PWC Report

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PWC Report
ACC Futures Seminar Wellington 1 September
2008

• Alan Clayton
• Bracton Consulting Services Pty Ltd

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What this presentation is about

• PWC Report background and significance
• Value of ACC scheme
• economic and social
• ACC and comparator schemes
• Comparison of work injury schemes
• Conclusions on delivery models
• Areas for improvement

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PWC Report - Background

• ACC Board initiated a wide ranging evidence-based
  research project addressing 3 main questions
• using the Woodhouse principles as a framework for
  evaluation, what value has the scheme delivered
  to NZ in economic and social terms?
• what are the key issues that, over the next five
  to ten years, will impact on the level of return?
• how can the Woodhouse principles be best
  implemented in order to maximise this return in
  light of those issues?
• 28 detailed research and evaluation questions
  posed
• Responses to a request for proposal submitted by
  six bodies
• extensive evaluation process
• September 2007 PricewaterhouseCoopers Australia
  appointed
• Report delivered in March 2008

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PWC Report - Significance

• Rare comprehensive stocktake
• almost stands alone in international studies in
  terms of comprehensiveness, methodological rigour
  and attempt to capture intangible elements
• Provides a benchmark for ongoing policy analysis
  and operational development

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Value Added by the ACC Scheme

• Economic value
• Improved workforce participation
• Legal cost savings
• Improved health outcomes
• Promotion of healthy lifestyle and reduced
  sporting participation costs
• Social value
• Greatly increased equity in the distribution of
  resources
• Improved social inclusion and cohesion
• Improved quality of life
• Partial safeguard against poverty
• Support of volunteer-related activities

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Economic returns of the ACC scheme

• 1. Improved workplace participation

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Economic returns of the ACC scheme

• 2. Legal cost savings
• Pre ACC legal and insurance costs about 40 of
  total
• Later studies confirm this ratio
• Australian workers compensation schemes have
  legal costs as of total costs ranging from 2
  to 22
• Cf ACC legal costs 0.6 of total compensation
  expenditure
• Recent Australian evidence shows that legal costs
  borne by claimants has increased significantly
• Much lower level of disputation in ACC than
  non-ACC schemes
• Single scheme with common entitlements
• Broad coverage
  
  

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Economic returns of the ACC scheme

• 3. Improved health outcomes
• Impact of periodic payments versus lump sums
• Rapid benefit payments
• Impact of removal of fault
• Treatment injury versus medical malpractice
• Benefits of non-adversarial systems for long-term
  outcomes

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Economic returns of the ACC scheme

• 4. Promotion of a healthy lifestyle and reduced
  sporting participation costs
• Removal of barriers to sporting and leisure
  activities compared to other schemes
• New Zealand has one of the lowest rates of
  physical activity world-wide
• Support for tourism industry
• Tourism directly 18.6 billion or 8.9 of total
  GDP and indirectly another 5.9 billion.

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Social returns of the ACC scheme

• 1. Greatly improved equity in the distribution
  of resources
• In the absence of ACC only c 30 of current ACC
  claimants likely to receive benefits beyond
  public health and social welfare
• Lower socio-economic and other disadvantaged
  groups fare disproportionately badly under
  non-ACC schemes
• Distributive injustice under tort schemes

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Social returns of the ACC scheme

• 2. Improved social inclusion and cohesion
• Levels of trust

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Social returns of the ACC scheme

• 2. Improved social inclusion and cohesion
• Inequality measures within society

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Social returns of the ACC scheme

• 3. Improved quality of life
• ACC scheme contributes to both objective and
  subjective determinants of quality of life
• 4. Partial safeguard against poverty
• positive impact of ACC on poverty alleviation
• 5. Support of volunteer related activities
• removal of liability insurance burden that exists
  in most other systems

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Messages from the consultation

• ACC fosters and facilitates the core values of
  New Zealand society
• These values include the way in which society
  looks after individual members
• ACC support of these values stem from
  comprehensive coverage, irrespective of fault,
  and from improved rehabilitation aspects of the
  ACC scheme

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What are comparator schemes to ACC

• Work related injuries
• Some Canadian and Australian workers compensation
  schemes
• Motor vehicle injuries
• only Quebec and Victoria
• Treatment injuries
• Scandinavia (partial)
• Earners/ non earners accounts
• non-work coverage for earners Switzerland and
  Netherlands
• non-earners ACC is unique

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Work injuries

• Coverage
• Fault, no-fault, blended
• Who is covered
• Travel and breaks
• Types of injuries

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Work injuries

• Lump sum versus periodic payments

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Work injuries

• Levy/ premium rates

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Work injuries

• Levy/ premium rates

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Work injuries

• Administration costs

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General Differences by type of underwriting

• Pure private underwriting schemes
• have relatively short financial tails due to
  the use of lump sum settlements
• do not feature vocational rehabilitation as a
  claimant entitlement, but rather a tool at the
  option of the employer or insurer
• Schemes which feature high levels of periodic
  payment and provide a wide spectrum of defined
  vocational rehabilitation entitlements are all
  delivered through government monopolies
  

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PWC Conclusions on Delivery Models

• 1. ACC under its current implementation
  structure performs as well or better than most
  other schemes we can observe around the world
• 2. Detailed comparative studies of schemes in
  North America and Australasia have failed to
  establish any evidence which would suggest
  specific changes to ACCs structural
  implementation.

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PWC Conclusions on Delivery Models

• 3. From our experience in other schemes, we can
  project that transferring scheme coverage and
  underwriting to private insurers would require
  effective regulation of the delivery of the
  social objectives articulated by the Woodhouse
  Principles because
• Full coverage availability would need to be
  ensured, perhaps through some form of price
  regulation and/or residual insurance mechanism
• Regulation would be required to ensure
  appropriate and sound decision making with
  respect to the assessment of ongoing claimant
  eligibility and ongoing entitlement
• Regulation would be required to ensure the full
  and proper provision of vocational rehabilitation
  services
• Appropriate arrangements would be required for
  the management of the long-term needs of serious
  injury claimants

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PWC Conclusions on Delivery Models

• 4. Comparative evidence from other jurisdictions
  suggest that administration cost levels under
  private underwriting would be likely to rise to
  some extent.
• 5. It is unclear how the private insurance market
  would cope with coverage of other accounts beyond
  the work account, as there are no examples of
  private underwriting for closely comparable
  injury schemes.
• 6. ACC performance across a range of high-level
  indicators is better than that of Australian
  schemes.

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PWC Conclusions on Delivery Models

• 7. Although contracting out of claims management
  may potentially offer some conceptual advantages,
  there is no clear evidence that this approach
  would improve delivery of the ACC employers
  account.

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PWC Conclusions on Employers Account

• 1. ACC under its current structure performs
  comparatively well in terms of overall cost,
  administrative cost and return to work measures,
  with relatively high benefit levels
• 2. Comparisons elsewhere indicate that privately
  underwritten workers compensation schemes as a
  group have higher levels of administrative cost
  on average than government monopoly schemes,
  likely driven by the need to cover profit margins
  and marketing expenses. The especially long
  financial tail of the ACC would be expected to
  further increase any required level of private
  underwriting profit margins.

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PWC Conclusions on Employers Account

• 3. Comparisons elsewhere fail to establish any
  systematic difference in remaining overall scheme
  cost levels between government monopoly and
  private underwriting schemes.
• 4. Workers compensation schemes which are
  closely comparable to ACC are all delivered
  through government monopolies, whereas privately
  underwritten schemes generally have a stronger
  focus on lump sum financial settlements.
• 5. A change to private underwriting of the ACC
  employers account would require significant
  operational regulation in order to ensure
  delivery against the Woodhouse Principles.

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PWC Conclusions on Employers Account

• 6. These observations lead us to form a
  moderately strong view that a government monopoly
  is the best observable mechanism for implementing
  the ACC employers account. However, although
  government underwriting seems the best fit based
  on available information, the schemes own
  privatisation experience in 1999 shows private
  underwriting to be at least mechanically viable,
  subject to sound regulation designed around the
  social objectives of the Woodhouse Principles.

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Areas for improvement

• Need for a major structural change in the
  approach to safety and prevention
• Rehabilitation strategy and case management
• Development opportunities for claimants with
  permanent partial incapacity
• Management of serious injury
• Financing of GP services
• Experience rating
• Monitoring and evaluation