ACC levies

June 19th, 2012 at 1:00 pm by David Farrar

Vernon Small reports:

is in line for a major shake-up, with the two major parties eyeing changes that could see premiums plunge by up to 25 per cent.

Labour is rethinking its ACC policy, and could scrap the fully funded model to revert to a “pay as you go” approach – and yesterday ACC Minister Judith Collins refused to rule out a similar move.

During last year’s levy review, the Cabinet agreed to “a review of the funding policy for the ACC accounts and the reasons for the fluctuations in the projections of the ACC’s accounts”.

Ms Collins said ministers were looking at the funding policy “which could include the stability of the scheme, good process for levy setting and the impact on the economy”.

“We’re not ruling out anything at this stage.”

Labour leader David Shearer said a possible change had not yet been discussed by caucus.

But the party’s ACC spokesman, Andrew Little, said it was time for a public debate about funding options, with recent controversy highlighting ACC’s overemphasis on lowering costs rather than meeting claimants’ needs.

Under full funding the corporation builds up reserves to cover the current and future costs of existing claims, and is aiming to reach that goal by 2019.

Under a pay-as-you-go approach, it would need only enough income in a year to cover annual claims, plus a possible buffer for unexpected costs or disasters.

Mr Little said his “back of the envelope” calculation was that levies could be cut by 20 per cent to 25 per cent if there was a move away from full funding.

While it would be nice to have lower levies, such a move is a false economy which really just leaves the next generation with a huge unfunded liability. Levies should reduce because ACC is managing to rehabilitate people back to work faster, not due to accounting changes.

ACC’s revenue for a year should roughly match the liabilities it incurs in that year. That way there is security for long-term ACC recipients, and we don’t leave a huge bill for future generations. The benefits of paying for the full costs as they incur is that we can then make rational decisions about what ACC covers. When that cost is partially hidden by leaving it to the next generation, it encourages reckless spending.

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15 Responses to “ACC levies”

  1. toad (3,673 comments) says:

    By your reasoning, DPF, parents should pay in full to forward fund their child’s education the year he or she is born.

    WE don’t forward fund education, or health, or welfare. What makes ACC different, apart from the desire of right wing Governments to flog it or bits of it off to their mates in the insurance industry if they think they can get away with it politically (which, fortunately, at the moment they don’t)?

    [DPF: A family is not a company. ACC is not welfare. It is insurance. No other insurance company would be allowed to not have enough funds to cover its liabilities]

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  2. Michael Littlewood (15 comments) says:

    David

    I disagree entirely with you. The ACC is not an insurance company. It is a government department. We seem to have no difficulty with running health, welfare, defence and everything else on a PAYG basis. What is it about ACC that makes it different?

    You will find the full case for a ‘modified PAYG’ approach to paying for the ACC here:
    http://docs.business.auckland.ac.nz/?title=PensionCommentary%202009-1:%20Why%20does%20the%20Accident%20Compensation%20Corporation%20have%20a%20fund?

    [DPF: I respectfully disagree that it is a govt department. It is a state owned insurance company]

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  3. simonway (375 comments) says:

    Surely once full funding was achieved levies would lower anyway, as ACC would no longer have to use that year’s revenue to cover previous years’ injuries. Moving back to year-by-year funding would give you a short-term drop in levies the same way moving to full funding gave you a rise, because some injuries covered in future years would be funded by levies collected during the full-funding period, but in the end, if ACC is paying out coverage for the same number of injuries, they’ll end up collecting the same amount of money.

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  4. JeffW (324 comments) says:

    Why should we socialise irresponsibility? What must I have income insurance, which if I wanted I would get from an insurance company, but must get from ACC as they can send the police around to force me? ACC should be closed down.

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  5. virtualmark (1,522 comments) says:

    If ACC is looking at reducing premiums … can I please have a no claims discount???

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  6. Manolo (13,517 comments) says:

    Opening up ACC to competiotion? Pffft. Another vacuous promise from National which will never see the light of day.
    As JeffW said: ACC should be closed down.

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  7. RRM (9,666 comments) says:

    If you “fully fund” it, isn’t there always the risk that when you eventually arrive at the future point in time where your fund is meant to be big enough to pay for all the claims, that times have changed or someone has cocked up, and you STILL are left with some multi-billion dollar bill?

    If we PAYG then surely it’s easier to make decisions like “we’re not going to fund [situation XXX] any more, that will save us $69 million this year”… and you get to quickly see if your changes achieve the savings you anticipated?

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  8. wynkie (86 comments) says:

    Micheal Littlewood is correct. Even the ACC legislation confirms that “it is not a function of the Corporation or any Crown entity subsidiary of the Corporation to provide insurance”.

    262Functions of Corporation

    (2)To avoid doubt, it is not a function of the Corporation or any Crown entity subsidiary of the Corporation to provide insurance, but it may provide insurance-related services in accordance with section 263 or section 265.

    [DPF: The statute may say that, but how is it different from an insurance company. You pay premiums and if you get injured you get benefits.]

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  9. toad (3,673 comments) says:

    @wynkie 1:52 pm

    Aside from the legal niceties you cite, ACC was never intended by the Woodhouse Commission that designed it to be insurance. Insurance is to insure against common law liabilities people may incur. ACC is a social contract, under which we actually gave up some of our common law rights and obligations, rather than just insured against potential liability under them.

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  10. KiwiGreg (3,224 comments) says:

    @toad we “gave up” nothing, it was taken by force.

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  11. Manolo (13,517 comments) says:

    Fear when you hear the words “social contract” from a Luddite supporter.

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  12. thedavincimode (6,590 comments) says:

    RRM

    The outcome on fully fund will never be exact but it ought to get close enough from an actuarial perspective which does mean, to the largest extent possible, we are not leaving exposures costs to future users.

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  13. trout (921 comments) says:

    Where would we be if the EQC was a ‘pay-as-you-go?
    PAYG ACC could be likened to Local Authorities which create liabilities (ACC does this by accepting claims with a long term payouts) by borrowing irresponsibility and expect the next generation to pay.

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  14. gravedodger (1,528 comments) says:

    @ trout 4 51, be careful what you ask for.
    Should Wellington get hit in the next wee while we will see.

    EQC is a poor attempt at “Insurance” and should be structured as a reinsurance fund, business based and all insurance be left to companies who understand risk management, assessment and claim processing along with investment strategy.

    I shudder to think of the gross loss from incompetence, mismanagement of claims clouded by confusing deferred maintenance with damage.

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  15. reubee (24 comments) says:

    Read the ACC annual report …

    Collects $4.8b in levies
    Spends $2.5b in claims

    Whilst it is a good idea to go to a fully funded model, does it need to be in such a rush to get there?

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