In a media release on Friday, 9 August 2013, Deputy Premier John Rau, Minister for Industrial Relations, announced that South Australia’s WorkCover scheme will be overhauled to place returning people to work sooner at the centre of the scheme’s focus. The reforms he outlined are said to be, “aimed at creating a financially sustainable WorkCover system, as well as delivering better outcomes for employers and injured workers”.
Whilst the announcement that, “it is about shifting the fundamental focus onto return to work outcomes” is welcomed, it begs the question, “What has been the focus of the scheme since the Act came into force in 1987 if it wasn’t ‘return to work outcomes’”?
The reforms outlined by Deputy Premier Rau are, “aimed at creating a financially sustainable WorkCover system, as well as delivering better outcomes for employers and injured workers”.
The aim of financial sustainability is, of course, laudable. The unfunded liability was identified in the last annual report as $1.4 billion, but it is very likely greater than this amount currently and I suspect that the annual report for 2012-2013 to be released later this year will show a further deterioration in the unfunded liability and the funding ratio. Currently the funding ratio (ratio of assets to net OSC liabilities) is 59.2% and the worst of all centrally-funded schemes by some margin. Only Queensland is fully funded, whilst Victoria is very close to it.
The WorkCover Performance Statement for 2013-14 establishes a target of a 100% funding ratio by 30 June 2020; “to be achieved without relying on premium increases”. The aim is admirable, but unlikely to be achieved. The underlying message for employers is that although the aim will be to produce 100% funding ratio result without increasing premium, it would be reasonable to suggest that there can be no expectation of premium relief.
The scheme changes are to be accomplished in two phases.
Phase 1 involves the establishment of the WorkCover Corporation Charter and WorkCover Performance Standard and amendment of the WorkCover Corporation Act.
The key changes will involve the dissolution of the current WorkCover Representative Board and a reduction in the number of board members from 9 to 7.
Minister Rau asserts that:
“The Board will be put on a proper commercial footing to keep the scheme functioning properly”.
I have no doubt that the appointment of a “commercial board”, much like that which oversees the CTP scheme, is a welcome reform, but other amendments to the WorkCover Corporation Act 1994 deserve scrutiny because the effect of the amendments provides the Minister with an almost unfettered discretion to appoint and remove board members and that is, perhaps, unhealthy because individual board members may be susceptible to pressure from the Minister of the day and not exercise the desired degree of independence. It may also act as an impediment to the recruitment of well-credentialed board members.
The amendments provide that:
“(6) A person appointed to the Board –
(a) must have such qualifications, skills, knowledge or experience as are, in the Minister’s opinion, relevant to ensuring that the Board carries out its functions effectively; …”
There is no attempt to define the desirable qualifications and experience that a board member would possess. Some definition would assist to avoid suspicion of “jobs for the boys” which sometimes come with political appointments.
Other changes to the scheme include:
Minister Rau asserts that “these changes will cap the unfunded liability of the scheme in South Australia…(and)…the current package will stabilise the scheme in the short-term”. It is very difficult to see how the changes which have been identified for Phase 1 will “stabilise the scheme” or “cap the unfunded liability”. Similar bold statements were made by Premier Rann and Treasurer Foley when the raft of significant amendments to the Act were made in 2008. Those amendments have delivered no discernible improvement in front-end management of claims or the return to work rate or the unfunded liability. On the contrary, all of those indicators have deteriorated. These more modest changes are unlikely to have the desired effect either.
Phase 2 of the “shake up” will “propose a root and branch recasting of the scheme…(which)…will bring it into closer alignment with comparable schemes interstate”. Apparently a discussion paper is to be published in the near future to canvass ideas and there will be “further consultation with interest groups”.
I suspect that Phase 2 will involve a very difficult juggling act. With an election due in March 2014, the Government will be at pains not to offend either the unions or business. The last time the Government overhauled WorkCover in 2008 there were mass protests by unions, but it is difficult to see how the funding position can be improved without a further eroding of benefits to injured workers. Similarly, it is difficult to see how the funding position can be improved without premium increase, both are politically unacceptable.
South Australia’s average levy rate of 2.75% compares unfavourably to every other scheme in Australia and contributes to South Australia being ranked fifth out of the five States surveyed byPitcher Partners State Tax Survey, which took into consideration workers compensation premium, payroll tax, land transfer duty and land tax.
Phase 1 of the Workers Compensation Improvement Project is said to be “about shifting the fundamental management focus onto return to work outcomes”.
“The package consists of a new WorkCover Corporation Charter, with specific measures that the Government expects WorkCover to undertake”.
The Charter sets out a number of key priorities and initiatives for WorkCover, designed to improve the efficiency, effectiveness and outcomes of the claims management process and the recovery and successful return to work outcomes for injured workers.
At the same time, WorkCover has unveiled a new “return to work services strategy” designed to improve return to work outcomes through more effective use of workplace rehabilitation. In my newsletter of May 2011, I referred to the independent review into the use of vocational rehabilitation services in the scheme which was carried out by PriceWaterhouseCoopers. The report found that there were too many rehabilitation providers in South Australia and that claims were over serviced without corresponding outcomes. I also said that:
“It should be a source of great embarrassment to WorkCover that the report is so damning of vocational rehabilitation and its effectiveness when vocational rehabilitation underpins the effectiveness of the scheme as a whole and impacts so dramatically upon the viability of the scheme”.
In a newsletter in October 2012, I suggested that it was reasonable to ask what “value” WorkCover SA had received from providers of vocational rehabilitation who were together paid $26.25 million in the 2012 year. The PriceWaterhouseCoopers report found that our scheme was spending about $1,500.00 on vocational rehabilitation per totally incapacitated claim which was four times that of Victoria and nearly double New South Wales. WorkCover has recognised that:
“The current approach to the provision of these services has not historically delivered value for workers or employers with low return to work rates (77% compared to the national average of 84%) and very high rehabilitation costs compared to other Australian workers compensation jurisdictions.”
WorkCover’s new performance-based approach to return to work services will, it is claimed, “deliver a stronger focus on improving return to work outcomes for injured workers and better value for money for the scheme through effective return to work services”.
The new approach will apparently “provide greater financial incentives that reward workplace rehabilitation providers for more time and return to work outcomes”.
I am by no means convinced that it will!
WorkCover expects that “case managers will monitor the provision of return to work services, ensuring referrals to workplace rehabilitation providers are made for the right services at the right time”.
Case managers have an extremely difficult role. They need to have a broad knowledge of the Act and its operation, rehabilitation and injury (both physical and mental). On a daily basis they have to deal with lawyers, medical professionals, rehabilitation providers, allied health professionals, the pre-injury employer and the injured worker. They will now be expected to:
I have no doubt that the new initiatives will increase the workload of case managers, and that increase in workload will potentially impact the ability of case managers to effectively implement an early intervention policy and at the other extreme will likely see workers remaining on the system without any rehabilitation which, in turn, must mean an increase in long-term claimants and, therefore, the unfunded liability.
I consider that the new initiatives have the potential to drive up rather than decrease costs of rehabilitation through greater use of allied health professionals, less effective early intervention strategies and legal disputation because of poorly drawn Rehabilitation and Return to Work Plans/Programmes (or an absence of an appropriate Plan/Programme) and legal costs associated with disputes.
Further, the manner in which rehabilitation providers are to be remunerated will likely drive behaviour from providers to concentrate on increasing workers’ hours at work and not necessarily a return to pre-injury (or suitable) employment because the model’s focus is simply on achieving hours at work rather than return to work in pre-injury duties, which is, and has always been, the basic principle of vocational rehabilitation. In many cases, I suspect that employers will be left with little support to manage the transition of a worker who has returned to work on full hours, but is carrying out essentially supernumerary duties to a role which is actually productive in the workplace.
The changes proposed for WorkCover governance which will install a “commercial board” is a good idea in principle.
There are legitimate concerns, however, about the relatively unfettered powers over the Board which it is proposed will be given to the Minister of the day.
The new Charter is really a motherhood statement focusing largely on rehabilitation aims, but of itself is meaningless without effective legislative change required to achieve the outcomes.
The Performance Statement which accompanies the Charter is similarly laudable in setting performance expectations which seek a 5% improvement each year in the return to work rate and self-insured employers achieving three year renewal registrations and improvements in financial sustainability and worker/employer satisfaction.
They are fine ambitions, but experience has shown that rarely, since the year 2000, has WorkCover performed in accordance with the lofty expectations of various Government Ministers and Board members.
We will await Phase 2 with particular interest.
This communication provides general information which is current as at the time of production. The information contained in this communication does not constitute advice and should not be relied upon as such. Professional advice should be sought prior to any action being taken in reliance on any of the information. Should you wish to discuss any matter raised in this report, or what it means for you, your business or your clients' businesses, please feel free to contact us.