Return-to-work failings blow WorkCover NSW budget

Analysis

Return-to-work failings blow WorkCover NSW budget

Improving return-to-work outcomes in New South Wales will be a key challenge for the O’Farrell Government as it seeks to address the ballooning deficit of its WorkCover scheme, State Parliament heard.

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Improving return-to-work (RTW) outcomes in New South Wales will be a key challenge for the O’Farrell Government as it seeks to address the ballooning deficit of its WorkCover scheme, State Parliament heard. 
 
Last week, the Minister for Finance and Services, Greg Pearce, told the Legislative Council that the government’s efforts to build a more sustainable workers compensation scheme will necessarily involve thinking of new ways to incentivise RTW for long-term claimants. 
 
He said that a major driver of the scheme’s deficit, which is anticipated to each $5b by June 2012, has been ‘the long tail of claims stretching over a number of years’ and the scheme’s ‘poor record of getting long-term workers compensation claimants back to work’. 
 
Average duration of claim: 8 years
 
‘There are currently more than 36,000 claimants in receipt of weekly payments in the scheme,’ Pearce said.  
 
‘A total of $796 million was spent by the scheme on weekly payments in the 2011 calendar year and a total of $14,269 million — that is $14 billion — was expended by the scheme on weekly payments between June 1987 and June 2011. That is in 2011 dollar values.’
 
‘Prior to 2001, a larger proportion of claims accessed common law rather than weekly payments. Restrictions on common law access from late 2001 had the effect of increasing the proportion of claimants who accessed weekly payments. I understand that approximately 17 per cent of these weekly claims are for injuries incurred before 2002. The average duration of a claim in New South Wales now is around eight years, with a wide variation between claims.’ 
 
‘RTW highly unlikely as claims drag on’
 
Pearce said that return-to-work outcomes have deteriorated since 2008–09, with claimants remaining on weekly benefits for longer. 
 
‘I emphasise the point that, while the number of claims is decreasing, the cost of the claims is increasing steadily because injured workers are not getting back to work,’ he said.
 
‘The total cost of weekly payments has increased sharply since 2006–07 and weekly benefits account for around 40 per cent of the scheme's gross cost. Weekly benefit recipients of course also access other scheme benefits, such as medical benefits, further inflating costs to the scheme over time.’
 
Pearce said that the longest claims in the current scheme, which commenced in June 1987, are now 24 years old. 
 
‘As the scheme ages, so will the oldest claims in the scheme,’ he said.
 
‘Of the claims that are currently receiving weekly benefits, 38 per cent have been receiving them for three years or more.’
 
‘Once workers have reached this point, experience tells us it is highly unlikely that they will return to work and so the scheme ends up with a rump of claims from claimants who … are not likely to leave the scheme.’
 
Lump-sum compo delivers ‘inferior’ RTW outcomes
 
Pearce said that the cost of work injury damages was another issue ‘significantly hampering’ the scheme’s optimal performance, including in the RTW area.     
 
‘Lump sum compensation, particularly fault-based, is expensive and wasteful and results in inferior health and return-to-work outcomes for workers,’ he said.
 
‘I refer to common law claims as opposed to statutory claims. Common law claims are provided for under the legislation in cases where the whole person impairment of the person involved is over 15 per cent. However, work injury damages claims are fault-based claims insured in a system that provides for no-fault insurance.’
 
Work Injury damages have cost $934m since ’09  
 
Pearce said that work injury damages claims cost around one-third more than statutory benefits claims of similar type and severity. 
 
‘These types of claims emerge slowly over time and are finalised even more slowly, increasing costs to the scheme,’ he said.
 
Recently, the schemes actuary increased the projection of work injury damages claims from around 400 per half year to about 490. The cumulative deterioration in work injury damages liability in the New South Wales scheme over the last three years was $934m, making it the fastest growing scheme liability. As a proportion of total liabilities, work injury damages liability has almost doubled in less than three years, from 6.3% as at 31 December 2008, to over 12% as at 30 June 2011.
 
Pearce attributed the growing liability to an increasing number of claimants pursuing work injury damages claims, as well as the ‘failure of legislated thresholds intended to limit access to work injury damages’.
 
‘In particular, the negligence of the employer is rarely tested or adequately demonstrated, claims are made many years out of time with the court accepting these claims in nearly all instances, and inappropriate strategies are used to satisfy the impairment threshold,’ he said.
 
‘The scheme actuary has observed that with many accident compensation schemes in Australia, increasing the propensity to claim negligence-based damages has led to significant destabilising and unsustainable costs escalation.’
 
‘Improvement is the highest priority’
 
To ‘bring the scheme back into the black’, Pearce said the government has to ‘think of new ways of incentivising claimants to return to work’.
 
‘We are looking at ways in which rehabilitation practices and return-to-work schemes can be improved,’ he said.
 
‘We want our scheme to aspire to best practices and … that better assists workers in returning to work and rebuilding their lives, and I hope the Opposition and The Greens share that vision. It is vital that action is taken to reform the scheme and bring it back in the black. That is why the Government considers the improved management of the scheme is a matter of the highest priority.’
 
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