
Issue No 24		30 July 1999

Interview

The Man in the Hot Seat

Interview with Peter Lewis

WorkCover general manger John Grayson cut his teeth in the trade union movement. Now he's trying to save the state's workers compensation scheme.


	WorkCover general manager John Grayson

WorkCover's been in a mess for some time now, what's the fundamental problem?

The fundamental problem I think - and there's little doubt about this -- is that workers on weekly payments are staying off work longer, in fact twice as long now as they were five years ago. If you had to describe one single cost driver as the most important, that's it. That's the simple answer. The reasons for it are much more obscure. The doctors tell us that they're just as good as treating people as they used to be. We know that the type and severity of the injuries are no different than five years ago. But for some reason which is very difficult to discern, workers are staying off work longer.

This problem came to public notice soon after Carr took power in 1995, can you talk us through what has been done to address that issue since then?

There have been three packages of scheme reform since the Carr Government came to office. The first package was more to do with attacking those perceived excesses and anomalies in the benefit structure. For example, it became known that workers who had received injuries under the old 1986 Act and, as a result of those injuries suffered permanent disability of one form or another, those workers would be compensated twice, double-dipping in the 1987 Act. It was a difficult time for a new government and a new Minister to come to terms with a problem, the dimensions of which had been cleverly masked by the previous Fahey Government. We introduced the somewhat controversial deductible proportions legislation which meant you couldn't recover compensation twice for the same portion of loss.

Moving forward then, there was an attempt to limit the level of litigation in the system. The NSW system is the last of its kind in that it's a court-based dispute resolution system. So there was an attempt to simplify that and de-legalise it by the creation of a conciliation system. Sir Laurence Street was retained to report on and make recommendations about this system and as a result we now have a very effective conciliation system, standing independent of both the court system and the WorkCover Authority in the Department of Industrial Relations. That scheme is now fully operational, having come through a successful pilot scheme where it was subject to scrutiny by actuaries and the scheme's architects.

At this point, the union movement also took the difficult decision of agreeing to a 25 per cent reduction in the level of lump sum benefits. To the movement's credit, it recognised the need for some form of cost containment - I might say that 25 per cent reduction restored the status quo after the most ill-conceived and one might say philanthropic gesture by the Fahey Government who increased benefits by 25 per cent at a time when scheme costs were rising and at a time when they were charging artificially suppressed premiums. As Barrie Unsworth has observed on more than one occasion, the Fahey Government squandered the inheritance of the Unsworth Government's 1987 Scheme. The 1987 was set to be a good scheme which paid its way. as we know, and it's history now, all the reserves that were built up were expended in political gestures of keeping premiums artificially low,. That's a problem which we have been grappling with ever since.

Looking back on the 1987 scheme, in the early days the premiums were well above three per cent. Today that would be regarded as politically unacceptable. What has changed in the last decade to change the ground-rules of workers compensation?

Probably the performance of schemes in other states and territories, most notably our nearest competitor Victoria. By and large those schemes are operating at a lower level than NSW . There's also been an element of acceptance of lower premiums created by those years when premiums were kept at an artificially low level by the Fahey Government. We're talking in those terms of a drop from a range of 3.2 down to 1.8 per cent for four consecutive years. Industry geared itself around those low on-costs. When the Carr Government came to power and was confronted with this increasingly underfunded scheme, the difficulty in raising premiums to the current level of 2.8 percent was largely linked to that. It was, in the eyes of the employer community, an increase which they didn't welcome. There really wasn't any judgment about the equity and affordibility argument the question of whether a community should, as others do in America for example, accept that 3.2 to 3.4 per cent is a reasonable cost to pay for adequate benefits for injured workers. In a nutshell, there' s no rocket science in it, that's what the difficulty has been, People are used to paying an artificially low rate and when a government says they're going to be charged more, there is a natural reticence.

The indicators that guide government in these decisions are devised by actuaries. They take a lot of economic data and make predictions about what will happen in the future. Two questions: one, is the best way to set percentage premiums? and two, where are the social aspects like the quality of care for injured workers built into that equation?

If you start with the proposition that a so-called fully funded scheme is a conventionally wise thing to do, then the actuaries are the only one's who can create a fully funded scheme,.. To have a fully funded scheme you need to be able to project what future liability will be. If you don't gather sufficient premiums from present employers, you tend to leave the debt to the future. That is called a pay as you go scheme and that is not conventionally acceptable. Coming at it in a clinical way as opposed to a philosophical way, I fully believe the fully funded scheme is a sound concept. You can't have a fully funded scheme without actuarial estimates of liabilities and assets built into the premium rating. You can't gather in any scientifically precise way, premiums from today's employers for the claims they incur by way of injuries to their workers. Your other alternative is to have a pay as you go system and just levy sufficient premiums for the claims of the day. Equitably that is flawed,.

The government recently made a decision to defer the private underwriting of the scheme. What was the rationale behind that?

The Advisory Council - and perhaps we should talk about that for a moment - one of the major achievement s for recent times has been the creation of this employer-union body made up of so-called stakeholders. The Advisory Council has been charged with the responsibility of recommending scheme reforms -- if you like, to design the product that the insurance industry in a privately underwritten environment would price. It became apparent in April this year that there were grave reservations in then minds of the Advisory Council about the readiness of the insurance industry to move to a privately underwritten environment doing all of those things in terms of injury management protocols and so on that they were required to do under the 1998 legislation.

It further became apparent that the price the insurance industry was going to charge was excessive. I don't make that judgement personally, but that was the opinion of the Advisory Council. In the middle of April the Advisory Council recommended to government that private underwriting be deferred until there could be more certainty of outcome in terms of pricing and until there could be more demonstrable evidence on the part of the insurance industry's readiness to take on the private underwriting model.

What is the dimension of the problem in terms of the deficit and how much will that grow over another 12 months?

We've got a deferral which is not more than 12 months. The Government has made its position extremely clear that the full 12 months is off the radar screen. Private underwriting will start before then. As to the dimension of the problem, we're talking about a scheme deficit in the order of $2 billion and a scheme underlying cost in the range of 3.1 per cent and we're talking about a scheme cost of around 2.8 per cent. So we're probably underfunded to the tune of $200 million per year. That's a lot of money when you say it quickly. I suppose the only good thing about it is that it's growing at a far slower rate than it would have had it not been for the three reform packages that the Carr Government brought in. But no prizes for guessing we have a bit further to go in terms of reducing that underlying scheme cost.

Finally, as a former union official and lifelong Labor man, what priorities would you be taking if you were representing the workers in this next round of negotiations? What would you say should be the guiding principles for unions during this process?

Unions have to do what unions are there to do and that is to defend to the end the rights of injured workers. There's a fundamental difference, and from my many years in the union movement it's not always easy to recognise, but it's a difference that I've come to understand between the needs and the wants of workers. If we could get to the stage where the scheme delivered benefits to those who were in need and didn't waste those valuable benefits on those who weren't necessarily in need, then that would be the optimal position. Now I'm not one who says there are lot of rorts going on, but I think we need to understand that there are people in receipt of weekly payments who might have a capacity to work that's unexplored. The trade union movement has to emphasise the benefits of getting back to early, durable and timely return to work concepts. I have to say, to their credit, the trade union members of the Advisory Council have done just that properly and in the interests of injured workers. They've put the question squarely to the bosses, when are you going to create those alternate work opportunities that our members can take on? There's been no sympathy for those who are offered alternative suitable employment and don't take it. A scheme can't be accepted to tolerate and prop up those people.

Apart from that there has to be a recognition that little over 50 cents in the premium dollar is going into the pockets of injured workers. I'm talking about service providers: the doctors, the physiotherapists, the rehabilitation counsellors, the lawyers and so on. And I think the trade union movement needs to ask clearly and loudly: where is the rest of it going? And should it go there to that extent?

So those two clear principles need to underpin the approach taken by the trade union movement. Make sure that we are only paying benefits to those who are in need of them. And make sure that we are paying sufficient in terms of premium dollar to injured workers and not squandering it elsewhere

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Issue 24 contents

Interview: The Man in the Hot Seat
WorkCover general manger John Grayson cut his teeth in the trade union movement. Now heï¿½s trying to save the stateï¿½s workers compensation scheme.

Unions: Turning Up The Heat: Bush Fire Officers Seek Award Justice
"We want an award for the job that we do, not the job other people want us to do". Donald Bushby, and his fellow Fire Control Officers, know what they want. It's simple: an award for FCO's and deputy FCO's, an award that recognises who they are, the job they do, the pressures they have to live with.

International: The Virtual Labour Congress
International trade unions are launching an online debate on Labour in the 21th century.

Legal: The Source of the Issue
Recent legal developments place the spotlight on the outsourcing of government activities.

Review: The Split that Changed a Nation
A new book looks at the Cold War ALP split that redefined politics in this country.

Labour Review: What's New at the Information Centre
Read the latest issue of Labour Review, Labor Council's resource for unionists.

Satire: Man Takes Home Pay - More Pokies Needed
The NSW government has expressed concern following the release of a second report by the Productivity Commission which shows that a majority of employed people still spend their pay on luxury items such as food and clothing for their family.

» Sixty Cents A Week to Protect Entitlements

» Workers Comp ï¿½ The Rorts Have to Stop

» Steggles Roasted Over Family-Busting Policies

» Youth Worker Death Prompts Safety Fears

» Rail Security Guards Miss Danger Spots

» New South Coast Labor Body Seeks Recognition

» Howard Ministers, Employment Advocate in the Dock

» Management Vandals Take to Sydney Water

» Boston Fiddles While Teachers Burn

» Lundy to Star in Workers Online Net Night

» STOP PRESS - Firefighters Seek End To Safety Apartheid