Leading lawyers back major ACC revamp

Some of New Zealand’s leading ACC law experts are backing a call by former Prime Minister, Sir Geoffrey Palmer QC, for a major overhaul of New Zealand’s accident compensation system.

ACC Revamp

Sir Geoffrey believes there should be a single unified system – not only for people incapacitated by accidents – but also for those incapacitated by sickness or otherwise disabled (see LawNews Issue 35, 21 September 2018). Such a system was recommended in 1967 by a royal commission chaired by Sir Owen Woodhouse, but was never put into effect.

“Only about half of the report’s bold, almost revolutionary recommendations went on to be included in the 1972 Act that established the first version of the accident compensation scheme we have today,” he has said.

Sir Geoffrey described his proposals as the “unfinished business” of what Sir Owen had intended and feels that they would eradicate unjust and discriminatory aspects of the current system.

“We do not seem willing to grasp the nettle and design what a rational and humane system of income support looks like and we need now a fresh infusion of Woodhouse boldness and vision.”

Auckland Law School Professor Jo Manning told LawNews that a committee of officials set up by the Labour government in the late 1980s also recommended a single unified system. She says this was followed by a report of the Law Commission, chaired by none other than Sir Owen Woodhouse, which came to the same conclusion.

“But it never occurred because Labour lost power to a National government in the 1990s, which had a different agenda of reducing the total costs of the scheme and introducing a greater degree of individual responsibility for accidents, rather than the principle of collective responsibility for injury caused by accident on which the scheme is based.”

Professor Manning says she is in general agreement with Sir Geoffrey Palmer’s call for change.

“The distinction between injury by accident, which is covered by a comparatively more generous accident compensation scheme, and injury caused by disease, infection etc. – which is also a disastrous accident from the perspective of the victim, but who is dependent on the social welfare system – is a basic injustice at the centre of the scheme since its inception. Similarly-placed people are treated differently, the latter being significantly disadvantaged.”

Wellington lawyer John Miller, who says he runs the largest ACC practice in New Zealand, told LawNews he also agrees that it makes no sense to treat people differently depending on the cause of their incapacity.

“For example, at the moment, someone in a wheelchair as a result of being run over by a bus gets ‘Roll Royce’ ACC treatment, with 80 per cent of earnings, 24-hour attendant care, home help, home and motor vehicle modifications, and lump sums up to $136,000. But someone in a wheelchair because of multiple sclerosis gets second-class public health/WINZ treatment with a flat-rate minimal benefit.”

Mr Miller, who has thirteen lawyers in his practice, says much of the firm’s caseload is dealing with “demarcation issues where ACC has rejected the claim as being due to sickness/disease degeneration and not due to injury by an accident or medical treatment”.

“Sure, there would be extra cost in bringing in sickness and disease, but there would also be considerable savings in that there would be no need for the expense of the medical, legal and dispute structures that have been created to deal with these demarcation problems. It could also be expanded slowly so that incapacity for death and serious disease consequences are only covered initially.”

Phil Schmidt, who runs what he describes as Auckland’s leading ACC law practice, takes a similar view on the cost of expanding the existing system.

“It’s not necessarily going to attract the level of cost that many people would think about in the first instance,” he told LawNews. “It would largely be a redistribution of existing money.”

“There would need to be additional income, but in terms of that additional income, there’s merit in the argument that, if you widened the scope of cover and got rid of disputes about cover, there would just be litigation about the scope of all the particular entitlements, and that would further simplify the system and somewhat offset any increased cost.”

However, Mr Schmidt says he doubts whether the proposed changes will get much traction.

“I don’t think there’s the political will to advance it because it’s too complicated. Our current politicians are generally not au fait with the operation of the accident compensation scheme as it is, and it’s very, very difficult to get sensible legislative change in this area. “I think it would be worthwhile researching how many [ACC] ministers we’ve had in the last ten years. I think it’s like five or six – we have different ministers at roughly the same rates that Australia has different prime ministers. It’s very difficult to get things done when the people at the top are always changing.”

One lawyer who knows the ins and outs of ACC better than most is Dunedin barrister Warren Forster.

As the recipient of the 2017 New Zealand Law Foundation International Research Fellowship, he is developing recommendations for a world-leading disability system that doesn’t distinguish between sickness and accidents. It will be focused on support and empowerment for people in need rather than shifting costs within the health system.

There’s no doubt in his mind that Sir Owen Woodhouse’s vision of an all-encompassing compensation scheme should be realised.

“We’ve now got the opportunity to make the integrated world-leading disability system that he envisaged,” he told LawNews.

“Sir Owen foresaw the problems that we see now when we discriminate based on cause of disability. We waste too much time and money on assessments and disputes about what caused an impairment and who should pay for support. People just want to get on with their lives but the system will not allow this to happen.”

Mr Forster says the main criticism he’s encountered about implementing a single, unified system is that it will cost too much.

“Will it cost more money? Yes. How much more? Well, we don’t know, because we don’t have good data. There will be some cost savings that will offset this, but the direct cost will be billions of dollars more than our current government spends on health and disability.

“So, can we afford it? Well, my answer to that question is that we can’t afford not to do it. If we don’t do something we’re going to keep increasing inequality. This isn’t my idea, it’s not a new idea, but it’s an idea whose time has come.”

Mr Forster says the key to getting the idea off the ground is an alternative funding model, such as a sovereign wealth fund – replacing taxation with a levy-based funding system similar to the ACC model. “We need to extend the ACC funding model across the health and disability support system,” he says. “ACC has $40 billion in the bank – it makes more money from return on investment than it pays out. In recent years, it could have collected no levies and still fully funded the cost of the system.

“We need to work towards something that doesn’t require ever-increasing taxes to support. So, if we increase the size of the sovereign wealth fund – which is the funding model I’m working towards – then we can pay for a lot of the costs of the expansion of the system from return on investment.”

Mr Forster says it could take many years for a single, unified system to be completely in place.

“It won’t initially be a one-stop shop that includes all health, social support, financial support and rehabilitation. It will probably take twenty years to get to that point. It depends on a bunch of different factors – how well the economy does, how quick the growth of the fund is. But we could start on a progressive basis as early as next year by bringing psycho-social disability – generally referred to as mental health – into the system.”

Mr Forster is keen to emphasise that what he proposes is not just about throwing money at people.

“It’s about putting rehabilitation into place so that people can build their lives and that’s the key thing. The more efficient we are at rehabilitation and getting people back to doing things and maximising their earnings, the less the system costs. So we need to start thinking differently how we aim to fund things, because if we keep doing what we’re doing now, we’re going to run out of money.”

Mr Forster says the sovereign wealth fund could be administered along the lines of the ACC Fund and the New Zealand Super Fund, within the framework established by the International Association of Sovereign Wealth Funds. Its governance structure would require it to be “double arms’ length” from the government of the day. 

 

Barrister Rachael Schmidt-McCleave – who has been involved in ACC reviews – told LawNews that Sir Geoffrey Palmer’s proposed changes to the organisation have “considerable merit”.

However, she says there would be certain obstacles to implementation which would need to be overcome – cost being the obvious one.

Summarising the arguments for and against the changes, she notes:

Pros:

  • Prima facie, as found by the Court of Appeal in Trevethick v Ministry of Health, the disparity between disability for accident (covered by ACC) and that for illness (covered by social welfare) is in breach of the Bill of Rights Act, although the Court found it to be a “justified limitation” under the Act. Removing the distinction will make it fairer and less discriminatory.
  • Sir Owen Woodhouse’s original vision encompassed illness being covered eventually as well. It would fit with the concept of “no fault” compensation underlying the scheme.
  • The proposals fit with the Woodhouse principles of “community responsibility” and “comprehensive entitlement”. In 1988, the Royal Commission (chaired by Sir Ivor Richardson) noted that the concept of community responsibility meant “all should help share the burden of sickness and disablement in general”.
  • New Zealanders are meeting the cost of funding those on sickness benefits anyway through the tax system. A rise in ACC levies could be accompanied by an appropriate tax incentive/break.
  • ACC’s large reserves currently could cover the setting-up and transition.
  • The proposed changes could be rolled out incrementally, starting with severe illness (see 1988 Royal Commission recommendations and Law Commission report of the same year).

Cons:

  • These include the costs of extension (but, as noted above, this could be addressed in terms of a cost met by the taxpayer anyway, plus the current high reserves).

To fund it without imposing an extra burden on taxpayers, there potentially could be some reduction in current entitlements under the welfare regime. However, this shouldn’t be a deterrent to further investigation and costing. 

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