29 August 2011

ACC: Who chooses?

One of the main policy choices on offer to voters this election will be whether to remove the State monopoly from the ACC work account (which is funded by employers to cover work accidents and occupational diseases) and allow in competing private-sector insurers. Labour say no, while National say yes. And a National–Act duet could go for competition in other ACC accounts as well, forcing all individuals to purchase their own off-work accident cover.

Sticking with the work account for now, though, what are some of the key issues?

First, competitive provision would not be a genuinely ‘free’ market. The employer would be compelled by law to ‘choose’ an insurer, and the minimum standards of the insurance product would be strictly regulated. But you would still not be ‘free’ to take your own case for compensation in court (not that I think that’s a good idea!)

In a free market, the customer is at liberty not to participate at all, or to participate from time to time as much as he or she likes. Furthermore, the customer in a free market is normally the purchaser and the recipient of the service. If I buy health insurance, I get the benefits.

Secondly, the unusual thing about workers’ compensation insurance is the triangular relationship. While the employer is the premium-paying customer, the injured employees receive the benefits and services. The employer gets to choose the insurer in a multi-provider system, not the employee whose injury (or potential injury) is being insured. The person harmed is not the insurer’s paying customer.

The incentive for the insurer is to satisfy the customer (the employer), and the employee’s interests are only served in as much as it satisfies the customer–provider relationship (in compliance with government regulations). The incentive for the employer is to prevent reporting of injuries or, failing that, to dispute work-related cover. Employees would be asked to claim that the injury happened at home, so it would be covered by ACC anyway, and then the employees’ levies would subsidise this kind of misrepresentation of injuries.

Employees get choices over neither the provider of compensation nor the benefits, and so they have nothing to gain from privatization. Employees’ levies would end up paying for some work-accidents.

No doubt we would hear anecdotes about an injured employee who got a good deal from a private-sector insurer, but one hears such stories now about ACC, so anecdotal evidence is not persuasive.

Thirdly, then, let’s look at this from an electoral point of view. The numbers of voting employees (who, I argue, have nothing to gain from privatization) vastly outnumber the insurance company executives (who do have something to gain) and the employers (and I’ll come back to what’s in it for them in a moment). So, why would such a policy gain votes, if looked at rationally?

Most employers will not benefit financially from being compelled to choose among a range of insurers. ACC employer premiums are low compared to Australia, the work account is fully funded, and the employers could expect even lower levies in future if we stick with what we’ve got. In fact, because full-funding is unnecessary for a State monopoly, employers could actually get a levy holiday, if the government would only change its mind. ACC also scores reasonably well in returning people to employment.

Private-sector insurers may be able to offer competitive premiums in the short term, especially to those with low risk, and some employers with no lost-time injury-claims may do well. But, on average, premiums would be higher for employers under a multi-insurer system, especially as the extra taxes (ACC pays no tax), dividends to shareholders, higher litigation costs, and marketing costs would be passed on to the customers. Those employers who produce a few costly claims will find that their premiums really shoot up.

Reinsurers would see NZ Inc as a high-risk investment (due to the costs of Canterbury, the potential for more natural disasters, the mix of hazardous industries, and the pressure on the kiwi dollar) and so their premiums may be higher too.

NZ has a high workplace fatality rate. This has been drastically increased, temporarily, due to Pike River and the Canterbury earthquake.

These facts make us ask what drives the actions that we take to prevent accidents and injuries. Is it credible to argue that the present ACC system is somehow the cause of the high incidence of workplace fatalities? Or, that privatization is a solution to that?

I don’t think it is. Workplace safety requires commitment and strong policy from senior management, and it requires commitment and active participation from everyone in the workplace. In high-risk activities, this means constant awareness and appropriate decisions, not just a safety committee and the occasional reminder notice. The Pike River tragedy, moreover, has reminded us that, in addition to employer–employee joint responsibility, strong regulation and enforcement of regulations is also necessary.

It’s astonishing that many employers who advocate privatization of ACC are willing to state publicly that they need variable premiums (penalties and bonuses) to give them an economic incentive to prevent accidents. Those people need to have a good look in the mirror and ask themselves how callous it sounds to demand a financial kick-back in order to prevent deaths and serious disabling injuries, especially when the real circumstances of such potential tragedies are under their direct control.

What would the reaction be if school-teachers demanded financial incentives in order to make concern for children’s safety worthwhile?

The Pike River and Canterbury experiences should prove to us that safety – at work and outside of work – is always a collective concern, as well as an individual one. When a person dies at work, or when anyone dies by accident at home or elsewhere, we are all the lesser for it.


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