Accidents will happen, even to ACC

Next time we have a big economic up, we might ask just how up it is or whether we are just on a party drug. If it is a party drug, an accident is waiting to happen.

The Accident Compensation Corporation (ACC) has been building funds to cover future liabilities. Those funds performed very well in the “golden years” of soaring sharemarkets. And the economic party times encouraged the government to expand the scheme’s cover and instruct the ACC board to be “fairer”, in part to eliminate injustices and in part to be more generous.

But sharemarkets have tanked and interest rates have dived. While ACC has done far better than most funds managers, the “value” of its investments and the flow of money from them have dropped: and, according to PriceWaterhouseCoopers, “a small reduction in yields leads to a large increase in ACC’s liability”. Levies, taxes and government contributions must rise to keep the fund buildup on track — and to cover rapidly inflating current costs.

The previous government is not responsible for the collapses of world share and bond markets, which account for about three-quarters of the shortfall that must now be made up. But it is responsible for mistakenly thinking the world had changed enough to greatly expand the scheme amid fast-rising costs.

Bill English has accused the previous government and the Treasury of hiding the ACC’s financial state. But he can’t punish the previous government because the voters did that in November. The Treasury has taken it on the chin.

The focus then turns to the board. Nick Smith was yesterday set to sack parts of the board — chaired by Ross Wilson, former president of the Council of Trade Unions.

Then what?

Then the government, installed by the voters to govern, has to give up opposition to the previous government and be the government itself. Its challenge is to sort out ACC’s short-term viability and reframe long-term accident policy.

ACC was set up in 1974 to end a bad deal for injured workers and, by extension, those injured in other ways, whether in paid work or not. Before 1974 lawyers fought each other over who was to blame and how much a worker was to be paid — and then scoffed much of the winnings.

No-fault ACC fixed that. The lawyers were banished. The injured got repaired for free and for as long as they couldn’t work were paid 80 per cent of their previous wages up to a limit.

Employers (including the self-employed) pay a levy to cover work accidents. A levy on car registration fees pays for car accidents. Taxpayers pay an extra tax for non-work accidents and, through their general taxes via the government, for accidents to “non-earners”.

The levies and taxes pay for the running costs in the year they are levied and also go towards setting up funds to cover future liabilities for treatment and compensation of those whose injuries extend beyond a year — the “tail”.

Had the “golden decade” of sharemarkets roared on another decade, the element of the current shortfall attributable to the fund buildup would be absent.

The likely response will be to push out the target date for full funding from 2014 to 2019 and so cut the rate at which it is built up out of levies and taxes.

To deal with the cost issue, some recently added entitlements are likely to go, part-user charges are likely for physiotherapy and no-claims bonuses and risk ratings are likely, to reward safe employers.

There is another option: stop funding small claims and leave them to the GP subsidy, with employers making up the difference. A 1995 government report said small claims involving no more than two visits to a doctor ate up 91 per cent of the total payout. This is still roughly the case.

The document said this diverted ACC from its primary managed care and case management function, detracted from priority care and rehabilitation of the seriously injured and were “symptomatic of the ‘ACC malaise’ where minor injury ceases to be a matter of personal responsibility”.

A deeper challenge is the inequity of treatment of the long-term ill compared with those damaged in accidents.

Aside from the legal accident of tort law history, there is no intrinsic reason why public policy should treat the accident of an illness differently in public policy from a work, road or sports accident.

To reduce this inequity ACC benefits need to be reduced, welfare benefits raised or both. The first is politically sensitive and would neglect employer and driver negligence as an ingredient in some accidents. The second is fiscally impossible. The third combines both. Governments quail.

Labour did reduce the inequity with better help for ill people in dwelling redesign, equipment provision and similar measures. But a huge, logically indefensible public policy gap remains. Doling out some of ACC’s easy business to big foreign insurers won’t bridge that gap.

When English and Smith get through railing at Labour and firing board members, they might rethink these deeper policy challenges.