September 2014

Statutory review of the 2012 Workers Compensation amendments - It's too soon to tell

The 2012 Workers Compensation amendments were introduced with three main goals:

  • Assisting injured workers to return to work as early as possible;
  • Improving financial support for seriously injured workers; and
  • Returning the scheme to financial sustainability.

Of these, the third was probably the main driver of the changes.

At the time the Workers Compensation Legislation Amendment Act 2012 was introduced, the NSW Scheme was estimated to be $4 billion in debt.  The Act contained a provision for a review to determine whether the policy objectives of the amendments remained valid and appropriate over time.  The review took place earlier than expected because of the turnaround in the financial position of the Scheme.  By December 2013, it was estimated the Scheme had returned to a $1.4 billion surplus.  But it is too early to say whether the improvement in the financial fundamentals of the Scheme can be sustained.

Results of the Review

  • Financial performance of the Scheme

The review found a sizeable proportion of the financial turnaround in the Scheme was unrelated to claims and liabilities, or the amendments.  In the six months to June 2013, investment returns improved more than expected and if this improvement is excluded, then the Scheme would not have been in surplus.

Nevertheless, approximately two thirds of the turnaround resulted from a reduction in claims’ liabilities. Both the number of active claims and the level of payments fell in the 18 months to December 2013.

  • There has been a fall of around 24% in the number of new claims since June 2012.

The number of new claims has reduced dramatically but, at the same time, the average cost of a claim has increased.

The review estimated that around one third of that change is related to reduced eligibility attributed to the reduction in journey claims.  However, the remainder of the fall was due to what was described as behavioural/cultural factors, meaning that a certain proportion of injured workers elected not to make a claim for reasons unrelated to the amendments.  It is quite likely publicity surrounding the amendments discouraged potential claimants.  There is some doubt about whether this trend will continue.  If it doesn’t, and claim numbers increase then, coupled with increased costs per claim, liabilities will increase.

  • Reduction in premiums

Following the reforms, New South Wales’s premiums have moved “broadly in line” with average premiums across other Australian jurisdictions.

  • Non financial objectives have been less successful

Some of the other objectives, including early return to work, have been less successful.  For example, there has been no real change at the proportion of claimants who leave the Scheme within 13 weeks.  In addition, caps on medical expenses and the requirement for pre-approval have resulted in potential delays in treatment, which may lead to poorer outcomes.

Concerns have been raised about the effect of the amendments on workers who have a whole person impairment between 21% and 30% and no longer qualify for lifetime support. These workers face losing medical benefits 12 months after they return to work and this creates a disincentive to return to work.  In addition, it was noted that some impairments require ongoing support, even where they may not be close to the threshold for being a serious injury.  Examples included hearing loss and injuries requiring the use of prosthetics.

The review noted that self-insurers appeared to have a greater incentive to invest in prevention and early intervention than scheme agents.  In particular, this resulted in a reduction of serious psychological injury claims due to early identification and case management.

  • Other disincentives to return to work

The review noted that some workers with greater than 30% whole person impairment do wish to return to work but the new system discourages them from doing so and does not provide adequate support.  It also noted that workers with pre-existing disabilities or with other limitations have genuine barriers to transferring to locations where suitable duties are available.  On occasion, the PIAWE may be higher for a worker who remains off work.

The review was also concerned the amendments had not been as successful in reducing the regulatory burden associated with implementing the reform.  Complexity for workers and health professionals, as well as claims managers, had contributed to a greater burden.

  • Efficiency of the dispute resolution process

The review considered the three tiered dispute resolution process worked well in many cases but it was aware of examples when the separation and sequencing of the process between WIRO and WorkCover created a burden for insurers, employers and injured workers.  The dual role of WorkCover as a regulator and insurer came in for particular criticism, although it was noted WorkCover was taking steps to address this issue. 

The review questioned whether legal funding for workers should reside within WIRO given the lack of incentive to ensure only genuine complaints seek legal redress.

Conclusions and Recommendations

The major conclusion of the unexpected early review of the 2012 amendments was that it is too early to conclusively determine their impact on both the financial sustainability of the scheme and their effect on the behaviours of stakeholders.

Nevertheless, the review made a number of recommendations to improve the outcomes from the amendments:

  • Reconsideration of the WPI threshold for seriously injured workers to address deficiencies in providing access to necessary treatment for workers with long term injuries such as industrial deafness and amputations requiring the use of prosthetics.
     
  • A review of recess claims noting they were treated differently to journey claims for reasons which were not obvious.
     
  • Review barriers to commutation.
     
  • An early priority would be to review return to work criteria to ensure they do not impose unreasonable requirements on injured workers and to prioritise the development of clear guidelines for return to work and other aspects of the reforms.
     
  • Better engagement with health professionals to achieve better return to work outcomes and providing a more supportive focus on small business.
     
  • The efficiency and consistency of work capacity assessments required improvement which may involve building capacity for claims managers.
     
  • Improving the fairness of dispute resolution processes. The current process offered limited opportunities for injured workers to achieve an independent review of their concerns given the restricted scope for arbitration and the perceived lack of independence of the merit review process, together with the lack of legal representation for workers with respect to work capacity decisions.  The review noted perceptions have been created that the review process is “pro insurance/employer”.  It recommended further review using a proper analysis of costs and benefits.
     
  • Remove ILARS from WIRO to ensure independence and fairness of the review process.
     

NEW DEVELOPMENTS: On 3 September 2014 the NSW state government gazetted the Workers Compensation Amendment (Existing Claims) Regulation 2014, which is intended to address some of the concerns about access to medical expenses. We will explore the new Regulation in our next bulletin.