ACC:running interference

On ACC there are some interesting media comments, but before turning to them,especially a recent post by David Lewis at Pundit, let Adam refresh your mind with reference to comments by David Beatson in December 2008.

Beatson commented in a post at Pundit:

However, if The Treasury was kept as well informed as the Department of Labour suggests, it would have known as early as June that a significant additional appropriation of funds would be needed by the ACC.

There should have been some reference to the ACC’s requirement for additional funding in The Treasury PREFU and there are no constitutional reasons for keeping it quiet.

Key is right to demand explanations about the absence of any disclosure in the PREFU.

Parker is wrong when he says Nationals’ claims that Labour “covered up ACC cost increases are ridiculous”.

Key has yet to call it a cover up. Perhaps he will – once he learns precisely when and how much ACC Minister Street and Finance Minister Cullen had been told about the ACC’s funding requirements before The Treasury PREFU was finalized at the end of last September.

Now we have another article at Pundit by David Lewis - Shock!  Horror! ACC Costs Money!, well of course it costs money. Nobody expects it not to cost money. The issue is whether it should cost the amounts of money that it does, especially as those sums may well increase very considerably if remedial action is not taken.

Pundit gives the following profile for Mr Lewis:-

David is an Auckland-based communications and government relations consultant, and half-time parent to two primary school children. Previously, he worked in Wellington, including almost 12 years in Parliament as a press secretary, speechwriter, and as chief press secretary to Prime Minister Helen Clark.

David Lewis writes:-

National has issued yet another announcement starkly warning of dark days at ACC. Is it really that bad? Really?

It’s scarcely subtle. Since taking office, National ministers have led a string of announcements hinting at ACC’s dire prospects. Unforeseen fiscal blowouts are imminent. The scheme’s unsustainability is suddenly apparent. And there can only be one solution—the free market!

To date Adam has not heard National saying ACC is going to be privatised. He has heard John Key state that it is National’s intent to retain ACC as a properly run corporation, with some competition for a proportion of ACC’s activities. That is quite different.

Note this extract from Rob Hosking’s excellent NBR piece:-

Isn’t all this just a softening up for privatisation?

If it was, it would be a particularly cock-eyed way of doing it. And raising the privatisation bogey is a very good way of getting people to think of issues other than why this hole appeared in the first place.

To Adam’s way of thinking Lewis is doing precisely that, raising the spectre of the free market and the ghost that walks of privatization. All in an attempt to frighten people into not questioning the undelying issues.

Lewis is the one who is scarcely subtle. Yes there have been investment losses, but what we are seeing is substantial rises in liabilities, occasioned by the fact that under Labour some very optimistic assumptions on future investment income to cover liabilities were assumed. These liabilities have to be met at some stage.

Nick Smith has been talking about ACC getting it’s house in order. He has not been talking about the free market.

The jarring disconnect—which hints at the great con-job being undertaken—is why would the private sector want to touch something that is so costly and is losing so much money? Because ACC is, in fact, highly efficient and effective, certainly much more so than private comparisons. It is a market which private insurers are desperate to get into because there is some serious money to be made.

This is mis-direction by Mr Lewis and he knows it. The Herald this morning notes the following:-

Last week, Dr Smith said ACC entitlements would have to be cut in response to a blow-out in treatment costs and growing liabilities.

The alternative of large increases in levies for workers, employers and motorists was not acceptable.

Under Labour, ACC had stopped acting as an insurer and become a welfare agency, said Dr Smith.

Labour attacked Dr Smith, saying he was manufacturing a crisis to win a mandate for cuts to ACC’s coverage and the introduction of part charges.

Adam’s emphasis on entitlements. Note Labour attacked Smith not on the free market issue which Lewis is peddling, but on the issue of coverage cuts and part charges. Even David Parker was not peddling that line . Well much of the increased ACC coverage was to Adam’s mind not necessary or poorly thought out. See Rob Hosking’s excellent NBR piece and various good posts by MacDoctor on for example physiotherapy and mental illness. Though this post by MacDoctor on why ACC is broke should be required reading for the likes of Mr Lewis. These posts and other information available tend to suggest that ACC is not the hugely efficient entity that Mr Lewis fantasises about.

As for the issue of part charges they are already here. What we maybe talking about is an increase in part charges. It is Adam’s experience that if you attend your GP or an after hours clinic there are still charges over and above that covered by ACC. Further, when Mrs Smith had to have extensive physio post a very severe ankle break. ACC would not fund a physio who did house calls, but would partially fund one Mrs Smith would have had to travel too, using crutches and in great difficulty walking. Each of the local physio practcies had locations where you needed to go up steps to access them. So Adam paid for a physio, who was very effective and who did house calls.

The Accident Compensation Corporation is, of course, facing somewhat tougher times because of massive hits to its investments. Like all investment funds, the last 12 months have seen the biggest loss of value in living memory. Anyone with a decent exposure to equities has taken a pounding. So too property. If ACC hadn’t taken a massive hit, we should be calling in the Serious Fraud Office to find out exactly how they avoided it.

But assuming the world economy is going to rebound some day, so too will ACC’s assets, and so too will its ability to fund its liabilities. At the moment it’s facing a paper shortfall. In time—perhaps five years—that shortfall will have disappeared as its assets regain value and new investments perform well.

National has already said it will extend the period for funding of liabilities out to 2019. However, the actuarially assessed liabilities which have increased substantially in recent times are the real problem, not the investment losses. The investment losses are significant, but over time it is not unlikely that much maybe recovered. Further, ACC internal costs are risng at a rapid rate, some say as much as 12% per annum.

Then of course we get to the nub of Mr Lewis’ article, where he demonstrates exactly where he comes from:-

National likes to attack the Left for having an ideological attachment to ACC. The Left has an ideological attachment to social justice. If the private, free market had been able to provide anything remotely approaching the level of cover at the level of efficiency that ACC does, ACC would never have been invented. It was put in place to correct a glaring failure of the free market, and it is envied around the world—at least in places where social justice is valued.

The concept of ACC is sound. That does not mean that it is of itself any better than alternatives.

Lewis makes the mistake of talking about social justice. The Left has no natural monopoly on social justice. Indeed, the Left as much if not more than the Right has in the name of social justice been responsible for many atrocities over the last century. Remember the gulag. Indeed, social justice tends to be in the eye of the perpetrator, for example the Taliban are implementing their version of social jsutice.

Adam rather tends to agree with this more balanced remark from Colin Espiner:-

National reckons that the cost blowouts are all Labour’s fault, and symptomatic of its slack money management. Labour counterclaims that National’s numbers are shonky, things aren’t really that bad, and the whole panic about cost blowouts is a jackup – a stalking horse for National’s true intentions, which are to privatise ACC.

I think both parties are wrong. It’s neither all Labour’s fault, nor a secret plan by the Government to break ACC’s monopoly. It’s just politics.

I like the ACC story, because I think it’s a nice illustration of the classic Left/Right political divide. Labour thinks that it should take more of our money, through taxes and levies, and spend it on health, education, housing, and other social services regardless of whether we need them or not. The basic principle is that the service is available for everyone, and is paid for by those who can afford it.

National, on the other hand, fundamentally believes that we should keep as much of our own money as possible, and spend it on what we want to spend it on. It believes those who cannot fend for themselves should be assisted, but everyone else should be prepared to stand on their own two feet.

There’s no point in saying either side is right or wrong – it is just different political perspectives. And what we’re seeing with ACC is National beginning to readjust the political pendulum towards the centre-Right. Smith is not prepared to hike premiums by 100%-plus just so everyone can keep getting free physio and lump-sum payments

Lewis of course takes a different tack and goes into full bore self righteous Labour activist mode with the following OTT remarks. One can almost hear the shrieks of the banshee.

National’s opposition to a public health insurance system isn’t ideological. It’s just greedy. Guzzling-snout-in-trough-pig-greedy. National’s insurance company mates want a piece of the action, and they give the National Party significant funding to assist it to win elections so ACC’s fatted cow can be offered up.

By definition if it is a fatted cow then it is not efficient. Further ACC is not a public health insurance scheme It is a no fault scheme to cover costs occasioned by accident. We have the public health sector to provide health services. Calling National Guzzling-snout-in-trough-pig-greedy is just plain stupid and casts doubt on the entire article having any merit whatsoever. Oh and the unions support Labour on a purely altruistic basis. Plus National campaigned on reforming ACC and thus have a mandate, unlike Labour which implemented many changes with no mandate.

What’s especially tragic is that if ACC is so bloated, so inefficient, so dirigiste, surely National would do the decent thing and provide some serious evidence for it? Something beyond a ministerial press statement, surely? Where is the serious academic literature showing that it is failing in its responsibilities and doing so in a way that presents society with poor fiscal and social outcomes? Where is the rejoinder to Sir Owen Woodhouse’s landmark Royal Commission report?

This is silly. The ever escalating costs and the rises in liabilities are surely evidence in and of itself. Lewis’s remark here, amply exemplifies what Rob Hosking wrote:-

But there have been increases in medical costs, surely?

Yes. And again officials and ministers were warned over a year ago these were getting out of hand. In December 2007 ministers were told of a 10% rise in the number of claims and 17% in serious injury claims in the “non earners” account – that’s the bit which covers beneficiaries and children. The same report also warned of increased costs per claim, including care and rehabilitation costs, along with declining rehabilitation rates (meaning longer and more expensive time spent in care).

What did ministers do?

Got officials to write some more reports.

And then?

Commissioned some more reports. Had meetings.

Why weren’t any changes made?

Well, at a guess it was because ministers were reading the polls more assiduously than they were reading those reports. Doing something would have been unpopular – either higher levies or cutting entitlements.

Lewis then attempts to blow smoke in our eyes with the following nonsense:-

Do we want to return to the status quo? Prior to ACC’s no-fault, comprehensive insurance scheme, we relied on the free market and the law courts. Many studies have demonstrated that the tort system is not only slower to provide compensation than no-fault but also tends to overcompensate small losses and under-compensate large losses.

Furthermore, the problem with undermining the comprehensive nature of ACC is that National and its private insurance mates will cherry-pick those parts of the scheme where they see the most profit, leaving the less economic areas to the ACC. As ACC’s rump struggles to cope with those morsels left to it, the government will find good reason to make further cuts to the level of cover provided.

Apart from the several inferences of policy buying, this is blatant scaremongering and is not what National is suggesting.

As to levels of cover, there are many who think ACC should return to the role of no-fault coverage of accidents, rather than be a social agency.

Social welfare should be provided via social welfare.

Then of course Lewis concludes with an attack on the US seeking to raise the spectre of their flawed system being what National wants.

For those doubters, go and study the United States. There the mighty free market rules. Sure, a few individuals strike it big in the courts with multi-million dollar law suits. But those that get really rich are the insurers and the tort lawyers. Tort lawyers are often cited as the US’ most despised profession. And National wants to return us to that. Spare us.

Again this amounts to blatant fearmongering. National has no such plans.

The speed at which the announcements are coming hints at swift action. What price a piece of ACC being auctioned off after the Budget?

Adam suspects the action we will see is around bringing the costs, revenues and liabilities under control.

Adam’s overall conclusion is that Mr Lewis is so steeped in some political beliefs that he lets them intervene and overcome rational thought. His article is just a diatribe attempting to purvey a political viewpoint rather than facts.Indeed, if one was feeling uncharitable, one might call it misleading, or at best diversionary in intent. Adam is left thinking Lewis was attempting to run interference, as the Americans would say, for Labour.