DECD loss of self-insured status a major concern

Leaders in schools and preschools should be seriously concerned about the impacts on site budgets and leaders’ workload of the State Government’s decision to give up its self-insured status in relation to all new workers compensation claims from 1 July 2017.
 
 The AEU is aware that Cabinet approved a Transition/Implementation Plan in February 2017.

Workers Compensation Insurance in South Australia

In the same way as all vehicles must have compulsory third party insurance as part of their registration, all employers must be insured in relation to work injuries. Most employers are “registered” with Return to Work SA and pay a “premium”. The premium employers pay depends upon the industry they are in and the number and nature of claims made. Return to Work SA is a wholly government owned monopoly.

While Return to Work SA manages the scheme it doesn’t actually manage the claims itself and registered employers and their employees have to deal with private claims agents EML and Gallagher Bassett which administer all claims on behalf of Return to Work SA.

Many large employers are self-insured for workers compensation purposes. As at 1 January 2017 there were 71 private self-insured employer registrations in South Australia. This includes major employers such as BHP Billiton, Coles and Woolworths, ANZ and Westpac, Myer and David Jones and Local Government. It terms of Education, this also includes Catholic Schools and South Australian Universities. [1]  All State Government Departments are deemed to be self-insured employers.

It is widely acknowledged and understood that self-insured employers perform better than registered employers in terms of the costs associated with work injuries and in getting injured workers back to work. One reason for this is that as a self-insured entity the employer is in control of the return to work process and has the flexibility to manage the process in a way that best suits its business. Self-insured employers also have a direct incentive to minimise injuries and are unaffected by “moral hazard” where there is a lack of incentive to guard against a risk where one is insured by another against the consequences of the risks of their actions.

Recent History of Workers Compensation

It wasn’t that long ago that workers compensation was a political hot potato for the State Government with registered employers paying the highest premiums rates in Australia and the then WorkCover SA having an unfunded liability of over a billion dollars. 

In response to the financial woes of WorkCover SA, the Rann Labor Government amended the Workers Rehabilitation and Compensation Act 1986 effectively mirroring Victorian legislation introduced by the Kennett State Government.

Given the continuing poor performance of WorkCover SA, the Weatherill Labor Government significantly changed the very nature of workers compensation in SA by repealing the Workers Rehabilitation and Compensation Act 1986 and replacing it with the Return to Work Act 2014, which commenced on 1 July 2015. Rather than a pension type scheme that provided payments based upon actual incapacity for work and medical expenses for as long as they were needed, it is now a capped scheme with entitlements limited to a maximum of two years for lost income and a maximum of three years for medical expenses.

The impact of the changes included that premium rates paid by employers were reduced, saving employers approximately $180 million a year and, at the same time, the Scheme announced “a profit of $1.501 billion” resulting in a surplus of $370 million.        

It was interesting to note that the incoming CEO of Return to Work SA stated at a conference in October 2016 that as the scheme was now fully funded that they could meet all liabilities should the State Government decide it no longer wanted to be in the business of insuring employers against the cost of work injuries.

In 2016, the State Government announced the Latham/Bentley Review of Work Injury Insurance Arrangements in the South Australian Public Sector. There was no consultation with Unions regarding this review and to date the outcome and recommendations of the review remain secret.

It was the AEU’s concern at the time of the announcement of the review that the outcome was predetermined and that this review would result in either the establishment of a “shared services” type approach to the management of workers compensation across government (and anyone who has to deal with Payroll knows how successful that approach has been) or worse, that the State Government would give up its self-insured status. The announcement in late 2016 confirmed our worst fears.

It was only relatively recently that the State Government changed legislation reducing  compensation paid out under the compulsory third party insurance scheme run by the Motor Accident Commission (MAC). Shortly afterwards the State Government privatised the MAC saying that they weren’t in the business of providing personal injury insurance and funds from the privatisation contributed significantly to the budget surplus.

Why would the State Government give up its self-insured status?

The question then is: why would the government give up its self-insured status? According to Self Insured SA (“SISA”), the peak body representing self-insured employers, the public sector has “easily out-performed Return To Work SA (RTWSA)/WorkCover across the years based on published information. Compared to RTWSA/WorkCover, the public sector has consistently delivered:

•  Proportionally far lower claim liabilities

(around 10% of total SA liabilities, despite it being about 18% of the scheme)

•  Proportionally lower total claim costs

• Lower administrative costs

• Better return to work rates.[2]

SISA says there is no business case for what it calls “privatising” public sector claims unless the State Government has another agenda and speculation has existed for some time that this decision is a preliminary step to privatising RTWSA and the inclusion of public sector claims is to maximise the financial returns to the State Government.

The AEU has been involved in a number of meetings with Government representatives including the Attorney General/Deputy Premier regarding this matter. To date, there has been little to no information provided regarding how the State Government’s decision will be implemented despite the fact it will proceed from 1 July 2017.

In explaining its decision, the State Government has stated that the new arrangements will make it easier for injured workers to be transferred between the various Government Departments and Agencies and that consistent data will be available across the whole of government about workers compensation performance. If these really were valid concerns (and they are minor issues at best) they could be easily addressed without removing Government’s self-insured status.

Leaders' Concerns

There are two ways of looking at this change to how workers compensation will be managed in the public sector from 1 July 2017. The first is from the perspective of the individual injured worker. While the applicable legislation will remain unchanged, individual workers’ claims are more likely to be rejected by EML and Gallagher Bassett, there will be more disputation and less return to work flexibility.

Ultimately, however, AEU Members who suffer work injuries will be able to access advice and representation to ensure their legal rights are enforced.

The second way to look at these changes is from the perspective of the employer, particularly those with responsibility for managing injured workers at the site level. We see there being two categories of concerns being the impact on site budgets and the impact on Leaders workload.

Return to Work Premium

The AEU is extremely concerned about the impact of a premium being charged. Will a premium be charged to DECD or by sector? For example, we know for the private sector Return to Work SA charges a significantly higher base premium for preschools compared to secondary schools, which are higher again than primary schools. Special Education and Vocational Education also pay relatively high premiums. Will individual sites be expected to pay the premium? Also, will site premiums be based on claims history at particular sites resulting in some sites paying significantly more than others but receiving the same level of funding?

The loss of experienced DECD claims managers and rehabilitation coordinators
 
The loss of experienced DECD claims managers and rehabilitation coordinators who have an understanding of how schools/preschools operate is a significant concern. Currently, DECD claims management staff work with DECD HR (and other units within DECD) to manage work related injuries and achieve return to work outcomes that address the needs of the injured worker and worksites. 

EML and Gallagher Bassett have a reputation for employing inexperienced staff and having a high turnover of staff. EML and Gallagher Bassett are private businesses that maximise profits by achieving targets set by Return to Work SA.

EML and Gallagher Bassett have limited experience in dealing with complex psychological claims whereas DECD claims managers understand the nature of psychological injury and the needs of sites in meeting their duty of care obligations to students.

“Incentivising” sites
 
In addition to premiums, we understand that options aimed at “incentivising” how sites manage workers compensation claims are being actively considered. We understand this to mean that there will be the imposition of financial penalties in certain circumstances. For example, a $1500 penalty to be charged to a site for late notification of injury.

Increased Costs
 
There can be no doubt that there will be higher overall costs for public education as a consequence of the loss of self-insured status. The question that needs to be answered is where this money will come from and will it come at the expense of funding educational programs?

Increased Accountability and Workload for Site Leaders
 
The changes being introduced will also lead to additional accountability measures for site leaders which will lead to further time spent on administration and management rather than on educational leadership. While DECD currently employees “Rehabilitation Coordinators” as part of its Injury Management Unit it is unclear how this function will be managed going forward. All employers with more than 30 staff have to appoint a Return to Work Coordinator who has undergone the specified training requirements. In many businesses these coordinators are existing staff members with management responsibilities. Should sites of more than 30 staff be required to have a member of the leadership team appointed and trained in this role, this will have significant workload implications for already busy site leaders.

Salary Costs of Injured Workers
 
Another significant concern is that sites will have to meet the salary costs of injured workers undertaking modified duties/suitable employment or “work hardening” when placed at the site as part of the return to work process. Currently DECD Injury Management uses budget line 766 to cover all/some of the cost of salaries payable to injured workers employed when in supernumerary roles or when they are performing modified work under medical restrictions.

Loss of Early Intervention Support

DECD currently provides early intervention support that is focused at minimising the adverse impacts and disruption associated with work injuries. It is unclear what, if any, support sites will have from DECD in managing the circumstances requiring early intervention.

Increased Legal Disputation
 
With claims management decisions being made outside of DECD there will be greater levels of disputation which will likely see more Leaders required to give evidence in the Tribunal to support decisions of external claims managers and “three cornered contests” involving the insurer, worker and employer.

Loss of Control

Ultimately, the risk is that DECD and sites will lose control of human resources outcomes when it comes to managing work related injuries and this will lead to greater costs for sites and greater workload for Leaders.

Conclusion

While the Government has made a decision on the future management of workers compensation claims in the public sector and this decision will be implemented, the issue for Leaders is how this decision is implemented and how their concerns are addressed. The AEU will continue to advocate on behalf of leaders at the highest level of Government to ensure their concerns are acknowledged and addressed.

Links: 

[1] For a complete list see https://www.rtwsa.com/insurance/self-insurance/self-insured-employers-in-south-australia

[2] See “SISA statement on plans to privatise public sector workers compensation claims” at http://www.sisa.net.au/News_story.cfm?NewsID=227