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Competition Will Bring ACC Costs Down Faster

Media information: December 19, 2008

Competition Will Bring ACC Costs Down Faster …..

ACC definitely does need a change away from its “cost plus” culture but competition will bring ACC costs down quickest, and increased productivity will boost New Zealand‘s overall business performance.

This is the view of Brian Blackman, CEO, of Wellnz Ltd, one of the country’s largest private rehabilitation and injury management companies.

“We agree with the Minister that a change in culture is required. The ‘cost plus’ mentality which is so evident now confirms that ACC has been hi-jacked by the political left, and has moved into a social welfare role rather than following a sound business model. However, changing culture though takes time – often a long time – and nothing will change unless the market forces it. Bureaucrats do have a reputation for moving slowly, and protecting their patch,” he said.

“That is why competition in this sector is so important. Competition ensures that cost effective rehabilitation is introduced and people return to work quicker than under the ACC model. The real big costs are in the compensation which is paid out weekly to claimants. If the government can reduce that, they will be well on the way to reducing the overall costs,” Mr Blackman said.

“Early return to work gets people back into the workforce more promptly, which reduces the compensation payments and increases the productivity of business. It is a simple model…..

• The average entitlement claim (one or more days off work) under ACC has increased from $15,190 to $17,117 (which excludes the first weeks wages) - a 13.9% increase on the previous year, and based on an average wage of $104.50 per day ($38,142.50 pa) results in lost days of 81 days per claim.

• The Wellnz performance, for example, for 12 months to 31 March 2008 showed the average entitlement claim was only $2,419 (which included the first week’s wages) and 12.2 lost days.

“Put simply, private management of work injuries is out-performing ACC by a factor of 7 times. This excludes all the indirect benefits that accrue – i.e. productivity, better financial management for the individual, improved self esteem, and better staff morale with the business because they see their colleague back at work again quickly,” he said.

“With the present tough economic environment within New Zealand, the focus must move to increasing productivity and reduce needless bureaucratic control. Presently New Zealand has the second lowest productivity rate in the OECD but we work the second longest hours to achieve this performance. We are 20% behind Australia and 40% behind USA in the productivity stakes. “

Mr Blackman said that New Zealand would not start to prosper and the Government could not begin to deliver their social agenda of benefits unless the underlying wealth of the country improved significantly.

“The outcome is a marked improvement in productivity. If work injury days lost could be reduced by an average of say 20% i.e. 16 days per claim, with 34,231 annual work injury entitlement claims, that would result in 550,000 additional days being available for productive endeavour. The loss of these days is currently costing up to $500 million productivity to New Zealand per annum.”

Opening the residual account would also allow for further reductions in cost. If claims from this account were made available for the private sector to manage, competition and market forces would bring further savings. This happened in 1999-2000, and the same results could be achieved this time round.

Mr Blackman said that the ‘ACC monopoly model’ had not worked. There was no “quick fix” solution but competition would bring economies which would ensure that New Zealand was on the right road to recovery.

“The solution is there. What we need is a government who are prepared to recognize this, pick up the ball and run with it,” he said.


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