ACC “crisis” was all in Nick Smith’s head

Remember the financial crisis with ACC?  Remember Nick Smith describing ACC as “technically insolvent”, a claim that was rubbished at the time by NZ Herald economics editor Brian Fallow and actuary Jonathan Eriksen?  Remember the appalling Bill to restrict ACC cover and slash entitlements that was pushed through Parliament despite overwhelming opposition from submitters.  And remember the ACC levy increases that are about to impact on all New Zealanders. 

Well, it turns out that the only crisis with ACC was the one in Nick Smith’s head.  Last Thursday Smith appeared before Parliament’s Transport and Industrial Relations Select Committee to answer questions about ACC’s budget appropriation: 

[ACC] would make about $1.5 billion from its investments this year, he said, and the total surplus would be about $2 billion because of a drop in the cost of claims, better rehabilitation rates and cuts to administration costs. 

That’s right, a $2 billion surplus, and that’s before the levy increases and entitlement cuts have any impact, as they are only now beginning to phase in. 

Meanwhile, the Government continues to roll out proposals to further cut ACC entitlements, including this pernicious proposal that will leave thousands New Zealanders whose hearing has been impaired by accident or workplace noise unable to afford hearing aids. 

The real agenda is clear – get ACC making mega-surpluses in order to facilitate flogging bits of it off to the Government’s mates in the insurance industry.

43 thoughts on “ACC “crisis” was all in Nick Smith’s head

  1. Toad says “There already is a time limit – you can’t get weekly compensation after you turn 65″

    So if you hurt your hand when you’re 17, you can bludge on ACC for half a century.

    toad says “ACC should e retraining people”.

    People retrain all the time for all sorts or reasons. Again we have the attitude – someone else should do this for me.

    Being in a job – even a minimum pay job – like many people do, is better than being a drain on the country.

  2. There already is a time limit – you can’t get weekly compensation after you turn 65 (unless you have been injured within a year before that time, or after it, in which case you can get it for 1 year only).

    There needs to be a focus on what people can do – not on reasons why they can’t work.

    And if that means retraining in a different profession that’s better than years on ACC.

    Exactly. But the focus on retraining injured people into jobs they are physically capable of was removed by a National Government back in the 1990s.

    The focus now is just on getting them off weekly compensation, even if it is into a minimum wage job or even to an occupation that doesn’t actually exist, so they end up being supported by their partner (if they have one) or on the dole.

    We have an agreement here photonz1 – ACC should e retraining people.

    But they don’t.

  3. With 1.8 million claims a year (7000 a day) ACC has a difficult job to weed out thousands of fake claims from the 40% of New Zealander who make claims each year.

    Out of such a large number, there’s always going to be people paid who shouldn’t be, and claims turned down that probably should go through.

    They need people who will test questionable claims, though obviously they should not be turning down genuine claims.

    One of the problems with ACC is someone with something like a permannent hand injury may be able to claim for years because they say they can’t work in their chosen profession, while at the same time, people with far more severe disabilities (i.e. only one hand) will be doing the same job.

    There needs to be a focus on what people can do – not on reasons why they can’t work.

    And perhaps a time limit.

    And if that means retraining in a different profession that’s better than years on ACC.

  4. @Slka55 10:19 AM

    My main concern is what ACC is paying some specialist to get people off. I had an appointment last month to see a so called specialist that I drove to Hamilton to see. Half an hour appointment I gather his bill was near $2000 and he was a specialist he knew the exact questions to ask that the answers would give ACC a report that I was fit to work and missed all the ones that showed my problems, lucky I have 2 specialist that tore his report to bits and one is thinking of complaining to the medical council about his behavior.

    Wasn’t a Dr G****** E****, by any chance, Slka55?

    Go for it!

    I am very aware that ACC have their “pet” specialists that they use for this purpose – their names crop up time and again in reports taht ACC use to justify disentitleing claimants. Notoriously hard to prove in any though, and as non-treating assessors they are not subject to the normal complaints procedure under the Health and Disability Commissioner Act and the Health Practitioners Competence Assurance Act.

  5. toad says
    “* It had a negative financial impact on the ACC scheme – i.e. more funds were paid out in levy rebates resulting from positive experience ratings than received in loadings on levies due to negative experience ratings.”

    Well that’s simply an mathematical error with whoever was working out the rates – it’s nothing to do with the system.

    “* The formula for experience rating changed each year in an attempt to address the above problem – resulting in year to year uncertainty for employers.”

    There’s ways to address that. Rather than changing rates annually (they current ones change anyway), there could be a more stable rate and effectively give a “no claims bonus” for employers with good safety records. That’s simple enough.

    “Experience rating placed pressure on ACC staff to remove costs by moving claims from the work account to other accounts and increased the likelihood of employers contesting that an injury was a work injury, with resultant uncertainty and delays in cover and rehabilitation for the injured person.”

    That happens now anyway.

    ” ACC were required to spend significantly more time and money in defending cost allocation through the dispute resolution process rather than focusing on rehabilitation of claimants”

    Countered by the fact that it will reduce the overall number of workers accidents – another of the main aims of the system.

    Better to have a system that incentivises employers to improve safety and have less accidents, than your system which would give financial incentives to cut corners on workers safety.

  6. Rather than being charged on an industry-wide rate, individual companies with better safety records may be able to negotiate a low premium than a similar industry with a bad safety record. A huge incentive to improve worjkers safety.

    That’s not what happened when experience rating of individual employers was last part of the ACC regime in the 1990s.

    What actually happened was:

    * It had a negative financial impact on the ACC scheme – i.e. more funds were paid out in levy rebates resulting from positive experience ratings than received in loadings on levies due to negative experience ratings.

    * The formula for experience rating changed each year in an attempt to address the above problem – resulting in year to year uncertainty for employers.

    * Experience rating placed pressure on ACC staff to remove costs by moving claims from the work account to other accounts and increased the likelihood of employers contesting that an injury was a work injury, with resultant uncertainty and delays in cover and rehabilitation for the injured person.

    * ACC were required to spend significantly more time and money in defending cost allocation through the dispute resolution process rather than focusing on rehabilitation of claimants

  7. toad – I think the current system is pretty good, as long as it is kept in check.

    The part you want to get rid of – levies according to risk – is one of the most important parts of the system.

    Contrary to your assertion, with the latest fee rises motorcyclists I know HAVE been talking about risks being much higher compared to driving a car than they had presumed. Some have bought safety gear they didn’t previously use. And rugby autorities are working hard to stamp out the likes of spear tackles, scrum colapses etc. There are penalties for players much harsher than ten or twenty years ago. So they are much less likely to spear tackle than they were. So you are wrong about that.

    There’s a major benefit of privatisation. Rather than being charged on an industry-wide rate, individual companies with better safety records may be able to negotiate a low premium than a similar industry with a bad safety record. A huge incentive to improve worjkers safety.

    So a private or partially private system may improve safety even more than the current system.

    And your idea thows financial incentives for companies to improve safety out the window. It doesn’t matter how much workers get hurt – they wouldn’t pay any more.

    No only would it take away incentives to improve saftey – it would do the opposite. It would incentivise companies to cut corners on safety

    It would be a giant backward step – a really really bad idea.

  8. ACC payments come out of the years that they happened levies that are invested. So if you had an accident in 2004 the levies collected that year were invested and used to pay all the ongoing costs.As people drop off that investment keep paying so in the end it should be self funding and nearly got to that point before a former national government changed the rules and the assets sale off. My main concern is what ACC is paying some specialist to get people off. I had an appointment last month to see a so called specialist that I drove to Hamilton to see. Half an hour appointment I gather his bill was near $2000 and he was a specialist he knew the exact questions to ask that the answers would give ACC a report that I was fit to work and missed all the ones that showed my problems, lucky I have 2 specialist that tore his report to bits and one is thinking of complaining to the medical council about his behavior. Unfortunately many of ACC clients just have to put up with this bullying. My problem is due to a head injury I am clumsy and very accident prone and any employer that employs me could be sued by OSH for not keeping me safe and ACC would take no responsibility for sending back to work. They/somebody needs to be held accountable for there decisions

  9. photonz1 – No, I don’t support a flat tax. I think ACC compensation should ideally be entirely funded out of general taxation (which should be progressive, rather than flat), rather than specific levies – the non-earners’ account already is.

    There may be a case for specific levies on high risk activities and industries to fund injury prevention initiatives in those activites and industries, but not to fund injury compensation.

    Do you really think that rugby players a going to be less likely to spear tackle and opponent to get their ACC levies down, or that motorcyclists are now suddenly going to ride more safely in response to their ACC levies going up? I’m afraid that is where those obsessed with the market as the solution to everything part company with the real world.

  10. toad says “Actually, I do think everyone should pay the same.”

    So a low paid receptionist should pay the same as the CEO of the company she works for?

    That would see massive hikes in ACC for low paid workers and massive reductions for high paid workers.

    It would also destroy one of the main aims of the system – the incentive for companies and workers to reduce accidents and therefore reduce their ACC payments.

    Do you beleive in a flat tax just for accidents, or for all income?

  11. @photonz1 June 28, 2010 at 9:33 PM

    The ACC rates relative to thge injury risk – rate for profsssional rugby or league, are over 40 times greater than say a low risk job like a phone salesperson.

    You think everyone should pay the same? (and average workers subsidise high risk high paying jobs?)

    Actually, I do think everyone should pay the same. That is consistent with the principle of community responsibility that ACC was developed under.

    You see, it is not just the professional rugby player who benefits from what he or she does for a job. A whole range of other people – coaching staff and sports administrators, ground staff, match officials, doctors and physiotherapists, television staff, advertising staff, coach operators’ and airlines’ staff, merchandisers, TAB staff – they all benefit from what the professional rugby player does.

    So why should the cost of the injury risk lay solely with the rugby administration and the player?

  12. ICEHAWK SAYS “But I’m grumpy because for the next 20 years every time the markets dip the residual fund (and cullen fund) are going to be on the front page for “losing billions” ”

    Exactly – which is why it’s misleading for others to talk of a $2 billion surplus as if it’s some sort of profit, when three quarters of it is just investments recovering from the recession.

    As for residual claims – I agree, overall they are not the majority of claims, but they are a very significant minority. In fact for some industries, residual costs are the same and even greater than their main ACC levy.

  13. I bloody wish some people would get their heads around investing for the long term.

    Perhaps it might pay if the accounting treatment of share investments by government was different – the status quo (valuing it as per market) seems to just result in gyrating balances.

  14. Drakula – there was clearly a huge problem with ACC when National took over – a massive 57% increase in claims in just four years, and ACCs own travel and administration cost running rampant.

    Labour turned ACC into a massive lolly scramble, with claims exploding at a totally unsustainable rate.

    At least Smith has stemmed the heamorrhaging, including ACCs own administration costs. Taxis, international travel, domestic travel, parking, etc have all effectively halved after blowing out hugely under Labour.

  15. “It’s clearly not sustainable. As time goes by workers will get more and more money taken from them to pay for accidents from years gone by.”

    You exaggerate. It’s not that bad. The vast majority of payouts are for the current year, and the majority of the remainder for the previous year. Yes, things do accrue. But they accrue slowly.

    Having said that, I agree with you that the residual fund is a better idea. But neither approach is unworkable.

    But I’m grumpy because for the next 20 years every time the markets dip the residual fund (and cullen fund) are going to be on the front page for “losing billions” and politicians will use that as an excuse to cut funding for things, and when markets recover they’ll have a surplus of “billions” and that will be an excuse again. I bloody wish some people would get their heads around investing for the long term.

  16. “ACC HAS to keep building up a fund to pay residual claims, or the whole system will fall over.”

    No. It doesn’t.

    You can have a system where ACC takes in as much as it needs each year to cover that year’s payments by ACC.

    Or you can say that you must take in so much this year that you’ll cover all liabalities caused by injuries that occur this year – including 10 years of expensive prosthetics and treatments for someone seriously injured this year.

    Either is a perfectly workable and rational.

    Labour chose to move ACC from doing things the first way to doing it the second. Obviously switching across is expensive – you need to build up payments. They’d planned to have the switch done by 2013. With the financial crisis that timeframe became difficult. National could have said “okay, we’ll take another couple of years to switch”. Instead, they pretended ACC was in crisis.

    It’s ALL always been accounting smoke-n-mirrors.

  17. HEY SMITH! LEAVE THE (ACC) SCHEME ALONE!!!ANOTHER BRICK IN THE WALL!!!

    With a 2 billion surplus it proves that there is nothing wrong with the scheme and Nick Smith should leave it alone!

  18. toad – you miss the point. The ACC rates relative to thge injury risk – rate for profsssional rugby or league, are over 40 times greater than say a low risk job like a phone salesperson.

    You think everyone should pay the same? (and average workers subsidise high risk high paying jobs?)

  19. rimu – three quarters of the “surplus” is simply the residual fund investments growing – exactly the point of having them.

    They’re aiming for the residual fund investments to grow to the point where the earnings cover the cost of residual claims, and no more has to be added.

    It shows the value of having this fund, and without it there’s either going to be –

    1/ a lot less ACC claims that can be paid, AND/OR
    2/ workers will have pay more in the long run.

  20. Toad, that depends on the overall financial situation – I don’t disagree with restoring entitlements provided that the ACC financial situation is completely secure (including unfunded liabilities).

  21. @john-ston 8:41 PM

    In that case, john-ston, I presume you will, like me, be advocating the repeal of the cover and entitlement cuts, on the basis that there was panic in the Government, they got it wrong, and that all is now good.

    So all people whose hearing has been damaged through their work should be able to be fully compensated for the cost of that? I that what I am hearing from you john-ston?

    If that is the case, I agree entirely.

  22. That’s right, a $2 billion surplus, and that’s before the levy increases and entitlement cuts have any impact, as they are only now beginning to phase in.

    Were we expecting such a result this time last year? I know for a fact that people were still quite scared about the overall economic situation, and it wasn’t until later last year that confidence started going up. Are we going to criticise the government for anticipating that they were going to have deficits for a decade, and later revising that down to a shorter period because the economy went better than expected?

    The other question of course is how much does ACC still have in unfunded liabilities. We don’t want to end up like the United States where the overall balance sheet looks okay, but when you look up all the unfunded liabilities, you realise that you are in a debt hole of about 600% of GDP.

  23. mind if I step back a little… to suggest how Nick-the-nub-or-rub-or-he-aint-no-hub is using what capitalists call a “pull”.. ie generate a fund.. just like frog describes above.. with the intention that his boss’s notion of a financial hub economy will thereby have a starter for ten, as Bamber Gascoigne used to say in that big quiz show (University Challenge)

    another way of looking at it is you’re a cyclist and want up that hill in front of you… big wheels are those bottom gears.. so down you go for them…

    sure, suspicions of privatizations can and will run rife… but if that’s the way of the world then it could be pretty dumb to figure on staying put.. forever…

    am I sounding too reasonable..? want more reacting…?

  24. @photonz1 6:49 PM

    …every profession is charged by ACC according to the danger of the job. That’s why professional rugby players pay an enormously higher rate than an office workers.

    So you say that is how it is, photonz1, and presume that is how it always should be?

    Anyway, professional rugby players are contracted out of ACC liability via the accredited employers’ regime that big busines can buy into.

    That accredited employers’ scheme is a rort too, but going into that issue is likely to jack the thread, which is something Frog is telling us off about doing at the moment.

    Frog, any chance of a thread on the ACC accredited employers’ rort?

  25. photonz, if a $2bn surplus isn’t enough to make you chill out, what would be? How much surplus do you need?

  26. toad – every profession is charged by ACC according to the danger of the job. That’s why professional rugby players pay an enormously higher rate than an office workers.

    So things like mining ALREADY pay their full cost.

    The aging population will reduce the residual levy, as as ACC claimants retire, but not for several decades.

    If we pay towards a residual fund then in just nine years, the problem goes away. No residual payments needed as it will self fund.

    ACC was always set up as a self funding accident compensation scheme.

    What you want is something completely different, more like a hybrid-cross of our health system and the invalid benefit, probably with some sort of open ended government funding.

  27. @photonz1 4:14 PM

    Sorry if I misinterpreted your argument. I thought you were putting up the same argument that Nick Smith and David Parker put up about an aging population, which I think is bullshit.

    But my counter-argument to that still has validity – we don’t need to forward fund ACC because the aging population actually reduces, rather than increases, the cost.

    The argument you are now putting up @ 4:14 PM is that it is somehow “unfair” for future costs from injuries today to be borne by levy payers tomorrow. That is an ideological argument, and is underpinned by a debate on whether ACC should be an insurance scheme (which the current Government seems to want) or a scheme based of social justice principles (which is what people like me want).

    The difficulty I see with the insurance model is that everybody benefits from the risk. Take the mining industry, for example, which, because of its nature, has one of the highest accident risks of any industry.

    Do you think it is fair that the mining industry bears the full cost of that, or should the cost be shared about among the people – you and me – who will benefit economically (at least in the short term) from mining?

  28. toad – stawman arguement.

    I’ve never argued anything that the residual fund is needed because people are libving longer or because of an aging population.

    You’ve made a totally false arguement. (Green disease 2/ Make up a false position, and wrongly attribute it to your opponent).

    Future funding is so our childrena and grand children don’t have a legacy of paying for injuries that happened before they were born.

    Future funding is to make ACC sustainable, instead of unsustainable increases in ACC payments for decades to come. i.e. An 18 year old with severe back injury in 1999 could still be on ACC in the year 2048, when he shifts to superannuation, though by that time the retirement age may have gone up further.

    So if left alone, ACC costs will go up for 40 years then plateau around 2050, or if we build a residual fund they will go DOWN when residual claims are fully self funding in just 9 years 2019.

  29. @photonz1 10:25 AM

    The argument that future funding for is needed for ACC because of an aging population and claimants living longer is fallacious.

    The reason it is fallacious is that over half of the entitlement costs on ACC claims is from weekly compensation, and weekly compensation ceases when a claimant turns 65 and becomes entitled to NZ Superannuation (or within a year of the injury if the claimant is aged over 64 and is still working when injured).

    All else being equal, an aging population therefore actually reduces, rather than increases, the entitlement costs to ACC.

  30. 2 Billion is not insignificant and represents thousands of New Zealanders who were honestly assessed as deserving support and had it denied. I can only imagine the anger and frustration of all those 50 year + people (for example) who had genuine claims from real accidents rejected because they were over fifty. Apparently age related degeneration, though never individually proven, blocks support and forces many into sickness benefits when they would rather work – and to tadd insult to injury all we all know what this government thinks of beneficiaries.

    Photonz1 & Oliver1, ACC funds are already invested to ensure sustainability but to following current restrictions will only prove more costly in the long term as those that could have been supported back into full time work and independence will now have to be supported by the tax payers.

  31. Yes – it will stabilise in a few decades. We can make our children and grandchildren pay for our accidents.

    Or we can stabilise it ine ONE decade by building the residual fund and never have to pay any more residual claims.

    As for safety getting better – that’s the positive. The negative is all sorts of claims now made to ACC for things that it was never supposed to fund. i.e. hearing loss in elderly blamed on noise in the 1960s before ACC even existed. And all sorts of emotional harm from the likes of abuse.

    These things should be covered in the normal health system – it has nothing to do with accident cover.

  32. “the alternative is large ACC increases every year to not only cover the current years accidents, but ongoing claims for every previous year since the start of the scheme.”

    I’m no expert on ACC, but surely the system will stablise once the people claiming for new accidents balances with people claiming for old accidents dying. And hopefully, safety is getting better. In which case the cost increase should be in line with population and inflation increases, less reduced costs due to improved safety?

  33. Frog – if you don’t beleive in future funding, then the alternative is large ACC increases every year to not only cover the current years accidents, but ongoing claims for every previous year since the start of the scheme.

    As the number of previous years grows, so does the additional amount taken from workers.

    Workers not only have to pay for the current years accidents, but residual claims from the pervious year, previous ten years, twenty years etc.

    It’s clearly not sustainable. As time goes by workers will get more and more money taken from them to pay for accidents from years gone by.

    Or we could build up a fund to cover this.

    I though you would believe in sustainability in workers payments.

  34. More of the N-ACT excuses to ‘slash & burn’ public services & get ready for privatising SOEs.. IF they get in again. Kia-ora Koutou

  35. Just to put it out there, but Accounting 101 teaches us not judge an entity by one years results.

    It would also be relevant to have a full disclosure of ACC’s objectives, and how close it is to achieving those objectives, rather than just pushing one line in the income statement.

  36. photonz1 @ 10:25 AM

    The $2 billion surplus is without the levy increases and entitlement cuts that are only now coming into effect.

    If you accept the principle of future funding as desirable (which I don’t), just how much more do you think ACC needs each year to contribute to its “war chest”?

  37. @Rimu – the corporate media is doing its job well – only its job is to distract people from the bigger issues.

  38. Frog – I think you have simplified things to the point of being misleading.

    ACC HAS to keep building up a fund to pay residual claims, or the whole system will fall over.

    Not only does it have to pay the current years claims. It also has to build a residual fund to pay people still on ACC from accidents last year, and the year before, and the year before, right back to the begining of the system.

    In this way, the number of residual claims builds and builds every year. The idea is to build enough of a “war chest” that will cover the continually building residual claims.

    That way, eventually ACC payments will just cover current years claims, and the fund will cover residual claims.

    ACC needed to cut it’s claims – it was getting rediculous and things that had nothing to do with accidents were being paid out for.

    As a small business we get absolutely screwed by ACC – paying many times more (400-800%) than we would if we earned exactly the same salary on paye.

  39. I fucking knew it.

    Now, will the media stay obsessed with Chris Carter’s $100 flowers, or will they realise that there are bigger issues?

  40. Yet another example of plutocracy in action. Nelson should be asking itself who Nick Smith actually represents.

Comments are closed.