WorkCover: how we can get it back to work

This is the text of an article on the current attack by the capitalist class on the entitlement of injured workers to compensation for injury and assistance with rehabilitation and return to work (see previous post Workers Must Be Organised to Fight Attacks on Workers Compo).

Dr Kevin Purse is a social democrat, a Research Fellow with the Hawke Research Institute at the University of South Australia and a former WorkCover Board member.

The virtue of the article is its exposure of the fallacy that the privatisation of WorkCover's claims management functions would be more efficient and save costs. Under piratisation, the pirates simply loot the people's treasure chest.

Kevin Purse WorkCover: how we can get it back to work

Recent calls for wide-ranging cuts to workers' entitlements to rein in WorkCover's unfunded liability are self-serving and detract from the real issues underpinning the state's beleaguered workers' compensation scheme.

One of these is the outsourcing by WorkCover of its claims management responsibilities to the private sector. Changes to legislation in 1994, driven largely by ideological considerations, paved the way for WorkCover to outsource its core business. (The full pattern of privatisation measures adopted by the state Liberal government in the 90s is revealed in the article Public Private Partnerships – ed.)

At that time, many politicians and business leaders argued that an injection of private sector expertise was the solution to the problems. Outsourcing, we were told, would reduce WorkCover's administration costs, provide greater choice for employers, improve service delivery and lift the scheme's performance.

From 1995, claims management was farmed out to nine insurance companies, then five, then four and, since 2006, one claims agent.

So, has outsourcing delivered on the promises made by its advocates? No. The much-vaunted benefits of outsourcing have simply failed to materialise.

In 1994, before outsourcing, the cost of administering the WorkCover scheme was $49.7 million. Outsourcing was supposed to save up to 15 per cent a year. This was never met. In fact, there were never enough savings, even though the number of WorkCover claims fell from 39,500 in 1995 to 22,020 in 2007.

Instead, there was a bow-out in administration costs. By 2007, employers, after adjusting for inflation, had paid an extra $75 million in administration costs – in effect, an "outsourcing loading" of more than 10 per cent a year.

The promise of employer choice was also an illusion. Before 2006, on average each year less than 1 per cent of employers changed claims agents, and since then, of course, any semblance of employer choice has disappeared altogether.

Service to injured workers has been another area of concern. This has been especially so for those whose injuries make an early return to work unlikely or more difficult.

Claims agents have all too often regarded employers as the "customer" and workers as "claims". Consequently, any commitment to help injured workers return to work has tended to fluctuate between indifference and aggressive claims management.

An incredibly high turnover of claims managers, estimated at more than 20 per cent, also hasn't helped.

Finally, though not surprisingly, there has been a conspicuous deterioration in WorkCover’s financial performance.

Before outsourcing in 1995, the average premium rate for employers was 2.84 per cent of payroll and the scheme had a funding ratio of 70.7 per cent. By 2007, the average premium had increased to 3 per cent and the funding ratio fallen to 64.7 per cent - even though workers' entitlements were greater than now.

The obvious solution is that WorkCover's claims management functions should be brought back in-house. This option now needs to be seriously explored, especially as the scheme's claims liability has increased by more than $300 million since 2006.

The outsourcing fiasco is by no means the only example of the scheme's poor management, and slashing entitlements to injured workers or raising premiums paid by employers is not the way forward.

What is required is an overhaul of the way WorkCover is managed.