Written By: - Date published: 12:18 pm, July 2nd, 2008 - 83 comments
Categories: national, privatisation, workers' rights -
Tags: ACC, merryl lynch, PriceWaterhouseCoopers
It’s refreshing to see some proper investigative journalism in this morning’s Dominion Post, with a revelation from Vernon Small that while National continues to try and downplay ACC and talk about “no privatisation in the first term,” a report from John Key’s old firm Merrill Lynch suggests National’s privatisation plans are an open secret among Aussie insurance companies, who are lining up for windfall profits.
“Publicly, as best we can identify, and contrary to the statements made by several insurers we have met with in New Zealand, the National Party has made no formal statement on its plans for the ACC,” the report by analyst Andrew Kearnan says.
“Informally, however, we understand the National Party has been very clear in saying it will privatise the ACC.”
It is expected such a privatisation programme would involve the handing over of the workers’ compensation and motor casualty accounts to private insurers, worth $2.1 billion in new ‘premium’ income to the Aussie insurance companies.
The cost of this will of course fall to ordinary Kiwis, who will be forced to pay higher premiums for reduced coverage, as both Merrill Lynch and PriceWaterhouseCoopers point out. Clearly this is not a party with New Zealanders’ best interests at heart.
It doesn’t take a rocket scientist to figure out National’s telling the public one thing and its backers in the insurance industry another on this one. You’ll recall this is exactly what happened last election when National met secretly with the private insurance lobby to collude on ACC policy, which was then deliberately withheld from the public to avoid political fallout.
Ultimately it worked for National last election – even when the damning memo leaked it was lost in the bustle and confusion of the election campaign and voters went to the polls none the wiser. National’s hoping to get away with the same trick this time; it’s up to the media to make sure that doesn’t happen.
UPDATE: Selected pages from the Merryl Lynch report [JPEG, 300k] are available by clicking the thumbnails below:
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jbc: Yes, this is a good argument, and the parallel to carbon trading is apt.
I’m not convinced ACC would have the unfettered ability to raise premiums as a stick to reform unsafe workplaces, due to the `compliance costs are putting us out of business’ line. In principle (I don’t know the numbers) this could make some industries non-viable, and that would effectively mean we were trading jobs in mostly high-risk primary industries for jobs in the newly-burgeoning insurance industry. I wonder if that’s a worthwhile trade.
L
forgetaboutthelastone: This isn’t what those Labour voters who oppose the s59 repeal, the China Free Trade Agreement and other controversial legislation are saying right now.
When you vote for a politician, you are voting for leadership. You must expect that politician to act on the authority you give him or her by electing him or her, and that might not mean the legislative agenda you wanted.
This is why the policy debate is fundamentally important to the electoral process: it’s the only way you might know what you’re getting.
L
Captcha: “easy Middle”. Yep. Pitching for the middle is easy. Acting in it isn’t so.
Thank you Iprent
Hi Tane,
You can chance the settings of how many links you will allow.
Go to your dashboard>settings>discussion>change number of allowed links
Hope this helps
and Thanks
[lprent: It isn't that. That is set to 10 (and you really shouldn't put more than 10 links in). However akismet is also looking for spam and that is the one that is trapping your comments. We don't have access to control stuff in that]
Lew
I think you are still working hard to justify a state monopoly. All forms of insurance have high risk/low risk clients & high/low value clients. The whole principle of insurance is spreading the risk across various risk/value groups and factors. This is what Actuaries are employed to resolve.
An insurance company that cannot attract a range of clients with various risk & value profiles to allow it to provide cost effective cover should not be in the insurance business. There are two distinctly separate issues in this that need to be considered, how we fund it and how we provide it. The whole issue of funder/provider split should be on the table for discussion, informed discussion without our partisan “state good private bad’ or “private good state bad’ hats on.
We would all be very uncomfortable if there was only one commercial monopoly provider, yet you seem to think that if we allow only one state monopoly all of the issues associated with monopolies go away can you explain how you arrive at this position?
My take on it is, in the private monopoly profits motivate the reduction of inefficiencies and wastage, in the state provider there is little or no motivator for this, but neither monopoly is motivated to provide the best range of choices or to stay cost competitive.
Lew: “this could make some industries non-viable, and that would effectively mean we were trading jobs in mostly high-risk primary industries for jobs in the newly-burgeoning insurance industry. I wonder if that’s a worthwhile trade.”
I hadn’t looked at it that way. I’m certainly no fan of insurance companies and in terms of “people I like to deal with” they probably tie in last place with government departments and used-car salespeople.
My gut feel (which may be wrong) is that the type of industries concerned (that require manual labour to take risks) are in NZ because they need to be here to fill a local need. If they are not viable in that the business can not fund the risks it asks its employees to take then I would find that business questionable overall. Any business in that position is extremely dodgy.
burt, i don’t think you need to argue that hard to explain the need for state cover. Have a shot at answering this: would a private company happily lose money to ensure total coverage in a specific area of insurance?
You mention private insurance reducing inefficiency and wastage – unless they’re willing to adopt a no-fault system, their money will be tied up on lawyers and investigators. In this case the public model is clearly more efficient – it doesn’t need to be competitive, it needs to be comprehensive.
jbc – I didn’t know that workplaces were charged at different rates. Makes sense though, and while this can provide an incentive to reduce risk, unless private insurers were forced to adopt a government-mandated capped rate for providing cover, and were forced to cover every type of workplace that applied, costs to some workplaces will certainly rocket up. It seems to me that to some degree, those in cushy industries are subsidising those who do the dangerous work (but aren’t adequately compensated)…
burt: I am indeed working to justify a state monopoly in this case, but it’s not because I like state-owned monopolies in principle – I only like them when the market fails. In this wise I like the government’s purchase of KiwiRail – because privatisation failed us.
“An insurance company that cannot attract a range of clients with various risk & value profiles to allow it to provide cost effective cover should not be in the insurance business.”
The trouble is that ACC doesn’t have the option of not being in the business, nor does it have the option of balancing its client-base. This is the fundamental reason why ACC is different from other cases.
The fact that insurance must remain compulsory, but that only one provider must be compelled to accept all comers, means that provider (ACC) has a fundamental disadvantage: it cannot spread risk; it must take the risk the client-base provides. Across all industries this is tolerable, since they balance out. Where some providers get to select from the client base knowing that doing so will strengthen their hand in the long term (weakening the hand of a major player in a zero-sum game), there exists a major incentive for those who can choose to skim the `good’ clients, leaving only the `bad’ clients. This leads to the endgame in my argument linked above: the degradation of the system, and its eventual privatisation as a liability.
Ultimately all monopolies do have problems – the question is whether those problems are worth the collateral benefits they bring. In my view ACC is a rare case when they are.
L
jbc: The riskiest industries when I worked in the business (early ought-oughts) were all primary industry: forestry, fisheries, etc, and these also pay the highest premiums. However the relationship between the value of premiums and the cost of claims is not directly linear, so there is certainly an argument to tie the value of premiums to the cost of claims. I’m not really qualified to comment on what effects this would have, but in general terms, most of these jobs are at the mercy of the international market: you can only get so much for a tonne of wood chips, or of hoki fillets, or of chilled lamb, and anything which increases costs for those industries could have deleterious effects on the NZ economy. Or it could not. That’d require looking at the numbers.
L
Matthew Pilott
One of these days you will switch from ‘attack burt’ mode, I’ll wait till then to engage with you.
I have said more than once in this thread that a state option is no problem, it’s the monopoly issue that I don’t agree with. Keep reading into what I said what you want to see. More power to you.
Looks like National has finally come clean and admitted that they will privatise ACC. So, their policy is to screw over ordinary New Zealanders so they can enrich their Aussie mates to the tune of $200 million. Nice to know where they stand…
Lew
If you can explain how a monopoly can’t have a balanced client-base then we can understand each others position. I would say a monopoly has the most balanced client-base there is, perhaps I’ve misunderstood what you are trying to say?
Burt: Oh, yes, poor phrasing on my part. Clarification in italics below:
“The trouble is that ACC doesn’t have the option of not being in the business, nor does it have the option of balancing its client-base as the default provider in a two-tier system with private providers.
Basically what I mean is that if ACC is the provider for all the clients the private sector doesn’t want, it can’t possibly balance its client base. It’ll only get the `bad’ ones.
L
Lew
I think we are going to need to agree to disagree on the validity of a monopoly model for ACC. I won’t generally support a monopoly on anything with the natural exception of Govt itself. It’s possibly unfortunate that my position appears to aligns 100% with the National party as far as ACC is concerned. This is a coincidence as I’m not a National party supporter. If National had a different policy (EG: Scrap ACC entirely) then my position might be more acceptable to more people in this thread. Ces le vie.
I pay $4000 a year for ACC cover that is inadequate (3/4 ave wage, accident only,lengthy poor disputes process) ACC cover is so poor I have to pay privately on top for extensive sickness, disability etc cover. And the premium is an astronomic $800 per year! For far superior cover! Oh I’m an ACC acreditied health provider so I know exactly how poor ACC is. I want a choice, not a monopoly.
Chlorpromazine
If ACC (as an entity, not a monopoly) offered competitive cost/cover offerings – would you use it?
One of the important things about ACC which – and I may be wrong because this is a popular (read: contentious) thread – has been mostly overlooked – is that it is a no-fault scheme. Which is wonderful because we don’t have all the health-insurance litigation that carries on with other companies. Other insurance companies – like they were prior to ACC – will be at fault.
So while premiums may be cheaper (and I wouldn’t bet on it – insurance companies know how much employers are willing to pay after analysing the ACC data) – you do have to factor in the additional costs of liability insurance.
I’d certainly be after more than the standard $1mil business liability package.
Burt. Yes I would. But at the moment the ACC cover is poor (accident only, what about my heart attack?)very expensive and my business would fold in the event of me being unable to work if I had to depend on ACC. Medical Assurance Society provides me with much better cover (sickness etc), at a much much lower cost.
Chlorpromazine: I guess that you’re one of the `good’ clients who’d be cherry-picked by private providers under a two-tier scheme.
L
Thanks for the sympathy Lew. ACC is doing the $4000 cherry picking. I just want value for money, and to be able to choose my insurer. Sorry to sound so unreasonable.
Tane and Iprent,
I hear yah.
I’ll just do the occasional time in purgatory, it’s good to know you are there to save me. LOL.
Chlorpromazine – it is, after all, “Accident Compensation”. There’s a wealth of private health insurers out there should you wish to use one. Isn’t your private cover cheaper because it doesn’t need to cover what is covered under ACC?
Burt – perhaps you’ll move out of the “it’s a post from Matthew Pilott – it must be an attack” mode. It wan’t an attack, I gave a few reasons why I thought a monopoly was desireable, if not essential, in this market. Which is what you then complained I ignored. Odd. All I can see is that I could have made it a bit more clear by saying “state monopoly cover” but since that’s what we have at present I didn’t think it was necessary.
But if you can stop assuming everything is “Labour good, National bad” over here I might have a bit more time for you.
Chlorpromazine
Without ACC as a back stop, do you think that you would pay significantly more for the same cover?
Without the no fault backstop, who is to say your private provider does not charge you $10k per year.
The same can be said of private health insurance, they can offer $20 per month premium because if your case falls into the too hard basket they push you into the public health system at no cost to them, the insurer.
You know your cost is $4k with ACC and you know you get poor service, i.e these are know, knows.
Without ACC can you guess your premium, would a private provider charge you more or less, this will directly affect your business model.
i.e you know your premium will change but it is unknown by how much, known unknowns.
this to me is the problem, the known (change in premium paid and cover provided (loss of no fault)) and the unknowns (risk of premium rise and change of business model, and specifically for a health provider extra cover for malpractice action).
I guess what I am trying to say is that there is a leap of faith to privatise without some forward looking data on risk and cost broken down by industry/profession/personal health/hobbies…
I see your point Andy but I still feel rorted. I’ve worked in six countries and NZ is by far the most expensive to insure myself in.
I’ve worked in six countries and NZ is by far the most expensive to insure myself in.
Price can also be a function of the size of the market and the amount of risk that can be spread.
My concern is do we drop a functioning system, albeit average in outcomes for a system that needs to bed down over years to properly access risk.
once again, known unknowns.
andy: Your points about the no-fault backstop and universal public healthcare are sound. Is the Rumsfeld reference intentional?
Chlorpromazine: I don’t mean to sound unsympathetic; I’m just looking at the situation dispassionately. My entire argument is couched in terms of a social good which exceeds the cost of a structurally unfair system, which is basically the only justification for an ACC-like scheme.
Curious anecdote about NZ being the most expensive place to insure yourself in. Other anecdotal evidence I have come across suggests it’s much, much more expensive (and more hassle) in practically every other country in the world.
L
Lew: your argument of “a social good which exceeds the cost of a structurally unfair system” I can agree with when it comes to individuals, non work-related accidents and sports injuries, etc.
However workplace insurance is another story. The present system has safe employers subsidising the riskier practices of less safe employers. I don’t see a lot of social good in that.
If the present system enables our wood & fish exports to Asia to be slightly cheaper then it also makes some other export slightly more expensive.
In the end someone pays for the risk – moral hazard is an issue with workplace insurance.
Chlorpromazine
I have found that peoples opinions on ACC are almost always polarised. The general trend I see is if people run businesses see the real cost, they see it accounted for in their payroll and accounting systems. People who are on salary/wages often have no real idea at all of what it costs but just love it to bits.
I sometimes work on the assumption that when something is well supported by people who don’t know how much it cost and regarded as too expensive by people who pay for it, then it may well be a good system – but it’s simply too expensive.
My opinion is its luxury stuff really, hard to justify when you are slashing people off hospital waiting lists. Great, I can crash my mountain bike and pay a pittance for the service I eventually get at A&E, but meanwhile people are not getting life saving operations. Go figure!
Lew
Ha ha, did sound Rumsfeldian
Have just read The Black Swan:the impact of the highly improbable.
Well worth the read.
Burt
I see the costs, and don’t love it to bits. Its a bugger of a system. The worry is that if we replace it with one that has worse outcomes its a negative for society as a whole..
andy
I’ve got the ‘worse outcomes its a negative for society as a whole..’ concept onboard. I get that bit. But I think its not something that has to be as all encompassing, so generic, one size fits all.
Look it’s great I can take the mountain bike out and bust myself up from time to time not worrying about the costs of the panel beating. Brilliant that sounds convincing – now ACC is sounding like a great system. But hang on, the mountain bike cost how much? The shoes and the cool egg beater pedals – how much? The speedo – how much did ya pay for the wireless one? Hey GPS would be cool, could map my rides, thank god the panel beating is free because now I can have heaps of toys when I bust myself. No fault is a great concept, but show me a high risk sport that hasn’t got expensive toys…
So what do we do? How much of the ‘its expensive’ is solely related to the fact it’s a monopoly and how much is related to the fact its a no fault system?
… “a high risk sport that hasn’t got expensive toys “
Rugby… Bugger, OK so we have free A&E cover for players registered (and actually playing) at Rugby clubs because it’s the national game…. Fair exception.
jbc: Yes, you’re quite right about the moral hazard, and this point also underlines Burt’s points about state monopolies not having an incentive to maximise efficiency, and about the beneficiaries of the system being thrilled with it, while those paying into it (employers) aren’t so.
I agree above that there’s a case for industry premiums to be closely matched to their actual cost. It depends how far down the rabbit-hole you want to look, though, since the employer levy is paid as a proportion of wages paid, not per FTE, per hour worked or per other unit of actual risk. Is a worker earning $40 per hour twice as high a risk as a worker in the same industry earning $20 per hour? Clearly not. What this means is that since the most dangerous jobs such as forestry are also poorly-paid, levies in those industries would have to be astronomically high on a per-dollar basis in order to cover their full cost, with obvious flow-on effects. In a sense this cross-subsidisation is so structural that to argue that it’s unfair is to beg the question. The system is predicated on cross-subsidised risk. That’s just how it is, and another cost of civilised society, like taxation.
burt: Once you make exceptions for rugby, you’re on a slippery slope…
Ultimately I think any cross-subsidised system which provides the sort of universal cover ACC does will be considered too expensive by those paying into it, due simply to the fact that they are paying. The fact that employers are paying is a matter of compliance efficiency, and not an issue of competitive disadvantage since all NZ employers within an industry face roughly the same burden.
The calculation you have to make is whether the cost savings which could be gained by competition and the transference of the moral hazard that brings is worth the deleterious effects in my original analysis: cherry-picking, degradation and eventual privatisation. Not to me, and not to most non-employers, I bet. The only way it becomes tolerable to me is if someone can give me a good analysis of why it wouldn’t happen, and nobody yet has.
(There’s also a Marxist argument to be made here about the difference between employers and employees, but I don’t think I need to make it
)
L
Lew
As long as Chess players don’t mind subsidising the lifestyles of people like this, then one size fits all is fine.
There are natural monopolies – hell, even Milton Friedman was willing to accept that fact and he stated that such monopolies must be in government hands. Roads, Power reticulation, Telecommunications, etc. The question is ‘Is ACC an natural monopoly?’ and I’d say that it is. Privatized health systems around the world invariably leave the people who most need cover without it simply because it costs too much.
That’s how insurance works – doesn’t matter if it’s public or private or even if higher risk clients pay more or not.
Elective surgery isn’t life saving and ACC isn’t a luxury. Bringing people back up to full health as fast as possible benefits the whole community in improved productivity.
Not quite. If any clearly identifiable segment of an insurer’s customer base turns out to cost them money in the long run then their actuaries will be on the case. Premiums will adjust to cover the risk. Try buying a couple of million dollars of term life insurance and see how detailed the questions about your life will be.
Sure, insurance is all about averaging risk – but insurers are not stupid.
I understand that is one reason behind those against opening to private competition: actuaries taking a closer look. Premiums being adjusted up and down to closer reflect risk and giving safe employers a break.