A new two-year cap on income support that will cut off benefits to around 2600 people, and the dismissal of around 1000 claims in a six-year backlog of assessments of employees’ capacity to work, are at the heart of the $1.1 billion turnaround in the fortunes of the former WorkCoverSA scheme.
The reformed scheme, renamed ReturnToWorkSA, was legislated last year and achieved a dramatic reversal from an unfunded liability of $1.13 billion at June 30, 2014, to record $20 million in net assets in the six months to December 31, 2014.
As a result, the scheme, which provides income support for injured employees, became fully funded. At the same time, it facilitated a fall in 2015-16 premiums for business to 1.95% of a firm’s remuneration costs – the lowest since the inception of the insurance scheme in 1987.
The financial turnaround was founded on new assumptions made in the mid-year valuation by the financial actuaries who assess and estimate the future liabilities of the scheme.
In response to questions from InDaily, a ReturnToWorkSA spokesman said: “Even though the Government’s new Return to Work Act doesn’t begin operation until 1 July this year, it does impact on the assumptions about the future costs of the current open claims and creates greater clarity of their future costs, reducing the liability from the June 2014 valuation by $1 billion, as was intended”.
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The spokesman said the new actuarial estimates indicated that 2600 claims may be affected by the cut-off of income support from the operation of the new cap in July 2017.
“However, a key feature of the new Return to Work scheme is a greater focus on providing intensive face-to-face support to provide people with a work injury with the right services to help them recover and return to work before they reach the two-year cap,” the spokesman said.
“With this in mind and with our results from our ongoing active management, we expect to improve on this estimate from the actuary,” he said.
The overhauled ReturnToWorkSA regime also completed the work-capacity assessments of 2000 claims in a backlog of claims, many of which had accumulated since 2009 reforms added a work-capacity assessment to the scheme but some of which dated back to 1987.
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“Over the last 18 months, the time over which the Tail Project has focused on the backlog of work-capacity claims, the Income Maintenance liability was reduced by around $180 million as a result of the project,” the spokesman said.
“As a result of the Tail Project, around 1000 claims have had their entitlements ceased, and another 400 have had decisions made to cease their payments but are challenging the decision in the Workers’ Compensation Tribunal,” he said.
The new scheme has a strong focus on an employee’s capacity to work rather than the previous focus on incapacity, a reversal of the previous prevailing culture around the scheme.
The spokesman said “strong claims management and return-to-work performance that outstripped the forecast from the actuary’s June 2014 valuation” had also contributed to decreasing the scheme’s future liability.
On the operation of the two-year cap on income support, the spokesman confirmed that when support ceased, employees “will generally have access to a lump sum instead of ongoing payments”.
“For anyone who reaches the two-year cap (only about 4% of annual claims), we are also providing them with a new service called ReCONNECT which will support those people to transition to other social security support programs available to them,” he said.
The business community will welcome the fact that ongoing support will come from other sources, as it has long regarded some elements of the previous work cover regime as a ‘quasi-unemployment benefit’ that should not be paid by the business community through premiums but rather by the public purse.
The ReturnToWorkSA scheme had a net outstanding claims liability at December 31, 2014, of $2.667 billion, down from $3.848 billion at June 30, 2014.
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