ACC for FREE
Well, maybe not. It seems like it is suddenly going to get a whole lot more expensive. Trevor Mallard seems to think that the government is fear-mongering. He, along with Brian Fallow and Rod Oram, seem to think that the ACC blowout is merely an accounting problem, a combination of accounting standards and poor investment opportunities. They think that this could easily reverse as the economy improves and the recession lifts. While I am sure that they are partly right and that the situation is probably not as dire as Nick Smith is making it out to be, I do not buy in to the “only accounting” meme. Here are a couple of figures from a previous post which tell you why I think that.
And this
You will note in the graph that expenditure for ACC remains stable until the Labour government takes over. It then rises steadily, doubling over nine years (against an inflationary rise of only 30%), yet the levies have hardly kept pace with inflation; in fact the work levy rate has actually fallen. It appears that Labour viewed the extra ACC services and the increased leniency in accepting claims as some sort of freebie, presumably on the grounds that they could make up the difference from their much-spent surplus. Be that as it may, it is certain that some of the increasing deficit is due to the fact that ACC was spending more than it was receiving from levies and taxation.
And, in case Trevor, Brian and Rod think I am just making this up, you will note from the table that the ACC deficit rises steadily from 2000, long before that recession (even New Zealand’s which started a year earlier) and it rose regardless of the discount rate the accountants were using. I conclude that a substantial chunk of the increase in liabilities came from Labour’s mismanagement of ACC, rather than the current recession. Only last year’s $2 billion loss and this year’s $4.8 billion loss are likely to be substantially due to accounting changes and the economic climate. As approximate guess would put the shortfall in current expenditure to be about a billion a year, which accords well with John Judge’s estimate of $700-800 million a year.
It is this current expenditure shortfall that is going to raise our premiums by such a significant amount, not the attempt to fully fund ACC future liabilities (which I consider to be a bit of a waste of time, given that it is so hard to get an accurate figure on them).
I have often been told how wonderful ACC is because it is so cheap and provides such good cover.
Now you know how it is done. It wasn’t free, it was deficit funding.
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Oct 11 09 5:08 pm
Ummm, you seem to have overlooked one obvious factor – population growth. In fact, you should have been suspicious exactly because the ACC claim costs stayed static for 5 years under National, despite significant immigration fueld growth.
A better measure would be cost per capita.
True. However, population growth when added to inflation still only accounts for about half of the growth in ACC.
Oct 11 09 7:54 pm
Why not follow your argument to its logical conclusion- ACC was wonderful and it was cheap before Labour stuffed up ACC by acting as if the Woodhouse principles had never existed.
Labour were the original fair-weather socialist wolves in the hen-house.
Oct 12 09 7:51 am
A word to the wise to the good Doctor – don’t regard what Red Rod Oram writes as gospel. He is to the business sector what Finlay Macdonald is to objective commentary
Inventory2´s last blog ..Goodbye!
Oct 12 09 8:37 am
While I am sure that they are partly right and that the situation is probably not as dire as Nick Smith is making it out to be
Actually the situation for ACC Is far far worse than Nick Smith lets on! Simply economics mean that an ACC-style scheme will never be sustainable in the long run. We should keep the no-fault tort reform in place, and simply close down the rest of the scheme – then private insurers can (and will) provide cover to those who choose to pay for it.
Oct 12 09 8:52 am
What does ‘excludes private insurers’ mean in the first graph?
Excludes private insurers that provide accident comp. ACC work account was made contestable by the Nats. This was reversed by Labour. That would not have made any difference to expenditure as the money paid by employers would have come back to ACC
Oct 12 09 8:53 am
Sinner, that would be a disaster. In short, private insurance brings unhealthy competition & insane pressure to deny claims in order to keep shareholders happy, lower payouts for claimants, longer time to receive their money, and worse rehabilitation outcomes for the injured. The international literature is clear and the links are on this page.
The girlfriend is a chiropractor and talking to her these things are as clear as daylight without picking up a single newspaper. She is expecting her ACC levy to go up from $1200 to about $2000 per year, and the finger should be pointing straight at Helen Clark. This will put some people out of business- especially builders who pay an extraordinary sum in ACC levies already.
I think in time there will be huge national outrage at what the Labour government has done. Moreover they did by using an accounting adjustment- the common tool of the capitalist
I was just wondering what on earth “unhealthy competition” was? Even the competition amongst CHEs was only unhealthy because it wasn’t true competition…
Oct 12 09 8:35 pm
Inventory2: A word to the wise to the good Doctor – don’t regard what Red Rod Oram writes as gospel.
Wouldn’t dream of it. Rod Oram views economics through a very socialist lens indeed. In this case, however, his analysis accords with Brian Fallow’s, whose opinion I have a great deal more time for. Fallow, however, was confining his analysis to the previous years ACC result as contained in the PriceWaterhouseCoopers report. Through this limited lens, his opinion, that this is all accounting and economic distortion, is probably right. However, if you look over the past decade, as I have done, you get a different picture – one that tells you that ACC is indeed in trouble, though probably not in as dramatic a pile of trouble as Nick Smith is making out.
Oct 14 09 3:17 pm
In short, private insurance brings unhealthy competition & insane pressure to deny claims in order to keep shareholders happy, lower payouts for claimants, longer time to receive their money, and worse rehabilitation outcomes for the injured.
Which insurer for life, health, or even property has a reputation for declining fair or marginal claims in New Zealand? These will be the same people wanting a slice of the pie if ACC was opened to competition. They would offer different choices, and levies based on risk factors – rugby players and stuntmen would play more, office workers and those who take care of themselves would pay less.