ACC s growing liability 3. Claims costs rising unsustainably 5. Extending full funding date from 2014 to

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1 CONTEXT ACC s growing liability 3 Claims costs rising unsustainably 5 PROPOSED LEGISLATIVE AMENDMENTS Extending full funding date from 2014 to Reversing 2008 income compensation extensions covering casuals, parttimers, non-earners and abatements for holiday pay 9 Reverse Vocational Rehabilitation Changes 13 6% hearing loss threshold 14 Reversing entitlements for wilfully self-inflicted injury and suicide 15 Strengthening disentitlements for criminals 17 Enabling safety incentives for employers and vehicles 19 Allowing petrol levy to fund residual claims 21 Financial reporting 23 Other amendments 25 PROPOSED REGULATORY AMENDMENTS Elective surgery 27 Home and community support services 28 Cost of treatment regulations 29 Provider terms and conditions for the payment of treatment costs under regulations 31 Housing and vehicle modifications 33 1

2 PROPOSALS IN LEVY CONSULATION DOCUMENTS Mopeds and motorcycle levy rates 35 Changes to goods and services vehicle levy rates 38 OPERATIONAL MEASURES Summary of approach 40 Physiotherapy 42 Sensitive Claims Unit Clinical Project 44 High-Tech Imaging (HTI) 45 Elective surgery 47 Weekly compensation Giltrap 49 Recover Independence Service reduction in long-term claims 50 Hearing Loss Error! Bookmark not defined. Managing long-term claims partnering 53 2

3 ACC s growing liability Key Points ACC s liabilities are now almost $24 billion, $13 billion more than its assets That is unsustainable Urgent action is required to address this situation What is the claims liability? ACC s claims liability is the total amount it needs to have in assets or investments now, in order to meet the future costs of claims on its books. Put simply, when someone is injured, ACC needs to put aside enough money now to pay for all the treatment and rehabilitation they need, for as long as they will need it. This means our children won t have to find the money in the future to pay for injuries that occur now. In most cases, it only relates to moderate to serious injuries, where help will be needed for more than one year. ACC does this by estimating how much help and support will be needed and for how long. Factors such as what inflation and interest rates might be in the future, together with historical trends in the time it takes to rehabilitate people and changes in medical costs are used. Because of worsening trends over the last 5 years in costs and the rehabilitation performance (known as the claims experience ) and the global financial crisis, in recent years and in this year in particular, the estimate of ACC s claims liability has gone up significantly. There will continue to be increases in the liability anyway, because the ACC Scheme has only been around for 30 years and someone who received a serious injury 30 years ago may still be expected to live for another 30 years or more. These expected increases will continue until the number of people receiving ACC equals the number of people exiting ACC. Excluding these expected increases, the key reasons for the increase in the liability as at 30 June 2009 are: worsening claims experience allowances for changes in legislation and regulations revised estimates of economic factors 3

4 How much did it change in 2008/09? The table below breaks out the components of the change during 2008/09. Five year trend in the claims liability 4

5 Claims costs rising unsustainably Key Points Claim costs have been rising unsustainably - faster than inflation or population growth Several initiatives are under way to control this Need to live within our means How much have costs been rising? The table below provides some examples of cost increases over the last five years. 2004/ /09 Increase $ Increase % Physiotherapy $73 m $144 m $71 m 97% Elective surgery $128 m $240 m $112 m 87% X-rays/MRI/CT scans $44 m $97 m $53 m 120% Counselling $16 m $20 m $4 m 25% Public hospital costs $289 m $380 m $91 m 31% Personal support $159 m $285 m $126 m 79% Income replacement $655 m $966 m $311 m 47% Hearing loss assessment and aids and appliances $44 m $59 m $17 m 37% Suicides & self-inflicted $2 m $14 m $12 m 590% The increased costs are due to a number of factors, but of particular concern are increases due to: 1. falling rehabilitation performance, resulting in people having more time off work than before 2. rising healthcare costs, e.g. elective surgery, high-tech imaging and physiotherapy 3. rising personal support costs, e.g. home help or housing modifications 5

6 Reducing unnecessary time off work Keeping people at work or getting them back to work as soon as possible after an injury has been proven by international research to significantly improve their recovery. Once people become dislocated from their workplace it can be harder for them to return or to find alternative work. ACC has been working with GPs in Taupo and with other practitioners nationwide who specialise in helping people return-to-work. This work has introduced two new programmes: and Stay at work. Both of these programmes help injured people to stay connected with their workplace by brokering arrangements between the injured worker, their employer and their treatment provider. In addition, ACC has reviewed its approach to service delivery and introduced 3 key changes which are already starting to show significant improvements in reducing unnecessary time off work: upfront triage of complex claims improved processes at the front end, and a new service for long-term claims management. Controlling healthcare costs How much it costs to treat and rehabilitate injured people has been increasing at rates which far outstrip inflation and are unsustainable. Wage and price inflation in the health sector, supply pressures and increases in the number and the type of services provided have all contributed to increased costs. So ACC has introduced new arrangements for how it purchases health and rehabilitation services, focused on outcomes and value for money, and a new way of monitoring the performance of providers. Already progress is being made in areas like physiotherapy, high-tech imaging and elective surgery. Controlling personal support costs The growth in personal support costs has occurred mainly among serious injury claims. ACC has therefore introduced a specialist Serious Injury Service. This group is tasked with stemming the nearly 30% year-on-year growth in costs while still providing the services our clients need. Although there has been early progress more work is needed, for example to define more clearly the boundaries between what would normally be an individual s responsibility and what ACC should fund, e.g. how often should ACC fund the modification of a home for a client or whether ACC should pay carers to simply sleep over when other family members are present? 6

7 Extending full funding date from 2014 to 2019 Key Points Improves ongoing stability of residual claims levies No more separate Residual Claims Account (folded into Work Account) What are residual claims liabilities and why do we have levies for residual claims? Residual claims liabilities relate to those claims incurred before 1 July Prior to 1 July 1999 claims from the Work, Motor Vehicle, and Earners Accounts were funded on a pay as you go basis (pays only for costs incurred in a particular year but not for the on-going costs in future years). What will the Bill do? extends the full-funding date for residual claims liabilities from 2014 to 2019 sets the total amount of residual claims liabilities at the amount estimated at 30 June 2009 and folds the Residual Claims Account into the Work Account and the residual liabilities of the Motor Vehicle and Earners Accounts into the main accounts This amendment will improve flexibility and provide greater stability in levy rates. Why is legislative change needed to change the full funding date for residual claims? In 1998 Cabinet decided that pre-1999 claims should be paid off over a 15 year period. When this decision was made, it was considered that 15 years was a good balance between reducing intergenerational inequity (i.e. those who incur the cost paying the cost rather then leaving it to future generations) and having an end-date for levy collection and allowing levies to be kept down to an acceptable level. Increases in the valuation of liabilities over recent years have meant that levies for residual claims have had to increase. 7

8 The fully-funded date is set in legislation and needs to be changed in order to reduce pressure on levy-payers. What else does this amendment do? There are two other problems which the proposed legislation seeks to fix by providing for the residual claims liabilities amount to be fixed as at 30 June 2009 and for residual liabilities to be included in the liabilities of the main accounts: 1. Volatility in residual levy rates leading up to the fully-funded date There is likely to be major instability in levy rates leading up to the full-funding date. This is because the estimate of the funding target varies from year to year. A relatively small increase in liabilities just before the full-funding date is reached could require massive levy increases. 2. An excess or deficiency of funding - The calculation of liabilities in the ACC scheme is an estimate and will not be the same as the actual liabilities. For this reason ACC would need some way of raising funds to make up for any underfunding of the residual accounts or a method of paying back funds if the accounts are overfunded after What have residual rates been in the past? Residual Claims Account (per $100 earnings) Earners Account (per $100 earnings) Motor Vehicle (per Vehicle) 1998/99 $0.65 $ /00 $0.67 $0.17 $ /01 $0.40 $0.20 $ /02 $0.35 $0.05 $ /03 $0.35 $0.03 $ /04 $0.31 $0.02 $ /05 $0.30 $0.00 $ /06 $ $ /07 $ $ /08 $ $ /09 $ $ /10 $0.56 $0.079 $

9 Reversing 2008 income compensation extensions covering casuals, part-timers, non-earners and abatements for holiday pay Changing the way weekly compensation for casual and part-time workers is calculated Key Points Weekly compensation for non-permanent workers will now be calculated by dividing the previous 52 weeks of earnings by 52, where they are incapacitated for more than 5 weeks. ACC pays compensation for loss of potential earnings to people who have not yet had the opportunity to earn and are incapacitated either before turning 18, or while in full-time study from the age of 18. The Bill reduces the amount of this compensation from 100% to 80% of adult minimum weekly earnings. LoPE compensation for those already receiving it will remain at the current rate until the amended rate reaches the amount of the current LoPE rate through increases in the minimum wage. From that point the current claimants rate will increase in line with the amended rate. Holiday pay will be treated as earnings for a period equivalent to the amount of leave paid and will be liable to abatement. What is changing? The long-term weekly compensation calculation for non-permanent workers (ie, casual or seasonal workers) is being amended to reflect the likely earnings of the worker over a 12 month period by dividing the previous 52 weeks of earnings by 52. There will also be an assessment to determine whether an employee is in permanent or non-permanent employment. Why is it changing? It is changing because workers in non-permanent employment may receive more in weekly compensation than they would have earned (and paid their levies on) over the same period. Weekly compensation is the largest component of claims costs, 9

10 and at a time in which the scheme is under pressure providing more in weekly compensation than a claimant may have earned is unsustainable. Overall the current calculation is not equitable and also increases costs to levy payers, especially as levy payers in casual work are likely to receive higher weekly compensation from ACC than permanent employees for the same amount of levy paid. How much will it save? This proposal is estimated to save the levy payer around $60 million fully-funded over the next 4 years. Who will this affect? This change will affect any employee who is expected to have an interrupted employment history or a break in earnings in any one year. What is the existing provision? The current employee calculation for weekly compensation is determined as a shortterm and a long-term rate. The short-term rate is calculated by taking the claimant s earnings over the previous four weeks prior to the incapacity and dividing it by the number of weeks or part weeks worked. The calculation for long-term (more than four weeks) weekly compensation is calculated by dividing the previous 52 weeks of earnings by the actual weeks worked in that period. For example: Before the change: An employee had weekly earnings of $800 over a period of 40 weeks. Currently, the weekly compensation payment after four weeks is: 80% of 40x$800/40 = $640 per week. And after the change the payment would be; 80% of 40x$800/52= $492 per week Loss of potential earnings compensation What does loss of potential earnings mean? Loss of potential earnings is the term used to describe the situation of claimants who are injured before they are able to work. Potential earners are claimants who suffered a personal injury either before turning 18 or while in full-time study or training that began before they turned 18 and continued uninterrupted until that injury occurred. Compensation is paid because these claimants would have been able to work if they had not become incapacitated from an injury. How are these claimants compensated at present? To qualify for weekly compensation, LoPE claimants must not be in full-time study, must be over 18, and not have earning in excess of the minimum weekly earnings. The claimant must also have been incapacitated for 6 months or more. These claimants receive weekly compensation that is 100% of the minimum weekly 10

11 earnings (currently $500 per week). LoPE weekly compensation was increased to this amount from 80% of minimum weekly earnings in How are minimum weekly earnings defined? Minimum weekly earnings are defined in the Act. At 1 July each year, these earnings are the greater of: the minimum adult weekly wage, or 125% of the single adult s Invalid s Benefit. At present the minimum adult weekly wage is higher than the Invalid s Benefit. What change is proposed? The amendment will reduce the amount paid to LoPE claimants to 80% of minimum weekly earnings (currently $400 per week). This is the sum paid to other low earners under the Act. Who will the change affect? Less than 300 claimants receive this type of compensation. All are aged under 35, and 67% have serious brain or spinal injuries that mean they are likely to remain on weekly compensation for the rest of their lives. In addition to weekly compensation, these claimants may receive social rehabilitation (including attendant care, and supply of aids and appliances such as wheelchairs), a lump sum or an independence allowance, vocational rehabilitation if it is possible for them to work, and ongoing treatment such as elective surgery if required. People already on LoPE compensation will remain on their current rate until the new rate reaches the amount of the current LoPE rate. From that time the current claimants rate will increase in line with the new rate. How does LoPE compensation compare to an Invalid s Benefit? To receive an Invalid s Benefit a person needs to be severely limited in their ability to work on a permanent basis. The Invalid s Benefit for a single person aged over 18 is $ gross. Invalid s Benefit recipients may also receive assistance with attendant care and aids and appliances, although not at as high a level as ACC claimants. There is no lump sum entitlement under the Invalid s Benefit, but a person on the benefit may be eligible for a disability allowance of $55.88 per week, which is means-tested. Abatement of holiday pay What was the extension made in 2008? Before the 2008 extension, ACC abated claimant s weekly compensation over the period that they were paid leave entitlements after their employment ended. In 2008 it was changed so that ACC could not abate weekly compensation if annual leave was paid on termination but while weekly compensation was being made. 11

12 What is the change? This bill proposes that holiday pay is treated as earnings for a period equivalent to the amount of leave paid and be liable to abatement. Why is it changing? Weekly compensation is the largest component of claims costs, and at a time in which the scheme is under pressure providing more in weekly compensation than a claimant may have earned is unsustainable. 12

13 Reverse Vocational Rehabilitation Changes Key Points ACC provides vocational rehabilitation to injured claimants in order to get them back to work or ready for work. Prior to 2001 claimants were deemed vocationally rehabilitated if it could be shown that they could work for 30 or more hours a week. In 2001, this (full time) threshold was changed to 35 hours or more a week. The Bill reverses the 2001 amendment, reducing the full time threshold to align with that used by Statistics New Zealand, the Ministry of Social Development and the Inland Revenue. The Bill also makes it optional rather than mandatory for occupational assessors to consider a claimant s pre-incapacity earnings when undertaking initial and vocational independence assessments. This amendment will continue to help inform the occupational assessment process. What is vocational rehabilitation? Vocational rehabilitation is usually provided as a package of services to return a claimant to work or get them ready for work. It is well known that, in most cases, the longer a person stays on the scheme, the more difficult it is for them to return back to the workforce. Vocational rehabilitation must include an initial occupational assessment, which identifies the types of work that may be suitable for a claimant, and an initial medical assessment that assesses whether or not those types of work are medically sustainable and if any further rehabilitation is required. A claimant s previous training, experience, qualifications, and pre-injury earnings are taken into account during vocational rehabilitation assessments. Vocational rehabilitation can include: changes to the workplace to enable claimants to stay at work, graduated return to work programmes, and training. 13

14 6% hearing loss threshold Key Points ACC covers hearing loss caused by an accident, treatment injury or noise exposure at work The costs of covering hearing loss have been increasing, as claims volumes are rising at 12-15% a year and this is placing considerable pressure on levies. Introducing a threshold for hearing loss of 6% is estimated to save $3-4 million annually. What kind of hearing loss does ACC cover? ACC covers hearing loss if it is caused by an accident, treatment injury, or noise exposure at work. Any level of hearing loss is enough to gain cover under current legislation. Why make changes to hearing loss? Hearing loss claims numbers are increasing rapidly (11% per annum). ACC annual expenditure on hearing loss has risen from $44 million in 2004/05 to $59 million in 2008/09, and is projected to rise to $65 million in 2009/10. While this is due in part to an increasing awareness of ACC cover, the main factor is growing claim numbers as the population ages. More older people will be lodging claims and seeking funding assistance as their injury-related hearing loss is worsened by agerelated changes. Implementing a cover threshold of 6% for new hearing loss claims has been estimated to save $3-4 million per year. 6% hearing loss means a person has a hearing disability of 6%, compared with someone who has no hearing loss and therefore no hearing disability. While ACC currently provides hearing aids to people for hearing loss of less than 6%, evidence suggests that people with very low levels of hearing loss do not benefit from hearing aids. The proposed change to cover for hearing loss is consistent with workers compensation schemes in some Australian jurisdictions. 14

15 Proposed legislative changes Reversing entitlements for wilfully self-inflicted injury and suicide Key Points ACC compensation is not available for people suffering an illness, including a terminal illness, so it is inequitable to provide compensation for those who selfharm because of mental illness. Proposed changes to legislation would mean that ACC no longer provides entitlements (other than treatment) for wilful self-inflicted injury, including suicide, except in limited circumstances. What is changing? Proposed changes to legislation would mean that ACC no longer provides entitlements (other than treatment) for wilful self-inflicted injury, including suicide. The only exceptions will be where the injury or suicide resulted from a mental injury covered by the Act; that is: a mental injury caused by a physical injury or sexual abuse, or a work-related mental injury. In other circumstances claimants will become ineligible for weekly compensation, survivors grant, funeral grant, vocational rehabilitation, lump sum payments and child care. Why is it changing? Providing entitlements for self-inflicted injuries is inconsistent with the principles of the ACC scheme, and expands the scheme beyond what was originally intended. The ACC Scheme should not provide full entitlements to claimants whose injuries or suicides result from a mental illness that is not covered by the Scheme. ACC compensation is not available for people suffering an illness, including terminal illness, so it is inequitable to provide compensation for those who self-harm. People who wilfully self-inflict injuries or commit suicide generally do so because of an 15

16 underlying mental illness. There are other services to assist people with these types of illness. Providing full entitlements for wilfully self-inflicted injuries could also provide perverse incentives, for example, the terminally ill person who commits suicide (as ACC entitlements are more beneficial) or the freezing worker who deliberately injures themselves to get entitlements during the off season. How much will it save? Because of the changes to ACC entitlements for wilfully self-inflicted injury and suicide over the years, costs have increased rapidly from $2 million in 2004/05 to $14 million in 2008/09. It is difficult to determine the impact of the recent 2008 amendments because only 200 claims were made for suicide, although the Ministry of Health report that 500 people commit suicide each year. Fully funded savings by 2015 have been estimated at $33 million. What about existing claimants? Existing claimants, including dependants of people who have committed suicide, will not be affected by the proposed change. What has been covered in the past? Before 2001 people who committed suicide or wilfully injured themselves were covered by ACC but did not receive entitlements except for treatment; only those who suffered from a mental illness as a result of a physical injury or those who suffered a mental injury caused by certain criminal acts received entitlements other than treatment. In 2001 the test to receive entitlements was changed to allow all people who committed suicide or wilfully injured themselves as a result of a mental injury to receive ACC entitlements other than treatment. In 2008 disentitlement was removed so that all people who commit suicide or wilfully injure themselves can receive full ACC entitlements. 16

17 Proposed legislative changes Strengthening disentitlements for criminals Key Points Proposed legislation will mean that those injured while committing a serious crime and subsequently imprisoned will not receive full ACC entitlements. What change is being proposed? It is unfair that people who are injured while they are committing a serious crime receive ACC entitlements. The Bill contains a more restrictive provision where those receiving ACC, who meet specified criteria, will be automatically disentitled from all entitlements other than treatment and elective surgery which is necessary to restore function to allow the client to return to work (e.g. repairing eye socket damage so the client can see). The criteria for automatic disentitlement are: the person was injured while committing the crime for which he or she was imprisoned; and the person has cover under ACC for this injury; and the crime is punishable with a sentence of a maximum of two years or more imprisonment. Under the proposed amendment, the Minister for ACC will be able to exercise discretion in exceptional circumstances to allow the Corporation to provide additional ACC entitlements. Do people injured while committing a crime currently receive entitlements from ACC? While in prison, injured clients receive medical treatment and rehabilitation if necessary, but no other entitlements such as weekly compensation or lump sum payments. 17

18 When the person leaves prison they can become eligible for financial assistance but ACC can apply to the District Court to deny this. The test is whether it would be repugnant to justice for the person to receive financial help from ACC. In determining this, the Court must consider a number of criteria, including the gravity of the offence, the nature of the entitlement and the strength of the person s need for the entitlement. Why do we need to change the law? The existing provision has a very high threshold, such that only 12 cases have gone to Court in 25 years, of which 9 have been successful. There has not been one case in the last 10 years that has resulted in disentitlement. The types of offences that usually lead to disentitlement are drink driving accidents causing serious injury/death, and other serious offences (eg aggravated burglary). In the 90 s the District Court often allowed for entitlements such as medical treatment and transport assistance to be provided but no other rehabilitation or financial compensation. During this period there were two key cases where a more generous approach was applied: Findlay (1997) the judge ordered that weekly compensation was to be paid at 60% rather than 80% of pre-incapacity earnings, despite the client being charged with manslaughter as a result of a drink drinking accident. Wharewaka (1999) this case involved a client who was convicted of manslaughter and drunk driving. The Court considered that disentitlement was not appropriate as it was not clear that the provision of entitlements would be repugnant to justice. The Wharewaka ruling led to ACC not applying to the District Court in two careless driving cases (in 2001 and 2002) where the provision of entitlements may have been repugnant to justice. There were two other instances during this period where ACC chose not to apply to the District Court in one case there were limited entitlements payable, and in the other the client was likely to remain in prison for some time and ACC decided to review its decision if a request for entitlements was made after the client was released. ACC did proceed to the District Court in 2008 to seek disentitlement for a client who wanted a lump sum following imprisonment for dangerous driving causing injury (Keach). In this instance, the Court awarded the lump sum as the need for the entitlement outweighed the gravity of his offence. 18

19 Enabling safety incentives for employers and vehicles Key Points Allows the Government to create regulations to put in place systems for experience/risk rating or risk sharing Policy work is still underway to determine the most effective systems to put in place. This work will be steered by the findings of the Stocktake of ACC Accounts New systems in the Work Account could include no-claim bonuses, higher or lower levies based on an individual levy payer s claims experience and business size, and higher claim thresholds New systems in the Motor Vehicle Account could include discounts for vehicles with high safety ratings. Why introduce experience rating and risk sharing in the Work Account and risk sharing in the Motor Vehicle Account? It will mean that those who cost the scheme more, or are likely to cost the scheme more, could be required to pay more in levies and vice versa. It will allow for provision of better financial incentives to improve workplace and road safety and, for the Work Account, encourage good rehabilitation after a personal injury. It will signal to the public the Government s commitment to linking safety behaviour to levy payments. What is experience rating? Employers with a worse than average claim record pay a higher levy, while employers with a better record pay a lower levy. The size of the employer would affect the amount of experience rating applied to an employer s levy. What is risk sharing? Individual employers and ACC share the cost of all or some components of the workplace injury cover, e.g., employers paying the first month s weekly compensation in return for a discount on levies. 19

20 What is risk rating? Risk rating will allow ACC to charge higher or lower levies to different groups of motor vehicles or vehicle owners to reflect increased or decreased costs that they impose on the Scheme. Will this reduce levies? Some people will pay higher levy rates and some will pay lower levy rates according to, for example, their individual claims record, their willingness to share in the risk with ACC, or the risk that they pose to the scheme. The objectives of these systems are to provide incentives for improved injury prevention and injury management, in order to reduce average levy rates. 20

21 Allowing petrol levy to fund residual claims Key Points At present funding for residual (pre-1999) Motor Vehicle Account claims can only be funded from the levy on licence fees (while post-1999 claims can be funded from a levy on either or both licence fees and petrol). A one-cent increase per litre in petrol levy would decrease the licence fee for petrol vehicles by approximately $12 per vehicle. The amendment would allow the Minister to decide whether to fund residual claims from the levy on petrol or the levy on licence fee or some combination of the two. What are residual claims liabilities and why do we have levies for residual claims? Residual claims liabilities relate to those claims incurred before 1 July Prior to 1 July 1999 claims from the Work, Motor Vehicle, and Earners Accounts were funded on a pay-as-you-go basis (pays only for costs incurred in a particular year but not for the on-going costs in future years). Why change? The change provides greater flexibility for Government decisions around the best source of funding for the Motor Vehicle Account Residual levy. The proposal allows the Government to spread the costs and help reduce rises in licence fees. Spreading the costs by enabling the petrol levy to be used to fund the residual levy will have the effect of reducing the size of future rises in licence fees. This will help car owners who have difficulty paying the licence fee as a lump sum. Why change now? Motor vehicle injury residual costs have risen significantly, with the average Motor Vehicle levy per vehicle for residual claims rising from $49.74 per vehicle in 2000/01 to $ in 2009/10. 21

22 How will this amendment work with the changes to residual claims funding? The amendment to fold the residual liabilities of the Motor Vehicle Account into the main Motor Vehicle Account enables the residual liabilities of the Motor Vehicle Account to be funded either from licence fee or petrol levies. Increasing the price of petrol If more of the Motor Vehicle Account Residual levy is funded from the levy on petrol, then the price of petrol will rise. Using the 2008/09 levy assumptions, a one-cent increase in petrol levy would decrease the licence fee for petrol vehicles by $12. The decision on how much levy would be applied to petrol and how much on the licence fee would be made by Cabinet during consideration of the Motor Vehicle levy. 22

23 Financial reporting Key Points Requirement for ACC to provide annual financial condition report Minister must table report in Parliament Response to findings of Ministerial Inquiry into Disclosure of Funding Shortfall in ACC Non-Earners Account Why is this additional reporting required? The Government is concerned that ACC s actuarial reporting has been inadequate and that material risks have not been identified early enough. The report will provide greater financial transparency of ACC operations and is consistent with proposed fiscal responsibility legislation for the insurance industry. What triggered these legislative changes to ACC s financial reporting requirements? The Government instigated a Ministerial Inquiry into the $300 million funding shortfall in the Non-Earners Account in The report found inadequacies in financial reporting systems, and the changes are intended to bring problems to attention earlier. What would the report cover? The report would provide impartial advice in relation to ACC s operation, financial condition, and liabilities and discuss the implications of the material risks identified. Such reports usually have information on: Overall scheme overview including recent experience An insurance liability valuation The adequacy of past estimates of insurance liabilities Asset and liability management Capital management and capital adequacy Risk management 23

24 Who will be responsible for providing the report The ACC Board will be responsible for providing the report to the Minister for ACC and will decide what the report contains to be able to identify material risks to ACC. 24

25 Other amendments Key Points: Improves flexibility and access to Coverplus Extra Removes Ministerial Advisory Panels Improves liaison between ACC and government departments Changes vocational rehabilitation and vocational independence requirements Technical amendment improving flexibility Cover-plus Extra allows self-employed people, and people with earnings as a shareholder employee, to purchase an agreed level of weekly compensation from ACC. While all self-employed people are eligible to apply for Cover-Plus Extra, shareholder employees are only able to apply if they have a record of earnings as a shareholder employee. The Bill makes a technical amendment to allow ACC to enter into an agreement to supply an agreed level of weekly compensation to shareholder employees who are not able to demonstrate taxable earnings as a shareholder employee. Ministerial Advisory Panels removed The IPRC Act provides for two Ministerial Advisory Panels to advise on work-related gradual process disease or infection issues and on the use and collection of injury statistics. The Bill removes the requirement for these panels as there is no longer a need for these panels to be in statute. Amendments facilitating ACC to work more closely with other government agencies The Bill allows Inland Revenue to provide limited information to ACC upon request to assist claimants and reduce compliance costs. These amendments apply on and from 1 April A consequential amendment to the Tax Administration Act 1994 is also required. 25

26 ACC is presently unable to undertake any service not specified in the Act except on a commercial basis via one of its subsidiaries. The Bill enables ACC to provide non- ACC related government-directed services or entitlements to ACC claimants without charging a fee. This will initially be used to support the victims of crime. Vocational Rehabilitation and Independence Vocational Independence is defined as the claimant s capacity to engage in work for which he or she is suited by reason of experience, education, or training, or any combination of those things, and for 35 hours per week. The Bill changes the 35 hours per week requirement to 30 hours per week making the definition of full-time work consistent with that used by Statistics New Zealand, the Ministry of Social Development and Inland Revenue. Consideration of pre-injury earnings for an occupational assessment will no longer be compulsory. 26

27 2009/10 priority regulation proposals Elective surgery What regulatory change is ACC proposing for elective surgery? ACC is proposing to amend clause 18 of the Injury Prevention, Rehabilitation, and Compensation (Liability to Pay or Contribute to Cost of Treatment) Regulations 2003 [Cost of Treatment Regulations], which outlines ACC s liability to pay for clients elective surgery costs. This amendment will remove specific reference to District Health Boards (DHBs) in sub-clauses 5 and 6 so that DHBs and private providers receive the same level of funding for elective surgery under the Regulations. Why is ACC seeking to amend the Cost of Treatment Regulations? ACC s liability for surgery costs is increasing. This increase is partly being driven by clients being able to receive surgery funded either under contract (where annual funding is capped) or under clause 18 of the Cost of Treatment Regulations where funding is not capped. Under the Cost of Treatment Regulations, ACC is liable to pay 100% of the surgery price when surgery is performed by a DHB, but is only liable to pay private providers the full amount when certain conditions are met. This has created a situation where in order to maximise revenue, some DHBs are now subcontracting ACC-funded elective surgery to private providers, while ACC pays the full surgery price. This loophole can be closed through amending the Cost of Treatment Regulations. What will ACC save by amending the Cost of Treatment Regulations? In the 2008/09 financial year ACC paid approximately $19 million to DHBs for surgery funded under the Cost of Treatment Regulations. Had ACC been able to prevent DHBs from sub-contracting to private providers, this figure would have reduced to approximately $11 million, saving ACC around $7 million. 27

28 Changes to purchasing Home and community support services Key Points The cost of providing home-based help for clients has increased by 47% since 2006/07 Proposals include making it more financially viable for clients to use suitably qualified non-agency providers What are Home and Community Support Services (HCSS)? HCSS includes attendant care, home help and childcare. These services range from basic housework for clients with a minor injury to complex personal support for people with a serious injury, which would require nursing skills such as tube feeding or complex bowel care. What s the problem? Over the last two years ACC s expenditure on HCSS has increased by 47% (from $122 million in 2006/07 to $179 million in 2008/09). What caused it? In recent years many clients have chosen to source their support from professional agencies, rather than paying family members or other privately arranged carers. This increases costs for ACC as the cost of agency based care is much higher. Part of the reason for this trend is that the amount ACC pays non-agency carers has been seen as insufficient to secure appropriately skilled carers. What is proposed? ACC is looking at a range of options to enable clients, who wish to privately arrange their care, to secure that care through suitably qualified carers. All of these revolve around making it more financially viable for them to do so. While this will cost more than we currently pay for non-agency care, it will be significantly less than if they continued to move to agencies. 28

29 Proposed changes to regulations Cost of treatment regulations Key Points Cost of Treatment Regulations prescribe what ACC pays treatment providers who don t have a specific contract with ACC. Three changes are proposed to the regulations: Establishing a set price for high tech imaging services from non-contracted providers Paying a per consultation price rather than an hourly rate to some providers eg acupuncturists, osteopaths Introducing a regulated price for dental implants and level three bone graft surgery What are Regulations and are they different from an Act of Parliament? An Act of Parliament is laws made by the New Zealand Parliament. Regulations generally consist of laws made by the Governor-General, Ministers of the Crown, and certain other bodies, and deal with matters of detail or administration, or matters that are subject to frequent change. What are the Cost of Treatment Regulations? The Injury Prevention, Rehabilitation, and Compensation (Liability to Pay or Contribute to Cost of Treatment) Regulations 2003 (the Cost of Treatment Regulations) prescribe the amounts ACC pays treatment providers and medical professionals if they do not have a specific contract with ACC. Why is regulatory change being proposed? Changing the Cost of Treatment Regulations is one way ACC can control its expenditure for treatment. ACC is proposing three minor technical amendments to offer ACC better value for money and to tidy up some regulations. These are: Adding a regulated price for high-tech imaging (HTI) Currently, non-contracted providers of HTI can charge ACC the same price as contracted providers, because there is no price in regulations to act as a default price. This situation undermines the value of the contract. There is an opportunity to introduce regulations stating the amount ACC will contribute 29

30 when HTI services are provided by a non-contracted provider (set at about 60% of the contracted price). A regulated price will also support current ACC work to review HTI contracts. Cost savings and better quality outcomes for clients are expected from this work. Removing the option of an hourly rate for specified treatment providers, and adding a higher rate for the first visit to allow for a comprehensive assessment Under regulations, specified treatment providers (acupuncturists, chiropractors, occupational therapists, osteopaths, physiotherapists, podiatrists and speech therapists) have the option of invoicing either on an hourly or per visit basis. Payment on an hourly basis may create perverse incentives for some providers to provide longer treatment sessions than necessary. It is proposed to remove the option of an hourly rate. In addition, to ensure that a consistent, high level of treatment is provided, ACC will explore setting standards at the initial stages of a client s treatment (eg a treatment plan). This payment structure would align with the new physiotherapy contract to be introduced from November What is expected to happen if these proposals do not go ahead? Without the proposed regulatory changes, various effects are likely, including: Not achieving expected cost savings of about $8 million from a revised HTI contract Costs will increase for treatment provided by some specialist treatment providers Clients may not receive the most appropriate treatment. Will any costs shift to other government agencies under these proposals? Overall, no. However, there is a possibility that if specified treatment providers increase co-payments, and low-income clients cannot afford that co-payment, they may seek assistance from the Ministry of Social Development. 30

31 Provider terms and conditions for the payment of treatment costs under regulations What are Regulations and are they different to an Act of parliament? An Act of parliament is laws made by the New Zealand Parliament. Regulations generally consist of laws made by the Governor-General, Ministers of the Crown, and certain other bodies, and deal with matters of detail or administration, or matters that are subject to frequent change. What are the issues with ACC paying for treatment under regulations? ACC pays for clients treatment through a mix of contracts and regulations. GPs and physiotherapists are the predominant treatment providers for the 93% (1.7 million) of ACC clients each year who require only medical treatment to recover from their injury. Currently, ACC has limited options available to manage those treatment providers who claim fee-for-service treatment costs under regulations in excess of what is necessary and appropriate to support clients rehabilitation (when compared to their peers treatment patterns). These extra costs, that are in excess of what is necessary and appropriate for clients, are putting pressure on ACC s ability to deliver an effective, efficient, and affordable Scheme. Why does ACC pay for treatment under regulations? The primary purpose of the treatment cost regulations is to provide a level of certainty to injured New Zealanders of the amount that ACC will pay toward their treatment and they can also help manage the majority of treatment costs. What does ACC spend on primary care (eg doctor and physiotherapists) treatment under regulations? In the last financial year, ACC spent $187 million on primary care treatment under regulations. This is an increase from $175 million in

32 What are ACC s expectations of treatment providers? ACC s expectations of treatment providers are that they: claim payment under regulations for treatment costs only to the extent that the client is entitled to the treatment for personal injury under Part 1, Schedule 1 of the Injury Prevention, Rehabilitation, and Compensation Act 2001 provide cost-effective treatment in a manner which is consistent with guidelines or other appropriate indicators of good practice (including quality and costeffectiveness) for the treatment of personal injury comply with all law including, without limitation, the Privacy Act 1993, the Code of Health and Disability Services Consumers Rights, and the Health and Safety in Employment Act What is being proposed to help manage the risks with paying for treatment under regulations? One option is to introduce terms and conditions into regulations for the payment of regulated treatment costs. Alternatively, the regulations could be amended to require providers to meet all reasonable terms and conditions specified by ACC in order to receive regulated payments. Putting in place terms and conditions for regulated treatment will help ACC in its efforts to only fund treatment that is necessary and appropriate. Where providers do not comply with the terms and conditions, then ACC will have the option of suspending or cancelling payments. 32

33 Changes to purchasing Housing and vehicle modifications Key Points Four-fold increase in cost of car modifications since 2000 Housing modification expenditure up from $6.1m to $23.7m since 2000 Proposed changes to regulations will clarify ACC s responsibility Predicted savings to vehicle and housing claims costs of at least 20% Background ACC can provide or contribute towards the costs of modifying a home or car, or purchasing a car when necessary, to assist a client to regain as much independence as possible, particularly following serious injury. Purchasing or modifying a vehicle is just one option to meet a client s everyday transport needs. The cost of providing transport, including vehicle purchase and modification, has risen from $4.5 million in 2000/01 to $19m in 2008/09, despite stable demand since The majority of the costs (79%) are for purchasing vehicles for seriously injured clients. The cost of modifying homes has increased from $6.1m in 2000/01 to $23.7m in 2008/09, despite demand stabilising since 2007 and reducing in the past financial year. The majority of these costs are for housing modifications for seriously injured clients. What s driven the increase in costs? There are three key reasons: Increasing service costs, largely due to inflation Improved technology and medical advances people with serious injuries live longer; and as modified vehicles become more sophisticated, the costs of highly modified self-drive vehicles for serious injury clients increase and currently cost almost $100,000 Increasing client expectations. 33

34 What s been done to address the increase in costs? ACC has slowed the growth of housing and vehicle modification costs by making changes to how it manages these claims. The growth in vehicle claims costs has almost halved from an average of 30% year-on-year since June 2004 to 16% in the past financial year, while the growth in housing modification expenditure has almost halved in the past financial year from 20% to 11%. What s being proposed now? However, regulations need to be considered to slow the growth in expenditure over and above operational and purchasing improvements. Regulations are intended to clarify ACC s responsibilities, taking into account what could ordinarily be considered an individual s responsibility in terms of transportation and housing. The proposed regulations will specify the level of ACC s contribution to vehicle purchase and subsequent housing modifications, explicitly limit ACC s responsibility to meeting essential injury-related needs and clarify the conditions surrounding ACC s liability to pay. The benefits ACC expects to reduce vehicle and housing modification claims costs by at least 20%. Cost savings depend on where the threshold for ACC s contribution is set and will be finalised when the options are fully evaluated and costing assumptions clarified. 34

35 Proposed levy changes Mopeds and motorcycle levy rates Key Points Motorcycle riders are 16 times more likely to be involved in a road crash than any other road user. And they re far more likely to be seriously injured. Motorcycles are only 3% of New Zealand s vehicle fleet but motorcycle injuries make up 21% of road crash injury claims to ACC. New motorcycle registrations have quadrupled since In 2007 there were 26,341 more new registered motorcycles than there were in Mopeds increased by 13, cc-1000cc motorcycles increased by 5,265 Over 1000cc motorcycles increased by 8,939 The number of new registrations of 60cc 125cc and 250cc 600cc motorcycles decreased In 2008 there were 1,446 motorcycle casualties more than double the total in Since 2000 casualties suffered by 40+ year old motorcyclists increased by 330. The number of casualties for year olds over the same period increased by 139 (MOT data). Between an average of four year olds were killed per year in motorcycle accidents. Over the same period an average of eight 40+ year olds were killed per year (MOT data) The cost of injuries in motorcycle crashes is about four times higher than injuries in other motor vehicle crashes From motorcyclists had some responsibility for the crash 58% of the time. However, ACC is a no fault Scheme. Even if motorcycle levies were collected on the basis of the number of accidents caused by the motorcycle rider, it wouldn t cover the cost of injury. Last year, ACC paid more than $62 million to care for people injured while on their motorcycles, but collected only $12.3 million in motorcycle levies. If we charged motorcycle owners for the true cost of injuries, levies for motorcycles would be between $1,200 and $3,700 depending on the engine 35

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