ACC levies to leap after $4.8b loss

Double-digit increases in ACC levies are in the offing next year after the corporation posted a $4.8 billion loss for the year to June 2009.

"We have got to the point where the continued existence of the scheme is under threat," chairman John Judge said. "We must act now to protect it."

The range of measures envisaged will hit all ACC's stakeholders: levy payers, claimants and health providers.

Levy payers can expect "substantial" rises, particularly for the motor vehicle and earners accounts. Substantial meant more than 10 per cent, Judge said. ACC will begin consultation on next year's increases next week.

Claimants can expect ACC to be "tougher on the extent and duration" of its support, including weekly compo. It will be "encouraging more personal responsibility for getting back on your feet" and ensuring it provides what it is required to, no more, no less.

"ACC is a scheme which works if people take a lot of personal responsibility as well, being honest about when they are ready to get back to work."

From health providers - not just physiotherapists but across the spectrum - it would be looking for better value for money, Judge said, and from staff, lower administrative costs.

The big driver of the $4.8 billion loss, which compares with a $2.4 billion loss last year, is an increase of $5.8 billion or nearly a third in the claims liability, following a $2.6 billion or 17 per cent rise the previous year.

The liability is the net present value of the future costs of meeting existing claims on the scheme. The latest rise pushed the gap between ACC's assets and liabilities out to $12.8 billion.

"That is equivalent to 3.6 times our annual levy income. Five years ago the gap was only one year's income, $3.4 billion." Judge said. "We are not collecting enough money annually to cover the assessed lifetime cost of the accidents that happen in that year."

The liabilities had been correctly valued this time, he said.

The latest accounts include a jump of 24 per cent both in rehabilitation and treatment costs and in compensation (income maintenance) payments. ACC has also revised up forecast operating costs and increased the risk margin around its estimates of future costs.

Judge attributed about $1.2 billion, or a quarter of the latest loss, to the lower discount rate used to calculate the liability. It can be thought of as the notional lump sum ACC would need to have in the bank to fund its future obligations to existing claimants; the lower interest rates are, the higher it needs to be, all else being equal.

But while a return to more normal interest rates would provide some arithmetical relief, Judge said the blowout in the liability in recent years had much more fundamental drivers:

* The number of claims has been growing by 4 per cent a year, much faster than the population.

* Healthcare and rehabilitation costs have been rising by as much as 20 per cent a year, much faster than general inflation and faster than previous calculations of the liability allowed for.

* There have been increases in what the scheme covers.

* Rehabilitation rates have been falling - that is, it has been taking longer to get injured people back to work.

The need for a return to the approach when former chief executive Garry Wilson was running ACC was a good way of putting it, Judge said.

The sickly state of financial markets over the past year is evident in a below-par return on ACC's investment portfolio - $358 million on $10.4 billion in assets.

That came as no surprise, ACC Minister Nick Smith said, and he was confident returns would recover.

"The grave concern is the huge growth in the outstanding claims liabilities from $9.4 billion to $23.8 billion in just four years. Significant changes are going to be required."

BOTTOM LINE
* ACC's bottom line is $4.8 billion in the red.
* The value of claims has jumped by nearly a third.
* Sharp rises in levies are tipped, as well as a tougher line on claimants' time on the scheme and on medical costs.