"Substantial" rise in ACC levies ahead - scheme "under threat":

Friday 9th October 2009

The accident compensation scheme has become a social welfare agency instead of an insurance scheme, and growth in its unfunded liabilities totalling $7.2 billion in the last two years is not sustainable, says the Accident Compensation Minister, Nick Smith.

Its chairman, John Judge, says "substantial levy increases are required", as well as savings of $2 billion a year in costs, which will be met in part by insisting that ACC clients take more responsibility for their rehabilitation.

"ACC cannot sustain the huge ongoing increases in claim costs arising from greater claim numbers, deteriorating rehabilitation rates, and unfunded scheme extensions. The underlying problem is that ACC has drifted from being a state insurer to a welfare provider," said Smith following the tabling in Parliament today of the corporation's annual report.

"Reform is required to ensure its future for New Zealanders. The grave concern is the huge growth in the outstanding claims liabilities from $9.4 billion to $23.8 billion in just four years."

Judge said there was now a $12.8 billion gap between claim liabilities at $23.8 billion and current net assets of $11 billion, equivalent to 3.6 times ACC's annual premium income. Five years ago, the gap was only one year's levy income.

"Historically the focus has been on current costs rather than the long-term cost implications of accidents. That's at the root of our problem," he said.

While there was no prospect of immediate failure, "the existence of the scheme is under threat" and could take a decade to fix, said Judge. "We must act now to protect it for the sake of all New Zealanders."

Improvements are required in:

Claims management
Managing healthcare providers' charges
"Being tougher" on entitlements, including weekly income support
Providing care strictly to the limit of ACC's legal obligations
Encouraging more personal responsibility for rehabilitation
Reducing administrative costs.

Target annual cost cuts of $2 billion are "nowhere near sufficient on their own to close the gap"," Judge said. "Substantial levy increases are also required, particularly for motor vehicle owners and earners (people in the paid workforce)."

Consultations will start next week on levy proposals for 2010/11 levy proposals.

"Some difficult choices will be needed in the near future on levies and scheme entitlements," said Smith. "We will need to carefully balance the interests of claimants with those of levy payers who cannot sustain the sort of hikes that will be needed if costs are left unchecked."

Businesswire.co.nz

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