Questions and Answers

Transcription

1 Questions and Answers

2 Question & Answers 1. Has the changing economic environment been the principle cause of ACC s financial problems? The current economic environment has affected ACC s investment returns and the assumptions used in calculating ACC s outstanding claims liability. However, the underlying driver has been substantial increases in ACC s costs. The very good returns and high discount rates in recent years masked the underlying problem of the increasing cost of claims. The recession has brought this issue into sharp focus. The underlying issue is that annual claim costs have increased by 12% per annum. Change in annual cash claim expenditure since the 1994/95 financial year Expenditure on claims ($millions) 3,500 3,000 2,500 2,000 1,500 1, ACC's annual expenditure on claims Excludes private insurers Forecast Year ending 30 June Year ending 30 June Valuation of ACC s outstanding claim liability Outstanding claim liabilities (Central Estimate) ($millions) Discount rate 2009 est 21, % , % , % , % , % , % , % , % , % , % , % , % , % , % , %

3 2. What changes have caused the large cost increases in the ACC Scheme? Significant changes have been made to entitlements under the ACC scheme over the past decade that have added to the scheme costs: I. Physiotherapy Changes were made to physiotherapy services in 2004 to provide for treatment at no cost to ACC clients, to achieve early rehabilitation, and to improve compliance with the International Labour Organisation Convention. At a budgeted annual cost of $8.9 million, cost growth has been nine times this figure. Physiotherapy costs have since grown from $58 million in 2003/04 to a projected $139 million in 2008/09.This is projected to increase to $225 million by 2011/12. ACC has advised that there has been no evidence of better rehabilitation outcomes and the increase in physiotherapy services have occurred disproportionately in higher socio-economic areas. ACC has also advised that the current purchasing arrangements for physiotherapy is untenable. Proposals for change are being developed. II. Treatment Injury The Government in 2005 amended the ACC law to extend the medical misadventure provisions of the 1974 Act to a more generous treatment injury approach. Cabinet was advised that the change would increase scheme costs by $8.7 million. The medical misadventure costs up until July 2005 were steady at $42 million a year, but have nearly doubled to an expected $82 million a year in 2008/09 under the revised treatment injury amendments. III Amendments The Government in 2007 introduced an amendment to the Act. This included extending the scheme in 13 areas with an estimated additional cost of $75 million per year. These changes came into effect last year and there has been insufficient time to assess whether cost increases will be above those estimates. Changes in order of significance include: Cover for mental injury suffered arising from workplace traumatic events Weekly compensation for seasonal and casual employees Changes to cover provisions for work-related gradual process, disease or infection Workers who are injured between jobs People receiving minimum weekly compensation Loss of potential earnings compensation for young people Abatement during return to work Discretion to extend the three-year limit on vocational rehabilitation Removal of upper age limit on vocational rehabilitation Abatement of leave payouts for weekly compensation, when leave payment is made on termination Extension of earner status to self-employed Repeal of disentitlements for wilfully self-inflicted injury Extending eligibility for lump sum entitlements under Work-related Gradual Process Disease or Infection

4 3. What advice has the Minister received on the increased levies as a result of the 31 December 2008 report by Price Waterhouse Coopers (PWC)? The estimates based on the most recent PWC valuation, show that levies will rise in the next five years if no policy or legislative action is taken. 2008/ / /14 % increase 08/09-13/14 Work/RCA composite $ $ $ % Earners $ $ $ % Motor vehicle $255 1 $ $ % 1. Current rates 2. Rates announced for 01/04/09 3. Advised by DoL based on full funding and the latest valuation (Government not contemplating) 4. Advised by ACC on five year projections, current law and policy and latest valuations Impact of levy increases on average New Zealand household (current rates & forecast for 2013/14 Average household (2 cars) Average employee (1 car) Average income $67,028 $48,000 08/09 Earners levy ($1.40) $938 $864 08/09 MV levy ($255) $510 $255 Total 2008/09 levies $1448 $ /14 Earners levy ($4.00) $2681 $ /14 MV levy ($585) $1170 $585 Total 2013/14 levies $3851 $2505 Levy increase 2008/ /14 $2403 annual $46 per week $1386 annual $27 per week

5 4. Will extending the full funding date resolve the significant levy increases? ACC has residual account liabilities from pre-1999 from when the scheme was run on a pay-as-you-go basis. The current law requires that the scheme be fully funded by 2014, meaning a component of levies is needed to fund this historic liability. It is possible to spread this historic liability over a greater number of years by amending the law. This is under active consideration with a board recommendation that it be pushed out to If the full funding target was set at 2019, the reductions in levy rates are projected to be: Residual Claims Account, from an expected rate of 68 cents to 36 cents per $100 of liable earnings Earners Account Residual Levy, from an expected 14 cents to 6 cents per $100 liable earnings Motor Vehicle Account Residual Levy, from $ to $96.64 per vehicle. Note: the small residual component of the Earners Account means this change has a relatively small impact on the levy increases required to fund the scheme. 5. What effect has the global recession had on ACC s investments? ACC has a significant investment fund of $10 billion that like all such funds has been affected by the global downturn. As at 20 February, ACC reserves were $ billion, had lost $277 million in February, and was $305 million under budget in terms of investment returns for 2008/09. Net assets at 30 June 2008 Year ending 30 June Net assets ($m) , , , , , , , , , ,500