Debate on Crown Entities, Public Organisations, and State Enterprises — Accident Compensation Corporation

It is hard to think of a Crown entity, or a public organisation, or a State-owned enterprise that we are looking into tonight that is in a worse state than the Accident Compensation Corporation, and the fault for that lies entirely at the feet of this Government. That is where it lies. An organisation with a proud history has been turned into a shambles inside 3½ years by this Government. The core principles of ACC—prevention, treatment, and rehabilitation—have been replaced with scandal, sleaze, stuff-ups, and a culture of disentitlement, and that is what we are seeing from this Government. From day one it has sought to undermine ACC to ensure that it is not providing the service that New Zealanders would expect of it, and to ready it up for the privatisation plans that we know that the Government has.

It would be easy when looking at ACC to gloss over some of the matters that are not the scandal and are not the sleaze—I will return to those shortly—but what I want to mention now, right off the bat, is that in the report of the Transport and Industrial Relations Committee we see the heart of what this Government is actually doing to ACC. The committee chose to comment on the increase in the number of decisions going to review. There were 5,193 decisions that went to review in 2007-08. That increased to 9,271 in 2010-11—nearly double.

💬 Hon Trevor Mallard: That’s a scandal in itself.

It is a scandal in itself. But it gets worse. The increase in decisions overturned at review or on appeal went up from 900 in 2007-08 to a staggering 2,288 in 2010-11. That is what is really going on inside ACC. That is what is there. That culture of disentitlement was brought in by the former Minister for ACC Nick Smith actually deliberately targeting a situation whereby people would have their entitlements taken away. More and more decisions were going to review because ACC was working harder and harder to make sure people did not get what they were entitled to. But it is far, far worse than that, because, in fact, what we now know is that the Government pays ACC staff bonuses to get people off the books. That is why things are going to review. It is because people who are entitled to expect that ACC would be there for them are being pushed off it as part of an active campaign by this Government. So do not underestimate at any point the desire of this Government to undermine ACC as a public entity, because the agenda is very clear.

There is one good thing—there is only one good thing—from the stuff-ups, scandal, and sleaze that have bedevilled ACC. It is that the process of opening up the work account to competition is being delayed. That is the one thing that is good. But, make no mistake, this Government did it last time in the 1990s, and it will do it again. It wants to privatise this organisation. This process of deliberately undermining the organisation, of ensuring that people do not get what they are entitled to, of seeing more cases go to review and more cases overturned on appeal because the basis of the ACC decision was wrong is the culture that National has been developing in ACC. The Minister for ACC talks about a culture change. Well, the culture change that she wants is a culture of privatisation. We on this side of the House would like to see a culture change that actually sees ACC get back to its core business of prevention, of treatment, of rehabilitation, and of making sure that it is the organisation that New Zealanders should be proud of.

But there is absolutely no way New Zealanders can be proud of an organisation whose main contact points in the last few months have been the police, the Privacy Commissioner, and the Auditor-General. That is what most of the work going on in ACC is about at the moment—trying to manage the scandals, and the stuff-ups, and the sleaze. It is simply unacceptable to this day that such a large privacy breach could take place in an organisation like ACC, and what followed from that was a disgrace. It was a farce, actually, but it was also a disgrace, because this organisation—once proud—found itself mired in a huge breach of privacy, Ministers going, and a police inquiry, at the end of which we saw the chair, the chief executive, and board members leave. This is a Crown entity in chaos. It is a shambles. It has been poorly managed from day one of this Government by Ministers Nick Smith and Judith Collins. So mired in the scandal and the sleaze are they that they have completely taken their eye off the ball of this organisation.

There are many things that National Governments can be proud of, and ACC counts among them. ACC is an organisation that was established under a royal commission set up by a National Government. It was set up by the Holyoake Government, passed into law by Jack Marshall’s Government, and maintained over 40 years by the National Government.

I find it really, really tiresome to have to continue to remind this House why it is that every time National comes back to office it has to tidy up the mess left by Labour. The one thing we have not heard from members of the former Labour Government is the simple word “sorry”. Maryan Street is there; she has the opportunity. She put her signature on a financial loss of $2.4 billion and oversaw 6 months of a $4.8 billion loss. I will do many things—and I certainly regret the fact that there was information leaked on several thousand claimants—but I will not apologise for this Government’s management of ACC.

Let me tell you why. When the Bolger Government came to office in the early 1990s, I wonder whether you know how many long-term claimants there were on the books at ACC. I can tell you that there were nearly 27,500—27,500. It was under a National Government that ACC implemented the case management model that not only is enduring today but is being picked up by social agencies and other insurance companies around the world. The impact of that was profound, because, at its core, the very first thing ACC is required to do is prevent injuries, then treat them, and then compensate for them. But the most important part of that equation is the rehabilitation model, and rehabilitation, when it works, involves people exiting the scheme. I think a reduction in the number of people who are long-term ACC claimants is a heck of a good thing. When we came in in the mid-1990s, with long-term claimants at 27,500, the case management model was successful in reducing that number down in the late 1990s to about 14,000. And then claims continued to reduce. But, under the Labour Government, by how many were long-term claimants reduced? None. They went back up by about 1,000. There were 100,000 fewer claims—

💬 Jacqui Dean: How can that be?

—and 1,000 extra long-term claimants. I can tell you how that can be. It is because, under Labour, ACC was left to take its eye off the rehabilitation ball—a come one, come all approach.

There is one thing that Mr Robertson did not mention—and that no Labour member when discussing ACC has ever mentioned—and that is the other stakeholders in ACC. Because it is not only about the claimants; the important thing is that the scheme is affordable. In the late 1990s it was absolutely apparent that with the growing numbers of long-term claimants the scheme could not be sustained in the model that it was in. The full funding model was put in place, and the Labour Government had 9 years to change the full funding model and did not.

But I will tell members what the Labour Government did do. It allowed rehabilitation rates to drop. This is very important, because every 1 percent drop in rehabilitation rates over a 12-month period costs the scheme half a billion dollars. The rehabilitation rates under Labour went down and down and down, and the long-term tail went up and up and up. I make no apology for the former Minister for ACC Nick Smith and the present Minister, Judith Collins, being very clear about the importance of rehabilitation not just for the claimants but also for the levy payers. And let us be very clear about that. Any softening of that approach is not only bad for the levy payers but very bad for the claimants. We should not be afraid to talk about rehabilitation with somebody, even somebody who has been out of work for 12 months—and there are difficulties in rehabilitating claimants who have been out of work for a time.

I congratulate the case managers on the work that they do. If 15 percent—a small proportion—of their remuneration is based on rehabilitation rates, why should we apologise for that? Eighty-five percent of their performance is based on other factors, including, I am quite sure, claimant satisfaction. A very small proportion of it is for doing what the law requires them to do, and that is to rehabilitate claimants in a fair and timely manner. This Government is going to make no apologies for that.

Yes, there is work to do in ACC, and I look forward to that work being well managed by the Minister, Judith Collins, but I make no apologies—

There is no question: ACC is in crisis. It is in the deepest crisis it has ever been in, and I suspect it is the deepest crisis that any Government agency or department has been in for decades and decades. It is probably unprecedented in the history of the New Zealand public sector, with perhaps the exception of the New Zealand Tourism Board under Bryan Mogridge, but that is a different story.

That address we have just heard from the member Michael Woodhouse just frankly defies credulity. There is no question that people who have been on ACC legitimately, properly—trying to be rehabilitated, entitled to compensation, and entitled to treatment—have been pushed off it when there are no grounds to do so. They have been pushed off it not because they are rehabilitated, not because they are capable of returning to independent living and being without support, not because they are ready to go back to their old job, but because this Government introduced an incentive scheme to claims managers and the management of ACC to push those people off, to make the figures look good and the bottom line look better. Under this Government, ACC has lurched away—lurched in a direction far removed—from its founding principles. Those principles are community responsibility, proper rehabilitation, and injury prevention.

We now know how this crisis has unfolded. It started with Nick Smith’s declaration of a crisis in 2009—a financial crisis that did not exist. It did not matter that ACC was generating surpluses—

💬 Hon Anne Tolley: It did exist. Outrageous!

💬 Jonathan Young: Of course it existed. Tell that to the levy payers!

—of a billion dollars a year, Ms Tolley. It did not matter, Mr Young, that it had reserves then of $11 billion—now of about $18 billion. So National declared the crisis. It hiked levies totally unnecessarily. What we now know from the most recent media reports is that there was a crook deal done between Nick Smith and the management of ACC to set up incentives to drive long-term claimants off ACC. Let us be under no illusion. What ACC has done in the last 3½ years has been done at the direction and directive of this Government. It is totally the political decision and directions of this Government that have driven ACC. I say to those who want to exculpate the present Minister and the previous Minister for ACC that they miss the point completely. ACC has acted in accordance with the instructions of its political masters, and we should not let those political masters off the hook, whether it is Nick Smith or Judith Collins. And those who are looking to the present political masters and the present Minister for a solution to the current problems are looking in the wrong place. I make no apology for saying that.

Let us see what happened under this great regime. The surpluses at around 2008 were about a billion dollars a year. Last year, they were $3.5 billion. The reserves are now at $18 billion to $19 billion. But the price of that has been paid by the claimants—the long-term claimants. They have been subject to a brutal managerialism that has taken over ACC. The number of long-term claimants has gone down 25 percent in 3 years. What on earth logic applies there—that in 3 years a quarter of your long-term claimants are miraculously rehabilitated and can go back to work? Jesus could not do as good a job as that! By way of comparison, in the 5 years to 2008 there were 12 percent of claimants who went from ACC on to benefits, because they were rehabilitated and there was no job for them. In 2010 it was 19 percent. What is the miraculous remedy? It is not because rehabilitation improved; it is because claimants have been shoved off it.

Let me read from some correspondence I have had just in the last couple of days. It does not take much to cite evidence when it comes to ACC. I just dip at random into my “In” pile for the current day, and you get something like this. Here is what this Wellingtonian said: “At the end of January 2010 I had an accident coming down a ladder while off on holiday. When I first applied for ACC they queried whether it was due to any pre-existing conditions and whether I could get anyone else to help me, apart from ACC.” That is January 2010. Fast-forward to the end of 2011. The old case manager went; “a new case manager was appointed and at our first meeting, after introducing herself, she simply stated that her job was to get me off ACC. Alarm bells rang. Where was the rehabilitation? Where was the job training?”. That question is being asked by hundreds of innocent New Zealanders up and down the country right at this moment, because ACC is in crisis and they are paying the cost.

The issue in ACC is no longer just one of confidence in ACC. It is about how the issues are handled—politically. The present Minister is not up to it. The top echelons of the—

In 2008 when Nick Smith took over the portfolio there were two difficulties with ACC. One was that the return on its investments was dropping. And why was that? There was a global financial crisis: a global financial crisis in which every investment company and investment account around the world began to notice a falling away in the interest and the returns on their investment. So that was one problem. There was another difficulty, and it was with the non-earners account. There was some underfunding in the non-earners account. ACC has six accounts: five were fine and are funded by levies. The one that is not funded by levies is funded by appropriation. There was some underfunding because of the increased costs of medical treatment, in large measure. There were two difficulties, and two challenges—one that needed to be waited out, and the other one that needed to be addressed by an incoming Government.

But what did we have? We had Nick Smith come in, go round in tiny circles, and create a panic. He created a panic around an institution that had existed since the 1970s and was brought in by a National Government, as Michael Woodhouse said, because it saw the purpose and usefulness of it, as well. But this Government has now reduced this ACC institution to chaos and destruction. It has wrought more chaos and visited more destruction on this organisation than any other public sector agency that I can think of.

When we have a look at the report of the Transport and Industrial Relations Committee we notice that in the period from 2007-08—I was Minister for ACC over that time—there were 5,000 decisions going to review, but by 2010-11 there were over 9,000. The increase in the decisions overturned at review went from 900, when I was the Minister, to 2,288 during the time Nick Smith was the Minister. Let me give you one other significant factor, and it goes to the issue of morale. The select committee reported on staff issues. It said proudly that ACC had said that it had met the target of exceeding the New Zealand State sector 50th percentile and had improved from 2009-10 to 2010-11. I will bet my bottom dollar that by the time the 2011-12 review comes round, it will have plummeted.

But maybe there is some remedy that is in the report, because if we go on to the very next sentence it says: “We noted that the biggest collective employment agreement covering ACC staff had expired 3 years ago, and remains unsettled.” Perhaps ACC could get some performance from its staff if it treated them well, to begin with, and it concluded their collective agreement, instead of cooking up ideas that provide the worst of incentives, by offering bonuses if you shoot as many people as possible off the long-term caseload. If you get those people off and you get a bonus for it, that has got to be the most pernicious, the most evil, and the most destructive way of addressing rehabilitation that I have ever heard. It creates the wrong kinds of incentives for staff.

Sign that collective agreement. Get the staff morale back on board. People want to work in an organisation that they know works well for people. At the moment they are leaving in droves from ACC, starting at the top. They are leaving in droves. Nick Smith’s plan may well have been to turn the corporation into chaos. That may well have been his plan, because it happens a lot with portfolios that Nick Smith takes over. They are reduced to chaos in short order, and he usually gets bumped off and changed so that it can be repaired by somebody else. This one is now in Judith Collins’ lap to repair. She needs to address these issues. If she wants a culture change, try settling the collective agreement in that workplace. Try stopping putting in perverse incentives that are going to make people unwell and will not assist in rehabilitation.

There is something fundamentally wrong in ACC. It has been wrong for a while, and it gets “wronger and wronger” by the year. The year in question, 2011-12, has been the worst year on record. Other speakers have spoken about the social contract, that historic bargain in which New Zealanders gave away the right to sue in exchange for a system based on the Woodhouse principles. I have spoken previously in the House about those. It was a great system—a great system that has been brought low.

I want to tell a story about that system and about that process. It starts, more or less, in 2009, when we had a Government coming in and a new Minister for ACC, who spoke about a financial disaster at ACC. Again, other speakers have spoken about that. That new Minister appointed a board and signed a service and purchase agreement with the chair of the board that actually required a target for fewer and fewer people to remain on long-term compensation. In the subsequent years after that 2009 agreement—and, in particular, in the 2011-12 year that we are discussing today—those targets have become increasingly steep.

So we were faced with a board of ACC that was under pressure from its Minister, and in place were some instructions about what ACC needed to do. What ACC proceeded to do was progressively disentitle New Zealanders by reinterpreting the law so that more and more New Zealanders making claims were not covered. ACC chose to pursue that by introducing this staff remuneration incentives scheme by which staff who contributed to the goal of getting more and more people off long-term compensation would be financially rewarded. It contributed to that goal by hand-picking particular medical assessors who the ACC board knew were likely to give it the result it wanted, which was a recommendation that this person was rehabilitated and ready to go back to work. Well, it would be fantastic if that were true, would it not? Would it not be fantastic if all of those people whom ACC threw off its books—those 3,500 people over the past 3 years—in fact did go back into paid work? Sadly, that is not the case. Actually, only a tiny minority of that group were able to go back to work. Most of that group actually found themselves on income support benefits, or in that dreadful limbo world of being neither employed nor eligible for benefits. That is the outcome for those groups.

The test of that has been in the number of reviews of those decisions that ACC has faced. The current Minister said in the House last week that the rehabilitation decisions—the decisions to remove people from compensation—reflect the fact that the people were rehabilitated and ready to go back to work. Well, the problem with those financial incentives for front-line staff is that there is no counterbalance. There is nothing that measures whether the decisions were the right ones or the wrong ones. In fact, the increasing rate—that sharply increasing rate—at which decisions have been found at review and in the courts to be wrong suggests that there is something fundamentally wrong with the decision-making processes at ACC.

What has happened fundamentally is that financial incentives—the dollars—have been put in front, ahead of the needs of ACC’s claimants. That is nowhere better reflected than in the issues around privacy. Why is it that ACC had this catastrophic failure of privacy culture? It is because it did not really care about the claimants. Fundamental culture change is needed. Judith Collins’ first service and purchase agreement is due now. What will it say?

Report noted.

Independent Police Conduct Authority