Workers Compensation Hindsight
Changes to Hindsight Tables
The 2012 Workers Compensation Reforms have a retrospective impact on hindsight results. They affect the 5-yr hindsight results for FY 2008/09 and 3-yr FY 2010/11 as at June 2013; the 5-yr hindsight results for FY 2009/10 and 3-yr FY 2011/12 as at Jun-14.
For fund years before 2013/14, budget agency funding was calculated before the Reforms were introduced, and for this reason, PwC and icare self insurance anticipated excluding estimated Reform savings from the hindsight results for budget agencies that are impacted by Reforms (noting that Emergency Services agencies are not impacted). All of the Scheme Monitoring reports that agencies received up to Jun-14 reflected this position, which was based on the premise that estimated Reform savings were outside the control of agencies and would represent an unexpected “windfall” relative to the funding originally provided.
While this principle remains valid, in practice it has emerged that further to the original funding for fund years 2008/09 to 2010/11, experience deteriorated considerably before it was “reined in” by the Reforms, which means that the proposed approach would penalise agencies for the pre-reform deterioration without then passing on offsetting Reform savings. Note that deterioration also occurred in the NSW WorkCover scheme, and was a significant catalyst for the introduction of the Reforms.
The original approach has therefore been revised to allow an offset between the pre-Reform deterioration and the Reform savings, for the years affected. This approach has been agreed between PwC and icare self insurance in conjunction with the work being conducted in finalising June 2013 hindsight results, which are due to be invoiced this financial year.
The Sep-14 Scheme Monitoring reports have therefore been changed to reflect the latest forecast of the hindsight results, using this approach. Specifically, the changes mean that:
- For FY 2008/09 to FY 2010/11, all of the Reform savings will now be passed onto budget agencies; and for FY 2011/12, half of the savings will now be passed onto budget agencies (after comparing original budget funding with subsequent deterioration and the estimated Reform savings for each year, this is recommended as the most practical and equitable approach). This change means that non-emergency budget agencies now receive more money (or pay less money) for hindsight, and their historical hindsight forecasts from Jun-13 onwards have changed to reflect this. These changes are highlighted in blue in the reports. Non-budget and emergency services agencies are not affected.
- For FY 2012/13, the original approach of excluding estimated Reform savings from the hindsight results for budget agencies will be retained, as the pre-reform deterioration was largely reflected in the original funding for that year, and passing on estimated Reform savings would represent an unexpected “windfall”. This means no change to any hindsight result or historical forecast for anyone for this year. Note that savings due to ongoing post-Reform experience, including the effectiveness of work capacity testing, will flow through to hindsight results as the experience for 2012/13 and subsequent years emerges.
- For FY 2013/14 onwards, deposit contributions already took the estimated impact of Reforms into account, so there is no change to any hindsight result or forecast for anyone.
In the reports, note that hindsight amounts that are still yet to be paid are boxed in thick black border. Historical results and forecasts that did not change are shaded in grey, and at the front of detailed hindsight tables, there is a graph and table showing all forecast payments that are yet to be paid.
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