VOTE Accident Insurance

VOTE Accident Insurance B.5 Vol.I 1

Accident Insurance Overview Appropriations sought for Vote Accident Insurance in 2001/02 total $735.218 million. This is intended to be spent as follows: $3.438 million (less than 1% of the Vote) on purchasing a range of services in relation to accident insurance including policy advice, analysis, evaluation, research, monitoring, purchase advice, legislation support and ministerial servicing. $0.973 million (less than 1% of the Vote) on purchasing services to monitor work related claims made against Accident Insurance contracts during 1999/2000 that are still receiving entitlements in 2001/02, and to maintain the Accident Insurance information database. $0.350 million (less than 1% of the Vote) on monitoring the implementation of the transition of workplace accident insurance to a single public fund administered by the Accident Compensation Corporation (ACC). $2.660 million (less than 1% of the Vote) to cover the cost of claims on the Non- Compliers Fund and the cost of administering the Fund. $6.298 million (less than 1% of the Vote) on payments for case and claims management in respect of the Non-Earners Account from ACC for accidents that occurred prior to 1 July 2001. $40.277 million (5.5% of the Vote) being the estimated full cost of case and claims management and injury prevention services in respect of the Non-Earners Account from ACC for new claims from 1 July 2001 to 30 June 2002. $111.066 million (15.1% of the Vote) on payments for medical, social rehabilitation, elective health care by ACC in accordance with the Accident Insurance Act 1998 on behalf of non-earners for accidents that occurred prior to 1 July 2001. $288.287 million (39.2% of the Vote) being the full cost of medical, social rehabilitation, elective health care services in accordance with the Accident Insurance Act 1998 on behalf of non-earners for new claims from 1 July 2001 to 30 June 2002. $162.967 million (22.2% of the Vote) on funding Public Health Acute Services by ACC for non-earners in accordance with the Accident Insurance Act 1998. $21.678 million (2.9% of the Vote) on payments for income maintenance, independence allowance and other compensation provided to claimants who are non earners by ACC for accidents that occurred prior to 1 July 2001 and transfers to the Medical Misadventure Account for payments made on non earner related claims, for the same period. 2 B.5 Vol.I

$29.431 million (4% of the Vote) being the estimated full cost of providing income maintenance, independence allowance and other compensation provided to claimants who are non earners by ACC for new claims from 1 July 2001 to 30 June 2002 and transfers to the Medical Misadventure Account for expenses on new non earner related claims. $67.793 million (9.2% of the Vote) of Motor Spirits Excise Duty to be paid to ACC to contribute to financing of entitlements for the Motor Vehicle Account. Details of how the appropriations are to be applied appear in Parts B1 and C of this Vote. Details of Crown Revenue appear in Part F. B.5 Vol.I 3

Terms and Definitions Used ACC Accident Compensation Corporation Footnote Note 1 Expenses incurred pursuant to Section 268 of Accident Insurance Act 1998. 4 B.5 Vol.I

Accident Insurance VOTE MINISTER: Minister for Accident Insurance ADMINISTERING DEPARTMENT: Department of Labour The Minister of Labour is the Responsible Minister for the Department of Labour Part A - Statement of Objectives and Trends Part A1 - Objectives for Vote Accident Insurance Related Government Outcomes The appropriations in Vote Accident Insurance provide accident rehabilitation services to people who receive an injury but are not earning an income (excluding motor vehicle accidents, which are funded from the Motor Vehicle Account). The appropriations also fund policy advice, purchase advice and monitoring and evaluation related to protecting, maintaining and restoring people s capacities, injury prevention, and minimising the economic and social costs of injury. The appropriations in Vote Accident Insurance will make a contribution to the following Government key goals: strengthen national identity and uphold the principles of the Treaty of Waitangi grow an inclusive, innovative economy for the benefit of all restore trust in Government and provide strong social services reduce inequalities in health, education, employment and housing. Output classes To achieve these objectives, the appropriations are intended to fund a range of activities, including: a comprehensive range of services in relation to accident insurance including policy advice, analysis, evaluation, research, monitoring, purchase advice, legislation support and ministerial servicing monitoring work related claims made against Accident Insurance contracts during 1999/2000 that are still receiving entitlements in 2001/02, and maintaining the Accident Insurance information database management of the transition of workplace accident insurance to a single public fund management of the Non-Compliers Fund administration and operation of the Non-Earners Account of the Accident Insurance scheme and medical, case management and rehabilitation services to accident victims administration of the Motor Spirits Excise Duty. B.5 Vol.I 5

Part A2 - Trends in Vote Accident Insurance The time series of non-departmental flows detailed in the table Trends in Vote Accident Insurance shows overall increases in non-departmental outputs purchased by the Crown. It also reflects increases in non-departmental expenses. Output Trends: 1995/96 to 2001/02 Vote Accident Rehabilitation and Compensation Insurance (ARCI) was established in 1993/94 as a separate Vote and renamed Vote Accident Insurance for the 1999/2000 year at the same time as the Accident Rehabilitation and Compensation Insurance Corporation was renamed the Accident Compensation Corporation. In 1995/96 the provision of policy advice was separated from the management of the scheme. The output class was renamed Policy and Monitoring and additional appropriation provided for a policy and monitoring unit within the Department of Labour. Output classes Earner Elective Health Care Services and Non-Earner Elective Health Care Services were included in 1996/97. Previously these services were funded via Vote Health. From 1 July 1997, Earner Elective Health Care Services were funded via the earners premiums and the output class was disestablished. From 1998/99 the separate output classes for Medical Treatment, Health Care and Social Rehabilitation were included in one output class - Claim Entitlements and Services. Competition was introduced for work related accident insurance from 1 July 1999 and the output class Regulatory Services was set up to fund the market Regulator. The Accident Insurance Regulator s task was to ensure that employers purchase insurance and to provide accident insurance information to stakeholders. The Regulatory Services output class is funded by levies from insurers. The role of the Accident Insurance Regulator has changed as a result of the passing of the Accident Insurance (Transitional Provisions) Act 2000 which came into force on 1 April 2000. This Act returns accident insurance to a single public fund. From 1 July 2000, the primary objectives of the Regulator are to monitor work related claims made against Accident Insurance contracts during 1999/2000 that still receive entitlements in 2000/01, and to maintain the Accident Insurance information database. The Regulator will also manage the Non-Compliers Fund which funds those claims made by claimants whose employer did not have an accident insurance contract in force at the time of injury. The management of the introduction of competition in workplace accident insurance was provided through the ACC Competition Transition output class, which was established in 1998/99. The final appropriation was in 1999/2000. The two non-departmental expenses for the payment of claims relating to insurer insolvency and employer non-compliance were disestablished following a Cabinet decision on 1 May 2000. Two departmental output classes were established: Non- Compliers Fund and Insolvent Insurers Fund. A new departmental output class, ACC Transition, was established in 1999/2000 for the management of the transition of workplace accident insurance to a single public fund. This output class is also funding the monitoring of implementation of changes arising from passing the Injury Prevention and Rehabilitation Bill 2000. 6 B.5 Vol.I

In 2000/01, the Crown agreed to fully fund the Non-Earners Account for new claims from 1 July 2001 and continue to fund existing claims as at that date on a pay-as-yougo (PAYG) basis. Appropriations for the Non-Earners Account in 2000/01 were on a PAYG basis. Appropriations from 2001/02 will have two components that will be separately disclosed. The first is the estimate of the full cost of new claims that occur in the 2001/02 year and the second is for payments associated with prior years claims. The purpose of this change was to reflect the true cost each year of rehabilitating and compensating non earners, and align appropriations to ACC with expenses. A new non-departmental output class appropriation for Public Health Acute Services in Vote Accident Insurance was also established. In addition, the main expenditure items within the non departmental output class Claim Entitlements and Services will be disclosed separately to increase transparency around the different types of output that contribute to different outcomes. Crown Expenditure and Revenue Trends: 1995/96 to 2001/02 Changes in non-departmental output expenditure principally reflect changes in output class O2 Claim Entitlements and Services. The main component of Claim Entitlements and Services is expenditure on medical services, social rehabilitation and elective health care services. Growth in medical treatment spending since 1994/95 reflects increasing service levels, increased cost per treatment, and an increasing number of seriously injured claimants in the Non-Earners Account. ACC s baseline was adjusted in 1999/00 to reflect higher volumes and costs of elective hospital treatment. The increase in 2001/02 is primarily due to a change in the funding basis for the Non- Earners Account. The increase in funding of Case Management and Supporting Services in 1998/99 reflects a change in the method of allocating costs between ACC accounts. The increase in 2001/02 reflects the estimate of current and future claims management costs associated with injuries that occur in the 2001/02 year. There are marked variations in Benefits and Other Unrequited Expenses - Other Compensation, arising from phasing out lump sums and the amount of the surplus/deficit carried forward each year. Previously claimants affected by serious injury were entitled to lump sum claim payments. These payments were removed in the 1992 Act but some payments were continued until 1997/98 as a result of appeals. Expenditure for 1997/98 and 1998/99 also included payment for backdated attendant care for complex personal injury claimants. The increase in 2001/02 is primarily due to a change in the funding basis for the Non-Earners Account. The Accident Insurance Act 1998 provided that insurers and ACC (for all Accounts including Non-Earners ) pay a levy to the Crown to cover costs of public health acute services provided to those injured by accidents. From 1999/00 a fiscally neutral adjustment will be made each year to reflect the cost of public health acute services provided to non-earners. B.5 Vol.I 7

Analysis by Appropriation Type: 2000/2001 and 2001/02 Compared Departmental output classes Annual appropriations are expected to decrease by $0.569 million (11%) in 2001/02. This decrease relates to a reduction in regulatory services costs resulting from the Government's decision to remove competition from workplace accident insurance. This is offset slightly by the transfer of some funds for monitoring the second stage of the accident insurance reforms from 2000/01 to 2001/02 reflecting deferral of the planned implementation date for the Injury Prevention and Rehabilitation Bill to 1 April 2002 and consequently the deferral of some monitoring activities. Non-departmental output classes Annual appropriations for purchasing non-departmental outputs are expected to increase by $208.257 million (52%) for 2001/02 relative to 2000/01. The increase is primarily due to a Cabinet decision to fully fund new claims from 1 July 2001. The output class includes both the full funded expenses for new claims in the 2001/02 year and pay-as-you-go costs for payments made on existing claims. In addition, social rehabilitation costs are expected to continue to increase for seriously injured claimants (due to both cost and volume increases). Also, responsibility and funding for purchasing non acute inpatient rehabilitation services has now transferred from Vote Health to Vote Accident Insurance. Benefits and unrequited expenses Expenditure is expected to increase by $21.148 million (71%) in 2001/02. This increase is also primarily due to a Cabinet decision to fully fund new claims. The output class includes both the full funded expenses for new claims in the 2001/02 year and pay-as-you-go costs for payments made on existing claims. It also reflects the cost of implementing policy changes (in particular lump sums) anticipated with the passing of the Injury Prevention and Rehabilitation Bill (planned in force date of 1 April 2002), and increasing contributions to the Medical Misadventure Account related to increasing price and volumes in that Account. The 2000/01 year was low due to the misallocation in previous years of weekly compensation claims that have now been transferred out to the correct account. Other Expenses Motor Spirits Excise Duty related payments to fund compensation and services from the Motor Vehicle Account will increase by $0.687 million (1%) in 2001/02. The change is the net effect of a forecasting change and change to the levy rate to compensate for this forecasting change. The Motor Vehicle Account is funded through excise duty and motor vehicle licensing fees. 8 B.5 Vol.I

Trends in Vote Accident Insurance - Summary of Appropriations and Crown Revenue 1996/97 1997/98 1998/99 1999/2000 2000/01 2001/02 Appropriations to be Used Types of Appropriation Actual Actual Actual Actual Budget Estimated Actual By the Department Administering the Vote Annual Other For Non-Departmental Transactions Annual Other Total Operating Flows Classes of Outputs to be Supplied 197,585 183,409 217,836 379,431 408,628 408,628 4,761 2,660 608,895-616,316 Benefits and Other Unrequited Expenses 22,553 64,419 60,172 37,756 29,961 29,961 N/A N/A 51,109-51,109 Borrowing Expenses - - - - - - N/A N/A - - - Other Expenses 64,305 64,935 66,037 67,168 67,106 67,106 - - - 67,793 67,793 Capital Flows Capital Contributions - - - - - - - - - - - Purchase or Development of Capital Assets - - 967 - - - N/A N/A - - - Repayment of Debt - - - - - - N/A N/A - - - Total Appropriations 284,443 312,763 345,012 484,355 505,695 505,695 4,761 2,660 660,004 67,793 735,218 Total Crown Revenue and Receipts 7,902 9,818 16,586 23,437 534 534 N/A N/A N/A N/A - B.5 Vol.I 9

Part B - Statement of Appropriations Part B1 - Details of 2001/02 Appropriations 2000/01 2001/02 Vote Estimated Actual Vote Appropriations Annual Other Annual Other Annual Other Description of 2001/02 Appropriations Departmental Output Classes (Mode B Gross) D1 Policy and Monitoring 3,438-3,438-3,438 - Purchase of a comprehensive range of services in relation to accident insurance including policy advice, analysis, evaluation, research, monitoring, purchase advice, legislation support and ministerial servicing. D2 Regulatory Services 1,574-1,574-973 - Purchase of services to monitor work related claims made against Accident Insurance contracts during 1999/2000 that are still receiving entitlements in 2001/02, and to maintain the Accident Insurance information database. D3 ACC Transition 318-318 - 350 - Management of the transition of workplace accident insurance to a single public fund and monitoring of the implementation of policy changes. D4 Non-Compliers Fund (see note 1) - 2,660-2,660-2,660 This output class covers the cost of claims on the Non-Compliers Fund and the costs of administering the Fund. Costs are funded by penalties imposed on noncomplying employers and an annual levy on insurers. Total Appropriations for Departmental Output Classes (Mode B Gross) 5,330 2,660 5,330 2,660 4,761 2,660 Non-Departmental Output Classes O1 Case Management and Supporting Services 32,275-32,275-46,575 - Case and claims management and injury prevention services for the Non- Earners' Account. O2 Claim Entitlements and Services 368,363-368,363-399,353 - Purchase of medical services, social rehabilitation services and elective health care services for the Non-Earners' Account. 10 B.5 Vol.I

O3 Public Health Acute Services - - - - 162,967 - Fund the cost of public health acute services for the Non-Earners' Account. Total Appropriations for Non- Departmental Output Classes 400,638-400,638-608,895 - Benefits and Other Unrequited Expenses Other Compensation 29,961-29,961-51,109 - Entitlements under the Accident Insurance legislation for non-earners' income maintenance, independence allowance, lump sum payments, death benefits and transfer to the Medical Misadventure Account of costs associated with medical misadventure to non-eaners. Total Appropriations for Benefits and Other Unrequited Expenses 29,961-29,961-51,109 - Other Expenses to be Incurred by the Crown Motor Spirits Excise Duty - 67,106-67,106-67,793 Section 291 of the Accident Insurance Act 1998 provides for a Motor Spirits Excise Duty to be collected and paid to ACC for crediting to the Motor Vehicle Account. Total Appropriations for Other Expenses to be Incurred by the Crown - 67,106-67,106-67,793 Total Appropriations 435,929 69,766 435,929 69,766 664,765 70,453 B.5 Vol.I 11

Part C - Explanation of Appropriations for Output Classes Part C1 - Departmental Output Classes For more detailed analysis of Departmental Output Classes, including financial and non-financial performance measures, please refer to the Department of Labour's Statement of Intent (SoI). Output Class D1 - Policy and Monitoring Description Through this output class the Minister purchases policy advice, purchase advice and monitoring related to protecting, maintaining and restoring people s capacities, injury prevention, and minimising the economic and social costs of injury. This work includes: advice on the policy, legislative and regulatory requirements to achieve the Government s injury prevention, rehabilitation and compensation objectives analysis, evaluation, research and monitoring on injury trends, the impacts of the accident compensation legislation and other issues related to the health and safety goals other evaluation projects related to the performance of the Scheme and determined by Government priorities negotiation of an annual Service Agreement and Statement of Intent with ACC, on behalf of the Minister for Accident Insurance development of a Purchase Agreement between the Minister for Accident Insurance and the ACC Board for the Non-Earners Account quarterly monitoring reports that highlight key issues and trends for ACC, its subsidiaries and the Accounts against performance criteria specified in the annual Service Agreement monthly monitoring reports that provide a short analysis of financial and nonfinancial performance advice on ACC forecasts for inclusion in the Economic and Fiscal updates advice on forecast trends and expenditure in the Non-Earners Account during baseline update processes administration and monitoring of Crown payments for the Non-Earners Account and the Motor Spirits Excise Duty monitoring and reporting on labour market trends and statistics advisory and legal support and information for Ministers as required in Cabinet Committees, Select Committees and Parliament other ministerial servicing including replies to ministerial correspondence, parliamentary questions, official information requests, speech and briefing notes and other information required by the Minister. 12 B.5 Vol.I

Output Class D2 - Regulatory Services Description The introduction of competition to the workplace accident insurance market required the establishment of an Accident Insurance Regulator. The Regulator activities are solely funded by the Crown from 1 July 2001. The role of the Accident Insurance Regulator has changed as a result of the passing of the Accident Insurance (Transitional Provisions) Act 2000 which came into force on 1 April 2000. The Act returns accident insurance to a single public fund. From 1 July 2001, the primary functions of the Regulator are: Administration of the Accident Insurance Act 1998 key stakeholder liaison, receiving and responding to enquiries and complaints (non-ministerials). Compliance monitoring identifying potential non-compliance with the Accident Insurance Act 1998, investigating non-compliance and taking enforcement action where appropriate. Information management collecting contract and claims data from registered insurers and ACC, publishing injury surveillance-related statistics and servicing information requests. Non-compliant claims management managing the Non-Compliers Fund which funds claims made by claimants whose employers did not have an accident insurance contract in force at the time of injury. Funds management setting various charges to be levied on registered insurers and collecting those levies. Output Class D3 ACC Transition Description This output class provides for the management of the transition of workplace accident insurance to a single public fund administered by the Accident Compensation Corporation. The key areas of work are risk monitoring, communication and the realignment of the Accident Insurance Regulator s activities. A risk management programme will be in place to monitor risks associated with the accident insurance reforms. A key priority will be on the development of a framework for monitoring ACC s implementation of the reforms. A communications strategy will ensure effective communication with stakeholders affected by the reforms, particularly claimants, treatment providers, employers and self-employed. B.5 Vol.I 13

Output Class D4 Non-Compliers Fund Description The Accident Insurance Act 1998 established a Non-Compliers Fund to guarantee the provision of statutory entitlements to claimants whose employer failed to purchase an accident insurance contract during the period 1 July 1999 to 31 March 2000. The Accident Insurance Regulator is responsible for administering the Fund and has contracted out the management of claims made against the Fund. The cost of those claims made against the Non-Compliers Fund is met by penalties collected from noncompliant employers, with any shortfall to be met by way of a levy against registered insurers. Part C2 - Non-Departmental Output Classes Performance Targets for ACC The Minister for Accident Insurance purchases claim entitlement services, public health acute services and case management on behalf of non earners who have suffered personal injury (other than motor vehicle injury). The purchasing activities are specified in a Purchase Agreement between the Minister for Accident Insurance and ACC and are monitored by the Department of Labour. In assessing the performance of the Corporation in delivering entitlements and services to non-earners, the following are the generic performance measures that will be used: Number of new medical treatment claims and number of new entitlement claims compared to the previous year and their cost. Number of prior year medical treatment claims and number of prior year entitlement claims under management that received payments in 2001/02. Proportion of claimants receiving entitlements who exit the scheme at 3, 12, and 24 months from the time of registration. Number of entries to, reactivations, and exits from the pool of long-term claimants exceeding 12 months duration. Payment accuracy. The number of successful reviews and appeals against ACC decisions. Other performance information on the Non-Earners Account is included in the Service Agreement between the Minister for Accident Insurance and the ACC Board. Output Class O1 - Case Management and Supporting Services Description This output class covers purchasing injury prevention, claim processing, assessment, payment services and case management for non-earning accident victims. Financial grants, primarily for research, are also included in this output class. 14 B.5 Vol.I

Performance measures Injury prevention (IP) programmes will result in more savings than the cost of the programme in the Non-Earners Account. Claims will be allocated accurately to scheme accounts in accordance with the Accident Insurance legislation. All payments will be made to the correct parties for the correct amount. Cost This output class will be provided within the appropriated sum of $46.575 million (inclusive of GST) and includes $6.298 million for claims accepted prior to 1 July 2001 and $40.277 million for new claims from 1 July 2001 to 30 June 2002. Output Class O2 - Claim Entitlements and Services Description This output class relates to purchasing medical services, support for independence services and elective health care services. Services purchased include: primary medical services, including the services of general practitioners, specialists, physiotherapists, radiologists and pharmaceuticals elective hospital treatment, required as a result of an accident (defined within the Accident Insurance Act) dental treatment conveyance for medical treatment personal care (home help, attendant care and childcare) alteration of home ambulatory aids. Performance measures All payments for claim entitlements and services will be paid in accordance with either the relevant Accident Insurance legislation/regulations or discretion granted by the Minister for Accident Insurance. Cost This output class will be provided within the appropriated sum of $399.353 million (inclusive of GST) and includes $111.066 for claims accepted prior to 1 July 2001 and $ 288.287 million for new claims from 1 July 2001 to 30 June 2002. Output Class O3 Public Health Acute Services Description Vote Health initially covers the cost of the provision of public health acute services to non earners. This output class refunds Vote Health for those costs. B.5 Vol.I 15

Performance Measures The cost and volume of public health acute services will be estimated on the basis of best information available. Cost This output class will be provided within the appropriated sum of $162.967 million (inclusive of GST) for claims accepted from 1 July 2001 to 30 June 2002. 16 B.5 Vol.I

Part D - Explanation of Appropriations for Other Operating Flows Part D1 Benefits and Other Unrequited Expenses Information regarding this is provided in Part B1 - details of 2001/02 appropriations. Description This output class relates to income maintenance, independence allowance, lump sum payments, death benefits, medical misadventure transfer. Cost This output class will be provided within the appropriated sum of $51.109 million (GST not applicable) and includes $21.678 million for claims accepted prior to 1 July 2001, and $29.431 million for new claims from 1 July 2001 to 30 June 2002. B.5 Vol.I 17

Part E - Explanation of Appropriations for Capital Flows Part E1 - Capital Contributions There are no appropriations for capital contributions. Net Worth of Entities Owned Statement of Estimated and Forecast Net Worth Balance Date Estimated Net Worth 2001 $ million Forecast Net Worth 2002 $ million Crown Entities: ACC 30 June (4,108) (3,868) ACC s negative net worth is due to historical funding on a pay-as-you-go basis. The funding basis was changed in 1998 and the scheme is moving towards a fully funded basis over the next 13 years. 18 B.5 Vol.I

Part F - Crown Revenue and Receipts Part F1 - Current and Capital Revenue and Receipts 2000/01 2001/02 Budgeted Estimated Actual Budget Description of 2001/02 Crown Revenue Current Revenue Non-Tax Revenue Levy from Insurers for Regulator Costs 534 534 - Total Non-Tax Revenue 534 534 - Total Current Revenue 534 534 - Total Crown Revenue and Receipts 534 534 - B.5 Vol.I 19