ACC – your questions answered
Let’s do the silly stuff first. Mind the step.
Is the scheme “technically insolvent” as its minister, Nick Smith says?
Yes. But it always has been. Because it is backed by the government, insolvency isn’t the issue – good management is.
So why did Dr Smith raise it?
Because he screwed up. Raising technical insolvency was a major blunder by Dr Smith. It made a confusing issue even more confusing and it allowed Labour to draw comparisons with the scheme’s liabilities in the past. Dr Smith needs to learn inflammatory language should be used far less frequently in office than in opposition.
Isn’t ACC only suffering because of a global financial crisis, as Labour ACC spokesman David Parker says?
No. Mr Parker pointed to other insurers like AIG as examples of this. If Mr Parker wants to use AIG as a benchmark, good luck to him. Better to use a New Zealand firm like Tower, which has invested prudently and although it has made some losses, nothing like those faced by ACC or AIG. ACC would be facing a lot of these problems even if there were not a world financial meltdown.
Why?
First, Labour in office extended the scheme’s coverage. The party had a long-term goal (it was in its election manifestos throughout its time in office) of meeting International Labour Organisation Convention 17. This was written in the 1920s and states that workers should have free medical care. The step-by-step gradual increase in the scope of the scheme (especially bringing gradual process conditions and things like dermatitis, asthma and hearing loss under its umbrella in 2007) was all aimed at this. (The primary healthcare initiative in the health sector is also part of meeting ILO 17). It was also behind the call by then deputy ACC chairman Peter Neilson to increase ACC cover to illness.
Were there any other increases in coverage?
Yes. Lump sum payments were reintroduced in 2001, despite warnings from officials that current entitlements – living allowances and the like – were adequate, and that it would be “very difficult to control the costs of the policy.” They were right. Other new measures include workplace trauma – for example, bank tellers seeing colleagues gunned down, dredge operators pulling decaying bodies out of a river – being also now covered.
Shouldn’t they be?
Very probably. But the costs of that cover should also be carefully calculated in advance and provided for. That did not happen. The best estimate was they would be somewhere between $7 million and $72 million a year.
That’s not a proper estimate, surely?
No. But it was all that was done.
Were there any other important changes made?
Yes. The most important was an alteration in 2006 to the assumptions about what returns ACC’s investment fund would make. Until 2006 it was assumed this fund’s return would be the “risk free rate” – i.e. the equivalent of the 90-day bond rate. That year it was changed to the risk free rate plus 1%.
Isn’t that only a small change?
Not when you are dealing with billions of dollars. ACC's actuaries, Taylor Fry, calculated the change would overstate the amount of funds available to the corporation by between 5-10%. They called it “misleading” which for an actuary is strong stuff – it’s like a nun saying ‘f**k.’
Weren’t most investment funds doing better than the risk free rate at the time?
Yes. But assuming at the height of an international equities market boom that those returns are going to continue indefinitely is the kind of basic mistake made by amateur investors. These people should not have been behaving like amateurs – not on what they are being paid.
What about costs to the scheme?
They have been growing for some time. There has been a 12% annual increase in the costs of running the scheme every year since 2002.
Isn’t that the increases in medical costs we’ve seen everywhere?
Those aren’t the medical costs. That’s just the administration costs of running ACC.
Oh. Can you think of any private businesses with a 12% annual increase in administration costs every year for seven years?
No. None that are still around, anyway.
But there have been increases in medical costs, surely?
Yes. And again officials and ministers were warned over a year ago these were getting out of hand. In December 2007 ministers were told of a 10% rise in the number of claims and 17% in serious injury claims in the “non earners” account – that’s the bit which covers beneficiaries and children. The same report also warned of increased costs per claim, including care and rehabilitation costs, along with declining rehabilitation rates (meaning longer and more expensive time spent in care).
What did ministers do?
Got officials to write some more reports.
And then?
Commissioned some more reports. Had meetings.
Why weren’t any changes made?
Well, at a guess it was because ministers were reading the polls more assiduously than they were reading those reports. Doing something would have been unpopular – either raising levies or cutting entitlements.
But shouldn’t they have done something?
Yes, but it was pretty clear that if they waited for a bit it wasn’t going to be their problem.
Isn’t all this just a softening up for privatisation?
If it was, it would be a particularly cock-eyed way of doing it. And raising the privatisation bogey is a very good way of getting people to think of issues other than why this hole appeared in the first place.
But wouldn’t National like to privatise the scheme?
Well, some of them would like to privatise some of the scheme – the part which covers workplace accidents. Ironically this is the one part of the scheme least affected by the current blow out. But – certainly among most business lobby groups – privatisation isn’t the goal. The goal is better management of the scheme costs and thus lower levies.
Would allowing competition for the scheme in the workplace provide that?
Perhaps. The evidence though is mixed at this stage.
So isn’t there a wider political agenda behind this?
Look at the wider political strategy being run by both the main parties. The “narrative” Labour has been running since the mid-1990s is National is the party that takes things away from you, Labour is the party that gives you things. A cornerstone of the current government’s political strategy is to eradicate the idea that National governments take things away from people. The $2.6 billion hole in ACC forces National back into the role of being nasties.
So was National set up?
Unclear. But this is either culpable negligence or sabotage. Take your pick.
Is this just Labour ministers’ fault?
No. Officials need to take the rap as well – and the Treasury has admitted it should have forced the issue of putting notice of the emerging problems into the pre-election economic and fiscal update.
Anyone else?
Everyone who claimed ACC for anything that wasn’t really covered by the scheme. And every doctor who winked at patients doing this should also hang their heads.
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Comments and questions27
i love you rob.
Can I just say what a great article this is summing up the issue and finally has someone separating this privatisation smokescreen from the real misdemeanours that have been occurring for some time.
Perhaps the only person left unscathed from this report who deserves some questioning is whoever National's ACC spokesperson was when they were in opposition... this stuff shouldnt have been that much of a surprise given what ACC covered just kept growing and growing and remained unfunded.
Looks to me that Mr Key got the power at the wrong time. Sorry, it is called a bad luck.
Mr. Parker neglected to mention that AIG's insurance business is doing just fine. Unfortunately the firm got into investment banking, e.g. writing credit default swaps. Had it stuck to its core business...also it is worth noting that the Government Super Fund is 'insolvent' because its assets are well exceeded by its liabilities; the GSF operates partly on a pay-as-you-go entity just like ACC.
The best thing the National government could do now is to go back to the scheme as it was 10 years ago before Labour was elected. Include only those costs and benefits which were covered at that time. Check the % of costs which were administrative then and restart the ACC scheme around those parameters.
Thank you
There are hundreds of people who are commiting fraud and ACC know about them-but can't do anything about it. Not just the people on ACC who are faking it but GP's and specialists who keep writing out medical certificates and ACC have to accept them.
These people need to develop some morals, weekly compensation is usually more than the sickness benefit so there is no incentive to go back to work or find a new job.. What about reducing their payments 6mthly? Or stop the cost of living pay increase each person gets every year. ACC spend so much money trying to get these fraudsters off, people need to dob in these people and they should get charged with fraud and made an example of. The problem is the GP's, they should be ashamed of themselves. Hopefully this gravy train is coming to a stop!
I have siezures and trouble functioning. I was earning a mass amount before my injury. The money is crap, I'm often judged and have lost everything due to my injury. ACC cant rehab as they dont now how! We are just a means to justify collecting levies. Honestly no one wants to be on ACC. I like many want a purpose to be able to contribute and meet people. I got no decent friends. Cant be employed as due to osh. Tried to get a job, but you have to tell the truth. No rehab no job. Brain injury, who wants you? "no one" Your very wrong go do some work for BIA BRAIN INJURY ASS. "please"
The Doctors are making a killing. ACC pays almost $2000 for a medical assessment, pays for the GP visits, the xrays & MRI's and then have to pay again to get any notes or reports for these visits! Surgeons who see people at the public hospitals send patients to their private practise and get paid more for the same treatment.ACC keeps our public health system free, the Doctors are greedy and will spoil it for the average Joe. Case Managers are gagged but would like the oppertunity to come clean about what goes on, maybe Dr Smith could go and visit them to have :off the record: chats.
I enjoy your comments and the fact you didn't suggest running of to privatise it all.
The idea of ACC is fantastic, what clearly is evident is that officials & politicians have clearly failed manage this business effectively. I would strongly look at a management clear out, stronger governance and improvement in cost structure and targets.
The layout of article flows very well. More of this quickfire interview method please. Gets the points out quick.
The comments by Rob Hosking sum up the matter very well but further comment is required. The scheme as defined by the Act and Amendments are very worthwhile and every New Zealander is well served by the protection, as defined. The problem starts at the top, with the Directors, who have little concept of the huge 'cash flows' in and out, the combined volume is extremely large, and the reserving policy has to be watched and plotted to respond to the future liabilities over many years.
Dealing with the Medical profession in itself is complex and with medical advances the scheme has to keep pace, with practice and costing! Therefore Executive Management has to be top line to respond. All the problem of Directors who have to have not only expeience but knowledge, skills and expertise. These may not be with the individuals themselves, but must be within their powers of requesting same from others when requred.
Further the Board has to be non- political and at arms length from Government, as far as possible when yes it is a Govenrment institution founded by the Law of the Land and therefore has to respond to the Act as presented, but any proposed amendments whether positive or negative must be put to the Board for realistic rewiew and costing before proceeding.
As the Scheme is a form of insurance, defined by Law, please refrian from compering it with private insurance companies as any talk of 'privatisation' is wrong as no insurance company would be allowed to extend comparable benefits and options as defined by the Act. They will say they can provide same but when reality strikes they will cut back the benefits and increase the charges accordingly, be assured.
Let New Zealand keep this wonderful scheme and be appreciative of the benifits provided.
The comments by Rob Hosking sum up the matter very well but further comment is required. The scheme as defined by the Act and Amendments are very worthwhile and every New Zealander is well served by the protection, as defined. The problem starts at the top, with the Directors, who have little concept of the huge 'cash flows' in and out, the combined volume is extremely large, and the reserving policy has to be watched and plotted to respond to the future liabilities over many years.
Dealing with the Medical profession in itself is complex and with medical advances the scheme has to keep pace, with practice and costing! Therefore Executive Management has to be top line to respond. All the problem of Directors who have to have not only expeience but knowledge, skills and expertise. These may not be with the individuals themselves, but must be within their powers of requesting same from others when requred.
Further the Board has to be non- political and at arms length from Government, as far as possible when yes it is a Govenrment institution founded by the Law of the Land and therefore has to respond to the Act as presented, but any proposed amendments whether positive or negative must be put to the Board for realistic rewiew and costing before proceeding.
As the Scheme is a form of insurance, defined by Law, please refrian from compering it with private insurance companies as any talk of 'privatisation' is wrong as no insurance company would be allowed to extend comparable benefits and options as defined by the Act. They will say they can provide same but when reality strikes they will cut back the benefits and increase the charges accordingly, be assured.
Let New Zealand keep this wonderful scheme and be appreciative of the benifits provided.
And that's New Zealand. Every other country that has considered such a scheme has avoided it because even basic mathematical / actuarial modeling show that this kind of blowout is inevitable. It's not a question of if, but of when.
Only one part of the ACC ACT works well: removing the right to sue.
That should be kept but the rest of ACC abolished, all offices closed, and everyone fired with no redundancy or other provisions whatsoever.
The result:individuals would take personal responsibility for themselves and their families. Private insurance companies would no doubt offer products that cost less than the ACC levy, and much less than the ACC levy+ruinous employer levy+massive taxpayer injection now required. Individuals could choose to purchase this insurance or not depending on their individual level of risk.
yes good article, and being stuck on acc since graduating with a top degree, i agree the medical 'profession' and any seudo medicos live off of the scheme.
but really you and everyone are missing the forest for the trees, the system has never, ever come close to working for any claimant especially the seriously disabled people. those who often would be able to gain some semblance of a life if the right to sue for personal injury was not causually thrown out in 1974.
it also has the added evil of increasing the danger to kiwis by making people not responsible for their actions, espeially the medical field and motorvehicle users.
My partner was dropped in the private operating rooms of a specialist. Severe back problems ever since.Cannot continue as a farmer.Can only do a few of the tasks necessary. Specialist very cleverly did not note the incident in his/her notes.Always says"I knew you would never work again". Couple of stuffed discs,can only travel short distances-dreadful sciatica.Has to stand up at every opportunity-for as long as time available.Case manager said"sell your farm-live off proceeds."Dreadful support from A.C.C.-Just LIES.Know others who CHEAT CHEAT.Where is the dob-in-hotline??Our lives have been seriously affected.Who cares.??Distraught partner>
I forgot to say-the article-interview style -is excellent. More please Rob Hosking. You tell it like it is.No bureaucratic/public servant obfuscation.
You'll be surprised how many nuns do say f**k
The Questions Media will never ask....
With the introduction of the Long term Tail management Plan in 1997/98 many thousands of claimants were brutally & 'Corruptly' forced off ACC.
Within 2 yrs ACC's operating costs/budget/funding went from approx 6.5 billion per yr - suddenly down to approx 2.5 billion per yr and has remain much the same since 1999.
This equates to savings of approx 40 billion over the past 10 yrs.
This amount is far more significant than the 'spin' about a supposed 21 billion liability. (Over how many yrs? - we havnt been told this)
I have previously asked former ACC minister Ruth Dyson, exactly where did the annual savings of 4 billion go? show me where it accrued or was added to the Governments annual budget/finances.
She used 'spin' and obfuscation to avoid my questions. (At this time there was approx 28 Billion saved)
I could not discover where the money was going in Govt coffers.
However further inquiries/investigations reveal a very interesting private trustee superannuation company called 'SHAMROCK SUPERANNUATION LTD'. This company was/is managed by ACC executives. It invests/manages millions of dollars in and out of the country. It has been set up as a private trustee company to avoid any link back to the encumbent Govt and thus avoid the Official Information Act.
hmm... sneaky!
Be very careful!!!! We can both go to NATIONAL. Keep copies and cover yourself. What would you do over that amount of cash. What if the claimants, I mean clients put a freeze on the funds by joint court proceedings. INVESTED INTEREST. SERIOUS FRAUD UNIT?
Thanks for clearing it up for me. I have had these talks with guys at work who have know idea about how we got to this stage other than to blame National for trying to use this as an excuse for privatisation. I see this as clearly really bad management that has been going on for some time.
It is a sad fact that, since the departure of Garry Wilson's management team, at ACC costs have run out of control and liabilities have ballooned; it is even sadder that it was predictable and predicted.
The new Management Team at ACC, under Dr. Jan White (that's a medical MD, not a PhD,) has always been larger and far less commercially focused than Mr. Wilson's.
The Chief Operating Officer is a lawyer who has spent most of his career with the corporation, much of the time developing changes to the Act. His expertise in operations management was zero when he assumed this position.
Dr. White herself came from the position of CEO of a DHB - a form of organisation not particularly famed for managing costs, especially overhead costs.
I'm sure the old management team must lay awake at night worrying about the state the ACC has come to, just as they used to lose sleep over how to make it better and better.
The last four CEOs have an interesting and chequered profile. Two criminals that escaped prosecution by resigning and leaving the country, one who energised the corporation and put it back on a solid commercial footing, and one who has increased overhead costs by an average of 12% per annum and, from lack of understanding, lost sight of the need for actuarial provision for future liabilities. (FYI That's 2 political appointments, 1 commercial and another political) Add to that 9 years of 'we'll pay for anything anyone can think of' politicians looking to realise a dream from the 1920a and you have today.
To paraphrase a rugby saying "Bring Back Garry"!
Garry simply did number crunching and many claimants were dis-intitled! We were told I dont care how you get them off the books! "cut" Many committed suicide or ended up in jail or on the sickness benifit. What Jan has to deal with is a mass back log of injuried angry "CLIENTS" many are genuine that had needs not wants! Bring back BUCK any day over Garry....sorry its the truth. What Dr White is like? No idea. Depends if she has a heart to do the right thing. She dosent say much? Hope she is not another CEO fraud! Anyone checked?
Why was ACC listed on the companies office and now there is no record it even happened? I have copies of this. How much money is in the ACC super scheme? A easy way to launder stolen claimants funds. Having free rain investing in companies that could be investment fronts that move cash then go under? "easy pickings" "National, your budget shortage is there waiting for you. ex acc employee ;-)
do workers at acc get paid 4people lyk me,2b 1of theyr so called clients?
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