There are increasing numbers of people with serious injuries. Photo: 123RF
ACC levies may need to be increased significantly to cover soaring costs the organisation is facing for rehabilitation services and an increase in serious injuries.
RNZ has been told the Accident Compensation Corporation is facing a financial hole later this year, with forecasts showing from October it would "no longer break even".
ACC forecasts show liabilities exceed the ACC investment fund, and year-end claims will exceed the revenue collected through levies.
It is understood the hole between levies and claims could be as large as $3 billion.
Multiple people working at ACC, speaking on the condition of anonymity, said the shortfall was due to long-standing issues with rehabilitation services, and the organisation's inability to identify problems and make changes.
ACC levies may need to be increased to cover costs
Increasing numbers of serious injuries was also a problem, as were higher unemployment figures, meaning return to work timetables were stretching ever longer.
At the end of June 2023, the ACC's investment fund was worth $46.9 billion, and levies brought in $5.954bn in the previous year.
The Corporation's Outstanding Claims Liability (OCL), which calculates the lifetime cost of existing claims, was $51.5bn. Up to June 2023, there were nearly 2 million new claims accepted, and almost $6.2bn in claims paid out.
ACC staff have told RNZ there would have to be a significant increase in ACC's levies for it to continue meeting costs.
People pay ACC levies when buying petrol or renewing a vehicle registration, while employees and employers also pay varying levies depending on the industry they are in.
While levies generated nearly $6bn in the year to June 2023, one person RNZ spoke to said that figure would need to jump by at least a quarter to realistically meet rising costs in the near future.
Levies are set every three years, and are up for renewal this year.
Consultation will begin in September and October.
Acting chief executive Michael Frampton said ACC would be able to meet its obligations. Photo: Supplied
ACC acting chief executive Michael Frampton said it would consult with all levy payers on any proposed changes, before presenting recommendations to the government.
It also receives annual government funding from the government, outside of the Budget process, for clients who were not in the workforce, he said.
"No additional funding from the government has been requested outside of this annual process."
ACC would still be able to meet its obligations, Frampton said.
"There are no financial risks to ACC that would affect our ability to support New Zealanders recovering from injuries.
"The ACC investment fund continues to perform well against its benchmarks and in line with expectations for the year to date."
Levies were last set in 2021, for the three-year period to the 2024/25 financial year.
The earners' levy is currently $1.39 for every $100 earned. The work levy rate is $0.63 per $100 of payroll, and the average motor vehicle levy is $113.94.
The motor vehicle levy has not changed in six years, after the previous Labour government rejected an ACC suggestion to raise it to $127.68 back in 2018.
More than a decade ago, ACC levies were far higher than they are today.
In 2013/14, the earners' levy was $1.70 per $100 earned (22.3 percent higher than today), the work levy was $1.15 per $100 of payroll (82.5 percent higher), and the average motor vehicle levy was $330.68 (190 percent higher).
While there were no immediate financial risks, Frampton did admit rehabilitation costs were increasing.
"Each year ACC supports almost two million New Zealanders to recover from injuries caused by accidents. We do this through our funding of medical treatment, rehabilitation support and weekly compensation.
"Despite concerted focus, and consistent with international trends, our short-term client rehabilitation performance has been declining for some time and healthcare costs have been increasing. This means it's taking longer and costing more for clients to recover from injury."
Frampton defended ACC's ability to adjust to the changing nature of claims, but said: "Work continues to understand how to make our rehabilitation system work better for our clients."
He gave an example of recent improvements, particularly for people with musculoskeletal injuries.
"Recently we collaborated with providers to introduce a new care pathway for… musculoskeletal injuries that provides greater flexibility for health providers to design and deliver the services our clients need. This initiative has the potential to make a real difference to rehabilitation outcomes in the medium to longer term."
The ACC also faced potential pressure from an outstanding court case that could force through changes to its policy settings.
In Budget documents released last week, a Court of Appeal case involving the ACC was highlighted as a possible fiscal risk in coming years.
The court case "may result in an expansion of the current understanding about the bounds of the scheme", the documents said.
"The costs of this expansion.... could necessitate additional Crown funding. The extent of the additional funding could put pressure on ACC's funding policy (which provides an underlying assumption for these forecasts) and/or the goal to reach a funding ratio target of 100 percent (assets to liabilities) over a 10-year funding horizon."
Budget documents showed ACC insurance liabilities were expected to grow by $16.3bn over the next three years, "largely reflecting growth in claims volumes, increases in rehabilitation costs and economic factors".