on two options to change the funding of the ACC work account: Extending the coverage of the Accredited Employers Programme (AEP) by reducing some compliance obligations and widening the choice of the form of partial self-insurance that participating employers can select; and Privatising the work account by giving employers the option of insuring with private insurers for workplace accidents.

“The government appears to be relying on questionable data and a lot of assumptions in what they are proposing”, said Mr. Harris. “If we look at the Accredited Employers Programme, between 2000 and 2009, AEP employers had better accident records (and therefore lower ACC costs) but there is no evidence that AEP caused the better performance. It is equally likely (and more plausible) that employers with better pre-existing accident records took advantage of the option of AEP to capture the benefits of their better systems and practices”.

“Since 2006, the number of employers participating in the programme has declined steadily, by about 6% a year. If it was delivering improved results it would, over time, be opening up a gap between what the ACC charges for cover and what self-insurance could achieve, and the expectation would be that participant numbers would increase, not decrease”, said Mr. Harris.

“Any margins to lower costs in the AEP in comparison with paying ACC levies will have been further eroded by the probability that work account leives will fall by 22% in 2012/13,” said Mr. Harris.

“Private insurance is even a worse option. There are a number of uncertainties about how private insurance will operate and so it is difficult to evaluate what benefits it might bring. These uncertainties include things like how residual claims (i.e. all claims existing at the time of the introduction of the insurance option) will be funded; the nature of the prudential regime that participating insurers will have to operate under; and how the costs of public health and emergency transport services will be allocated”, said Mr. Harris.

“These ‘known unknowns’ are so fundamental that in advice to Cabinet, government officials concluded that ‘there is a high degree of uncertainty regarding the magnitude of both costs and benefits (and in some cases even the sign – i.e. whether they will have a net positive or negative impact…’”, said Mr. Harris.

“With all of the changes currently in train – the bedding of experience rating, falling work account levies, a degree of turmoil in the insurance industry in general, and fading enthusiasm for the AEP – change for the sake of change cannot be justified”, Mr. Harris concluded.

Hazel Armstrong, spokesperson for the ACC Futures Coalition has welcomed the report.

“We have known that the government’s proposals were fundamentally flawed”, said Ms. Armstrong,” because they represent a major shift away from the principles on which ACC was founded and the employer the client of the insurer, rather than the injured worker. But now we know that the financial assumptions on which this policy is based are equally flawed. It is time for the government to step back from these ideologically driven proposals and recognise ACC for what it is – a great institution that is integral to our system of social support.”

The report can be found at acc report peter harris july11 (pdf)

The ACC Futures Coalition consists of community groups, academics, organisations representing people who need support from ACC, health treatment providers and unions who have come together around the following aim: To build cross-party support for retaining the status of ACC as a publicly-owned single provider committed to the ‘Woodhouse Principles’, with a view to maintaining and improving the provision of injury prevention, treatment, rehabilitation and ‘no fault’ compensation social insurance system for all New Zealanders.

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