ACC: the cover increases but so does the cost

Rob Towner, Partner and Matt McGoldrick, Solicitor | Tuesday 10 October 2006

Recently announced proposed changes to ACC legislation have the potential to increase employer levies significantly, particularly for large employers.  Changes are being mooted to levies for the Partnership Programme, and to extend ACC cover to additional work-related diseases and conditions.

Partnership Programme

This programme allows "accredited employers" to take responsibility for their own workplace health and safety, injury management (including claims management) and rehabilitation services for work-related injuries.  The quid pro quo for these responsibilities is lower levies.  However, in general, levies are still required to be paid to ACC for administrative costs.

The programme aims to minimise the cost of work-related injuries and to raise the level of workplace health and safety. It is mainly directed at large employers who meet strict eligibility criteria.

The proposed changes to the Partnership Programme are:

• an increase in the programme administration fee from 1.5% for every $100 of payroll to 4.8%.  The reason given is that standard employers (i.e. those not in the programme) are subsidising "accredited employers". This will undoubtedly lead to an increase in ACC compliance costs, in particular for large employers.  The Employers & Manufacturers Association has put the cost at an average of $35,000 a year for each of the programme's 186 employers.
  
  
• An increase in the levy rate for pre-1999 claims from 35c for every $100 of payroll to 54c.  ACC collects levies to pay for the ongoing cost of claims for work-related injuries that manifested prior to 1999.  Amendments in 2005 to the allocation of gradual process to ACC "accounts" are now based on when the exposure that gave rise to the injury occurred (rather than when the injury manifests).  As a result, there is likely to be more gradual process claims. These claims still need to be funded out of the pre-1999 levy.

In some good news, the proposed average employer levy rate (a combination of levies for next year's claims and pre-1999 claims) is set to remain at $1.21 per $100 of payroll. For employers who are subject to both parts of this levy, the significant increase in the rate for pre-1999 claims has been off-set by the drop in next year's levy rates. 

However, for employers in the Partnership Programme this off-setting effect is not available. While they remain liable for pre-1999 claims in the same way, future claims are funded under the programme.  As a result, as well as being hit with the increase in administration fees, these employers have also been hit twice with the increase in levies for pre-1999 claims.

Work-related diseases

ACC Minister Ruth Dyson has announced a proposal to add up to 25 more work-related diseases to the list of specified diseases now covered under the legislation.  This will particularly affect industries that have toxic or noxious irritants inherent in the workplace.

In general, the legislation does not provide automatic cover for gradual process injuries caused by disease, infection or illness resulting from exposure to a causal agent over a period of time.  Ordinarily, a claimant wishing to seek cover for such an injury has to prove:

• their employment has a particular property or characteristic that causes or contributes to their injury and which is not found to any "material" extent in their non-employment activities; and
  
  
• the risk of contracting the disease is "significantly greater" for people in that environment or who perform that task.

The inclusion of these work-related diseases in Schedule 2 of the Injury Prevention, Rehabilitation and Compensation Act 2001 effectively bypasses this requirement by creating a presumption that if the claimant is exposed to, for example, dusts or noxious compounds in the workplace, and suffers from a personal injury, then that injury has been caused by that exposure.  Accordingly, the claimant is covered by the legislation.

The inclusion of certain work-related diseases listed in this provision is likely to increase the volume of work-related claims.  In particular, the inclusion of:

• Hand Arm Vibration Syndrome (caused by hand and/or arm vibration, for example, sustained operation of a jack-hammer);
  
  
• asthma and contact dermatitis (caused by recognised sensitising agents or irritants inherent in the work process); and
  
  
• noise-induced hearing loss (diagnosed as caused by employment-related exposure to noise).

ACC estimates that it spends $130 million a year on work-related gradual process disease or infection claims (of which only 1.2% are paid as Schedule 2 claims). It estimates the inclusion of more diseases will cost approximately $7 million a year.  To fund the expanded list, ACC says there will be an increase in employer and self-employed costs and levies, although it believes that levy rates will increase by "no more than 1c per $100 of liable earnings".

The level of increase depends in part on the volume of new claims.  This is inherently uncertain given that gradual process diseases can take a long time to manifest themselves.  What is more certain is that the inclusion of further conditions will increase the number of claims, and as a consequence, both ACC administration costs and employer levies.

This change also means a shift in onus onto ACC and employers to disprove that a person has a listed disease or the disease has a cause other than work, further increasing these parties' costs in investigating and approving claims.

The deadline for submissions on changes is 31 October.  A Cabinet decision is expected in December 2006.  For more information or guidance on submissions, please contact one our team listed below.

 

For further information, please contact your usual Bell Gully advisor or:

AUCKLAND

Rob Towner
Partner

WELLINGTON

Andrew Scott-Howman
Partner

Matt McGoldrick
Solicitor