" The WorkCover Board has proposed the most radical legislative reform agenda for Workers Compensation in South Australian in over 20 years. This session will outline the proposed reforms and how they may impact on stakeholders".
Recent reports from business groups suggest that it has never been better to invest and do business in South Australia
Headlines in The Advertiser (30 May 2007) “OPTIMISM AT 10-YEAR HIGH” refer to the Bank SA “Business Monitor” survey that shows that “68% of businesses are confident about conditions improving, with only 10% pessimistic (highest level of optimism recorded since the survey began in 1997).
What’s Happened to WorkCover?
In improving economic conditions, WorkCover’s performance has deteriorated over the past 5 or so years.
Despite an increased number of registered employers and a decreasing number of workers compensation claims
In March 2007 Government reveals that WorkCover Board have proposed radical amendments to the WorkCover Scheme in SA.
Deteriorating Scheme Performance
Board says the “unfunded liability” of the SA Scheme is set to exceed $1 billion
That without legislative change the unfunded liability could reach $1 billion in the next year or two
(“unfunded liability” - assets to liability ratio).
Measure of the adequacy of the Scheme to meet future claims payments
Low ratios could indicate the need for increased premium rates to ensure assets are available for future claims payments
In reality, the Scheme is able to meet its liabilities. The assets to liabilities ratio is however a barometer of Scheme Performance.
How Did We Get Here?
What are the factors that have caused the Scheme to get to the point where the Board says we need urgent legislative change (Read:- code for reduction in benefits to injured workers)
SA WorkCover’s worsening performance led to the then newly appointed WorkCover Board commissioning an operational review.
In 2004, the operational review undertaken by ex Vic WorkCover CEO, Bill Mountford resulted in a report entitled “Restoring Claims Management Excellence – Final Report – May 2004”.
The 2004 Report identified continuance rates as a significant factor in WorkCover’s poor performance. The main contributor to poor scheme performance was the failure of rehabilitation to achieve good return to work outcomes.
Operation Review 2004
Two key measures of a Scheme’s effectiveness and efficiency are the continuance rates of claims and the expense ratios, respectively. On both these measures the South Australian system was found to be significantly lagging the Victorian scheme with which it is most similar…”
At the scheme strategy level (as set by the Corporation), the strong emphasis on early intervention and rehabilitation has failed to achieve earlier and more sustained return to work rates for injured workers.
“Income maintenance claims of one year or more duration… …are associated with 75 per cent of the claims liability.” (WorkCover SA Annual Report 2004-2005 p.19)
Performance – Continuance Rates
Since May 2004 there has been an ongoing deterioration in continuance rates
Performance data over 2004, 2005, 2006 and 2007 confirms a further deterioration in continuance rates.
“long-term claims are the key-driver of Scheme costs and the Actuary’s estimate of claim liability” (WorkCover Annual Report 2004-5)
Performance Data from WorkCover Management Reports for June 2005, September 2005, December 2005, March 2006 and March 2007 Quarters
The Table Below Shows the Number of Active Income Maintenance Claims by Duration of Claim
WorkCover Board – A Case for Change
The Board says that since mid-2003 it has “taken significant steps to improve the Scheme’s management including:
Refocusing…primary objective of achieving timely and sustainable return to work
Strengthening management of claims agent contracts to drive delivery of outcomes
Appointment of EML
Board says its work has culminated in the appointment of EML as sole agent for the Scheme
Selection based on EML’s excellent case management record in NSW
Question: What is the NSW Scheme environment?
NSW Scheme environment
Entitlement to weekly payments in the NSW scheme provides:
100% income replacement for first 26 weeks (In SA 100% for 52 weeks)
Post 26 weeks, weekly payment reduced to $361.30 (gross) per week (In SA - 80% from 52+)
Employers able to terminate worker’s employment once established that they can’t return to work performing full normal duties (section 58B obligation to provide suitable duties in SA)
Board’s “Case for Change”
Board says that in applying EML’s expertise,
“it has been recognised that the SA legislation lacks the return to work incentives of other jurisdictions and without legislative change the ability of the Board to further improve outcomes and maintain them over the longer term is limited.” (p4)
Discussions with EML
“Discussions with EML have highlighted their belief that the Scheme is not optimally tailored to achieve return to work outcomes” (Board proposal page 5)
“Better return to work outcomes can only be achieved if adequate incentives exist in the legislation.” (Board proposal page 5)
This is code for reducing benefits.
Return to Work Data
Results from the Return to Work Monitor 2005/06 indicate:
SA has the lowest return to work rate
SA has the second lowest durable return to work rate
SA had more than double the Australian average for workers still in receipt of weekly payments after 6mths
52-104 weeks 75% PIE (recently amended to 130 weeks)
Cap benefits at $1,190 (indexed)
(SA maximum currently $2054.40)
Board Proposal – Benefit Structure (the “main game”)
Aligning the benefit structure to that of the Victorian Scheme would have the double “whammy” effect of “encouraging” workers to return to work and reducing the overall cost to the Scheme. (projected saving of $22 million per year)
Cut-off at 104 weeks provides significant savings to the Scheme
Work Capacity Review at 104 Weeks
Unlike the current Victorian Scheme that provides for a capacity review at 130 weeks, the Board has recommended the introduction of a capacity review at 104 weeks.
Purpose of “capacity review” is to remove from the system all workers who have capacity for work
“Capacity Review at 104 Weeks”
Only workers that survive the “capacity review” at 104 weeks are:
Those workers that have no work capacity
Those workers that have minimal work capacity and have returned to work performing at their maximal capacity for work (and if earning less than otherwise would have earned, they continue to receive “top-up” compensation)
What About Self-Insurance as a Return to Work Model?
Self -insurance is considered an effective option for larger employers able to manage claims effectively.
Self-insurance provides a powerful incentive to improve safety as all claim costs are borne directly by the employer. (Clayton Review into Rehabilitation 2005)
They have better return to work/ rehabilitation plans. (WorkCover Newslink November 2006 p12 referring to research by McKinna et all Pty Ltd (market research company).
Self-Insurance as a RTW Model
Overall summary of the literature in terms of its implication for service delivery is that:
Effective management of return-to-work requires addressing individual psychological characteristics (particularly cognitions and expectations about the condition and return-to-work, and negative emotions) and workplace factors (particularly job design and workplace support) in addition to appropriate clinical management.
A coordinated approach between all stakeholders is essential (particularly important is linking the clinician/treating practitioner with those rehabilitation and workplace personnel who are involved with the injured worker).
Self-Insurance as a RTW Model (cont’d)
There is an increasing body of research on best practice clinical management of various work related conditions that should be incorporated into practice guidelines for clinicians working with workers compensation clients.
Return-to-work interventions may need to differ in emphasis and content depending on time since injury. ( Facilitators and Barriers to Return to Work: -A Literature Review, A Report prepared for the South Australian WorkCover Corporation July 2006 (Faculty of Health Sciences La Trobe University))
Self-insurance as a RTW Model (cont’d)
Research from North America indicates that the strongest and most consistent correlate to effective and durable return to work is a strong and supportive workplace culture
Barriers to return to work arise when there are departures from or breakdowns of a supportive work environment (for a variety of reasons) (Alan Clayton review into rehabilitation 2005 at pages 35-36)
Self-insurers have this advantage. The claims manager knows the workplace well, is more focused on effective return to work, has a better chance of creating/ maintaining a supportive return to work environment
Advantages of Self-Insurance to RTW (cont’d)
Rehabilitation provider understands workplace/ work environment
OH&S systems more advanced that most registered employers
Current provisions are workable because self insurers have the following advantages in managing their workers compensation:
Lower lost time claim frequency generated by OH&S systems that are significantly in advance of those prevailing among insured employers, leading to:
Much lower case loads for self insured case managers, which in turn leads to more time and resources available for each claim.
Direct and measurable impact of claims management quality on the employer’s financial status, leading to more immediate responses to shortcomings and claim risk.
Management of claims within the workplace, minimising the risk of loss of connection with the workplace and far greater capacity for early identification of scope for modified or alternate duties, retraining and job placement opportunities.
Ability to communicate with injured workers in real time and to deal with day-to-day issues on an immediate and face-to-face basis, minimising the likelihood that relatively minor administrative matters will escalate into increased claim risk.
Board Proposal re Self-Insurance?
Given research, available data, one might have expected WorkCover to have recommended amendments to enhance the take up of self-insurance in SA
Board Proposals re Self-Insurers
Amend the WRCA to require a size limit for self-insured employers of 200 full time workers or an equivalent remuneration limit.
Amend the WRCA to allow for groups of incorporated associations to qualify for registration as self-insurers.
Amend the WRCA to allow restructures and reorganisations to be specifically provided for, with WorkCover having the discretion to transfer, split, amalgamate or extend registrations where appropriate.
Board Proposals re Self-Insurers (cont’d)
Amend the WRCA to allow for the change of the nominated employer in a self-insured group.
Amend the WRCA to incorporate the ‘one-in-all-in’ rule into the legislation.
Amend the WRCA to allow WorkCover to consider the effect on the Compensation Fund
Does Size Really Matter?
Require a size limit for self-insured employers of 200 full time workers or an equivalent remuneration limit.
Expectation that data would demonstrate that self insurers (including the public sector) carry proportionally lower claim liabilities than WorkCover.
There are clear indications that there is in fact a difference in performance (see fact that SISA has not called on the Government to change the WRCA)
So why place an arbitrary 200 employee limit on self insurers? What is the magic of this figure?
As long as there are financial guarantees in place a greater number of self insurers would see improvement without legislative change?
Does Size Really Matter? (cont’d)
The primary objective of measuring ‘size’ is to provide a set standards of security for the Fund – a larger business is more likely to be financially stable and have the resources to service its self insurance responsibilities than a smaller one.
The financial criteria and actuarial analysis are a far superior means to provide the necessary assurance to the Fund than a count of employers.
Moves to drop the 200 worker limit and replace it with a remuneration measure have previously advanced as far as a Bill going into Parliament
Are More Self-Insurers Bad for SA Scheme?
In 1998, Pricewaterhouse Coopers, acting on the Board’s instructions as the then consulting actuary, provided a report to the Board dated 16/10/98.
The current Board asked the subsequent consulting actuary, Trowbridge Deloitte (now Finity Consulting) to provide further advice on the impact of self insurance on the Compensation Fund. Trowbridge Deloitte provided a report to the Board dated February 2004.
Are More Self-Insurers Bad for SA Scheme? (cont’d)
Both actuaries concluded that self insurance posed no risk to the Fund, to the average levy rate or to the employers remaining in the Fund, and that the then existing exit fee arrangements (known as the ‘72% rule’) left the Fund in balance.
The Trowbridge Deloitte report stated that “…we conclude that concern over the viability of the Scheme and the Corporation through granting greater numbers of exemptions is unwarranted”
A Case for an Increase in Self-Insurers
Given the benefits in claims management performance and the relatively lower liability level of self insurers when compared with the Scheme as a whole, is there a case for an increase in the number of self insurers within SA?