Crusher Collins' voodoo economics

The Minister for ACC has rejected shifting ACC's funding model back from full-funding to pay-as-you-go (see note below for an explanation of these terms), but her reasoning is utterly illogical.
Her first attempt at a justification goes like this: "It would be irresponsible to leave future generations of New Zealanders to pay for claims that happen today as well as the cost of their own injuries."
But in 2010-11, 95.3% of claims were closed within one year. It is only a tiny minority that out-last one generation of levy-payers (let alone "generations" plural!) Her choice of words is little more than scare-mongering.
Some severe-injury claims do last a long time of course, and these are very costly. Either way (PAYG or full-funding) New Zealanders will have to support a roughly similar number of people with permanent total or partial disability over decades, regardless of the years in which those claims were lodged. To the levy-payer, it's irrelevant when the claims currently being funded were lodged.
Converting from PAYG to full-funding, as we are right now, disadvantages today's levy-payers as they have to pay more in order to build up a multi-billion-dollar fund. The size of the reserve required for full-funding is only estimated (currently estimated to be in excess of $25 Billion), and so ACC may be collecting too much or too little from us to achieve the goal. We cannot be sure if the actual levy paid by any person or firm is genuinely 'fair' from a point of view, say, 40 years in the future.
The Minister's second attempt at an explanation argued that, under PAYG it "becomes more expensive as future levy payers are required to pay more and more to cover a backlog of injuries."
This is also illogical as it assumes that the overall size of the tail must grow and grow indefinitely - which it doesn't do. All long-term claims do come to an end eventually (either by return to work, eligibility for NZ Super, or death). The ACC scheme is nearly 40 now, and its maturity means that the so-called "backlog" need not grow at an unaffordable rate. The Corporation does have some control over managing the long-term tail of partial disability, and it has been reducing those claims.
As ACC is a Crown-owned entity with statutory powers to levy individuals and firms, there is no risk of insolvency. Hence the private-sector insurance standard of fully funding is un-called-for, and this financial policy is only relevant if the government is still toying perilously with the idea of privatizing ACC.

Explanatory note: Under full funding, the levy-payers contribute to a reserve fund that is large enough to pay for the entire estimated future costs of all claims that are open today. Under pay-as-you-go (PAYG), the levies collected pay at minimum for the costs of the current year's expenditure. It is possible of course to have a compromise where a partial pre-funding reserve is maintained, and PAYG applies from there.

What to do about ACC?

It may be that Judith Collins was handed the ACC portfolio as a poisoned chalice, to kill off her leadership pretensions. If she manages to do a good job of it, on the other hand, it may prove to be the opposite.

Once the scandal about leaks of personal information, emails, etc, has died down, the real test for Collins will be to turn the ACC ship around, get it performing satisfactorily for New Zealanders (not just for Treasury), and above all get it off the headlines.

If she were to ask me (yeah right!), I'd recommend that the first step is to delete the section of the ACC law that requires the scheme to be fully-funded. It's this unnecessary policy that is at the root of the problems. It was Labour that first put that requirement into law, but my hunch is that, provided the Minister were serious about genuine culture-change at ACC, they'd now support its removal. Treasury would probably not like that idea, on the other hand; and it would require a change in the way ACC figures are presented in the government's balance-sheet. But tough.

We don't yet know, however, what Collins means by 'culture-change'. She may have in mind something worse than before! (If they're a nuisance, put the claimants in the Crusher?)

There are, however, some matters (aside from privacy) that do need to be addressed:

1. The balance between controlling long-term 'tail' claims and claimants' rights to fair, genuine rehabilitation needs to be more sensitively negotiated. Rehabilitation and the return to employment and social activity were always at the heart of the Woodhouse vision for ACC, but so was the elimination of litigation between the claimant and administrators. Claimants should be focussed on return to work, and not on doing battle with the Corporation.

2. There needs to be fairer policy around that grey area between the effects of aging (or degeneration) and the effects of personal injury caused by accident. As I recall from the Trapski Report 1994 (which looked into some troublingly similar concerns), the 'egg-shell skull' principle should apply. That is, even if a person has a non-injury-related degenerative or congenital disorder that has exacerbated the harm caused by an accident, the compensation authority is bound to cover the injury and its consequences as they find them. Having said that, ACC law is clear that it does not cover age-related or degenerative conditions on their own.

3. Claimants need to have confidence that 'independent' medical assessors (presently chosen and paid by ACC) are genuinely independent enough to give the best possible medical opinions, devoid of influence from either the claimant or the Corporation.

4. The new ministerial appointees to the Board, and the CEO that the Board will hire, will be crucial. Reporters and bloggers will be scouring the CVs of all new top-level appointments to ACC, and questions will be asked about their expertise and about the policy intentions signaled by their selection. That could be the next big political test for Collins – as well as the turning-point (up or down) for ACC itself.

Enough for now. ACC was never insolvent, it is affordable, and it is cheap compared to other countries.

ACC and the Pullar case

You can hear my comments on Radio NZ's The Panel here. Skip the first 9 minutes.


On the Pullar/ACC case, John Key was quoted as saying:
"ACC deals with a huge number of complaints, a huge amount of data and there are always people who feel the system hasn't treated them fairly and that is partly because the big dispute always comes around the definition of a pre-existing condition. That at one level is at the heart of what sits with this Bronwyn Pullar claim.'' (Newstalk, via stuff).
Compare that claim about a pre-existing condition with Nick Smith's comments about Ms Pullar in his letter of reference for her (dated 7.7.11 - the same letter that got him into trouble when he was Minister for ACC):
"Bronwyn prior to the accident ... was well and a dynamic, capable person who worked hard and achieved a lot. To the best of my knowledge she did not have any health or other conditions or issues that would have compromised her capacity to work. She has a strong reputation as a very effective and efficient worker in both her voluntary and professional roles."
Whose version do you believe?

Is the sun setting on National?

One single opinion poll suggesting that "Labour could lead a Government if an election were held today" (Audrey Young) should not be taken too seriously so early in the electoral cycle. A longer-term trend of polls heading in the same direction, if that happens, may make such predictions more interesting. Nevertheless, this recent poll may indicate that the Key government has lost its mojo - and lost it rather earlier in their term in office than one might have predicted this time last year.


We can trace their decline back to the tea-party incident in November - which derailed National's relationship with the media. That particular PR disaster has been followed up this year by a series of absurd scandals and backdowns too numerous to list here. (I can't help but remind readers of the now-forgotten backdown on private-sector underwriting of workers comp - an event that was overshadowed by the media frenzy over privacy leaks at ACC!)


At the same time, David Shearer, as leader of Labour and of the Opposition, has gained in confidence – in a balanced and unassuming way – and the Greens are now making statements that sound genuinely like a coalition partner-in-waiting. A red–green government is beginning to look like its worth a bet, if you're the betting kind of person.


While National keep talking about 'growing the economy' they are stuck in a monetarist ideology that really deep-down believes that governments do not grow economies (only businesses do!) and hence their only 'solution' to the economic crisis is fiscal austerity. I see no reason why their asset-sales policy will do anything at all for economic growth. A sell-off would add no new productive capacity to the economy, but merely change the ownership structure of what are already well-performing assets. So, National is sounding like they are running out of political good-will and running out of policy ideas.


National's policy-disaster over school class-sizes last week reached so deeply into the interests and anxieties of middle-class New Zealand – and so deeply into the confidence of support parties – that the political consequences of sticking to their guns (or the Treasury's guns) just wasn't worth it. They burned off a lot of political capital over that one bad idea. We may look back and see that incident as the point at which National lost command of the centre. Let's wait and see!