What are the impacts of the Social Insurance Scheme for employers?

What are the impacts of the Social Insurance Scheme for employers?

The Government is currently consulting on an income insurance scheme to cover employees who have been made redundant or are unable to work because of a health condition or disability.

It is important to note that it has been developed jointly by a working group comprising Government Officials, Business New Zealand and the New Zealand Council of Trade Unions.  It is the largest change to social insurance in New Zealand since the introduction of the ACC scheme in 1974. 

The benefits of the scheme are to provide stable cover and entitlements for every employee in New Zealand when losing their job because of redundancy, or because they are unable to work fully due to a health condition or disability.

How is this being being funded?

The scheme will be funded by a compulsory contribution from all employers and employees. The levy will likely be introduced in 2023 and will cost employers 1.39% of payroll, and employees paying 1.39% of wages.  

There are even more additional costs for employers

Employers will be required to give 4 weeks’ notice of redundancy, and pay a further 4 weeks at 80% of an employee’s wage prior to the scheme taking over payments and management of claims. Benefits for the employee will be paid for a maximum of 6 months and will include vocational support and training as required. There is allowance for a further 6 months of payments if an employee is undertaking an approved programme for work readiness. 

The scheme will be administered by ACC. The current ACC system is expected to accommodate the additional claim volumes, as they already collect levies and already manage billions of dollars in funds per annum.

ACC current performance

ACC’s performance has significantly worsened. In 2016/17 ACC’s performance resulted in 68.4% of injured workers back to work within 70 days.

In 2020 this had deteriorated to 63.3%. The direct impact for longer durations has seen 2016/17 performance at an average cost per claim of $20,876 vs 2019/2020 at $25,723 per claim.  

What is occurring is more claims, with longer time off work per claim and higher costs per claim - excluding the impacts of COVID. Both medical providers and NZ businesses are frustrated with ACC’s performance and ability to manage these claims.

This is highlighted by the following net promoter scores in ACC’s 2021/22 quarterly report.

Benchmarking and comparisons

Currently Third Party Administrators (TPA’s) are contracted by ACC to manage non-work injuries that occur to employees. ACC make the cover decisions but the TPA’s manage the claim.  When done this way the results are improved return to work rates, and equivalent or higher injured worker satisfaction results.

One reason for better results is benchmarking and performance comparison information is provided back to TPAs.

All TPA’s have product expertise in managing claims that are similar to the proposed Social Insurance Scheme. Rather than being managed by 100% by an inexperienced ACC, TPA’s could continue to be utilised to ensure best possible outcomes, and provide the essential benchmarking in a new scheme costing employers and employees $3.54billion per annum.

If the scheme intention is to purely pay for loss of income at 80%, the scheme will likely see increases in duration and cost in future years. Simply paying income replacement without the ability to pay for, or enable quicker access, to required specialists is delaying return to work opportunities and will increase scheme costs. ACC’s current experience and the ability for TPA’s to leverage off existing relationships and medical providers, has provided better results for all injured workers and significant cost savings for ACC and employers.     

Options for employers to consider

The accepted starting position within the working group is that employees off work, not receiving any income, hurts our whole economy.

The options that employers should consider are:

1. Should the scheme be introduced?
2. Is equal funding the right approach shared by employers and employees?
3. If ACC administers the scheme should benchmarking occur to ensure best claim outcomes are being achieved?
4. Should the scheme include the ability to fund treatment costs for quicker outcomes?
5. If an employer already funds Health Insurance or Income Protection should a reduction in levy occur?

Full information on the scheme and options for providing consultation are attached in the link https://www.mbie.govt.nz/have-your-say/income-insurance/