Workers' compensation: is the slide beginning again?

Are we in for a repeat of the 1990s with Workcover?

The debauchery of Victoria's workers' compensation scheme was one of the worst scandals of the early 1990s.  It saddled taxpayers, employers and workers with a $2 billion debt.  It allowed ambulance-chasing lawyers and unscrupulous workers, aided and abetted by unions, to rip-off the system.  It created a disincentive for injured workers to return to work, and provide little incentive for workers and employers to create a safer workplace.

Within two months of gaining office, the Kennett Government began to address the mess.  It injected money into the system.  It tightened eligibility rules, removed common law rights for non-serious injuries, and put more resources into prevention and rehabilitation.  In response to continued losses, in 1997 the Kennett Government took the further step of removing the rights to common law claims of seriously injured workers (those over 30 per cent impairment) and thereby converted the system to a "no fault" scheme.

The Kennett reforms were greeted with outrage by unions and lawyers.  Understandably so, as the changes cost the law profession an estimated $120 million per year in lost billings and removed a fringe benefit and a point of leverage over employers for unions.

This same process is currently being repeated in NSW:  with it workers' compensation system haemorrhaging from excess common law claims;  the government trying to fix the situation and unions are manning the picket lines.

Last year, the Bracks Government, in response to heavy lobbying from two of its largest supporters -- Trades Hall and the Labor lawyers -- restored common law claims for seriously injured workers and improved the level of payments effective from October 1999.

To fund this, they increased the average WorkCover fee to 2.22 per cent of pay rolls or by an average of 17 per cent (29 per cent including the GST), with some firms facing increases of over 50 per cent.  The estimated additional $1.5 billion raised by the fee hike was supposed to cover the cost of the changes to benefits, plus bring the WorkCover fund back to a break-even funding level by 2003.

The results for the first six months of 2000/01 were ominous.  The WorkCover Authority lost $651 million, mainly as a result of a $300 million blow-out in common law claims.  As a result, even if things suddenly go back to plan, the WorkCover fund will not reach a break-even point for another three years, that is, before 2006.

The big question is:  will the claims go back to plan?  On the positive side, the recent blow-out in claims appears to have arisen mainly from injuries incurred prior to the cessation of common law rights in 1997 and the cut-off date from making these claims has passed.  Moreover, the Workcover Authority is a far better managed operation than its predecessor and there are now incentives in place to get injured workers back to work and to maintain a safe workplace.

On the down-side, the experience in Victoria, NSW and overseas is that common-law claims, once allowed, invariably exceed the expectations of the actuaries and the efforts of the best managers.

Accordingly, we need to watch this space.

ADVERTISEMENT