We now know the outcome of the Campbell, Yaghoubi and Davey decisions and the “Cossey Review” has been released. It is fair to say that an assessment of each provokes more questions than answers and promotes the validity of my assessment that, so far as WorkCover is concerned, 2011 will continue to be a year of uncertainty but it is also fair to say that overall WorkCover would be pleased with the results.
Too Early To Tell
The authors of the review found that, “no firm conclusions can be drawn at this time, (and) Parliament or the Government may wish to consider a further review at an appropriate time in the future”.
The reviewers found that,
“Fortunately, more than 90% of people who are injured at work incur very little by way of medical costs or experience significant time away from the workplace. The amendments to the Act in 2008 were not designed to impact on these injured workers and, by and large, have had no impact”.
“…the uncertainty which surrounds the status of some of the key changes because of legal challenges yet to be finalised has had a reported impact on injured workers to the extent that a system which is not particularly easy for all to comprehend is, at this point, even more difficult to comprehend”.
Lump Sum Compensation - The Winners
Injured workers assessed as having more serious injuries received an average of 20% more compensation than previously.
Lump Sum Compensation - The Losers
Injured workers whose injuries are not assessed as severe missed out if the degree of impairment or disability fails to meet the 5% WPI (whole person impairment) threshold.
Lump Sum Compensation - What Next
The reviewers point out that “a key risk for this change is the extent to which the 5% threshold may be eroded over time and the degree of subjectivity that may emerge in assessment of the level of WPI”.
There is no doubt that a significant degree of subjectivity is emerging in assessments but I expect that a greater risk will come from claimants establishing impairment of other body parts which have been affected as a sequelae of the original disability. Overall I expect the costs of lump sum compensation in the scheme to rise.
The amendments “were proposed as encouraging injured workers to return to work as early as possible. ...The rationale put forward at the time of the amendments was that some injured workers needed an ‘incentive’ to do so. The ‘incentive’ was the prospect of reduced income”.
The reviewers concluded that, “it is too early to tell whether these amendments have had any long-term impact on return to work rates… (but) …there is evidence that the impact of the step downs has been most strongly experienced by the lowest paid female workers (those earning less than $500.00 per week)”.
The step downs have not been successful in “encouraging” injured workers to return to work at an earlier point in time and, in fact, “The numbers active at 50 weeks is not very different to those active at 13 weeks”. This contrasts with more favourable experience for the December 2007 and June 2008 half years (i.e. before the amending Act).
I interpret the reviewers’ conclusions to mean that step downs have saved money for the scheme, but they have not promoted better return to work outcomes and it has come at a cost to injured workers and their families, and particularly lower paid females in the workforce who, perhaps, can least afford to be financially affected.
The reviewers conclude that “there is a slight trend towards faster resolution for matters resolved at conciliation, but no overall trend towards earlier resolution is yet apparent”.
It may sound counter-intuitive, but I pose the question whether disputation is necessarily a bad thing, in the context of a workers compensation scheme which was designed to be a pension scheme and, despite a number of amendments since its inception in 1987, remains essentially a pension scheme. There will always be people prepared to take advantage of such a scheme and a level of disputation is necessary to create tension in the scheme and discourage less meritorious claims.
A reduction in the number of disputes over a 10 year period correlates with a dramatic increase in the unfunded liability over the same period, from a scheme that was fully funded to one that is at best 66% funded. Perhaps there has been an unintended consequence associated with a “reduce disputation at all costs” approach.
Work Capacity Reviews
The reviewers conclude that, “The extent of legal challenges in relation to work capacity reviews and the authority of medical panels has made any assessment of the overall impact of these legislative amendments extremely difficult… (and) the ultimate effectiveness of the changes will be determined by the extent to which the intent of the legislation is sustained in the dispute process… (and) coincident with this will be the success of focused return to work initiatives”.
I expect that Work Capacity Reviews will continue to be challenged in the Tribunal and the Supreme Court will be called upon to clarify more issues of a technical nature. The whole process will be “on hold” until we finally have clarity around the operation of the legislation.
“The revised redemption provisions have been in operation for a limited time (less than 2 years for claims after 1 October 2009)… (and) it is not possible to assess their full impact”.
I think that the amendments to restrict the ability of the compensating authority to redeem claims will need to be reviewed because the scheme will need a mechanism to enable potential high cost claimants to exit the scheme equitably if the “tail” is not to grow, and, with it, the unfunded liability.
The introduction of Medical Panels by the 2008 amendments was fundamental to the achievement of savings in the scheme and the reduction of the unfunded liability.
There can be little doubt that WorkCover and the Government intended that Medical Panels were to be utilised as an efficient way to transition long-term claimants from income maintenance to social security without the intervention of the Tribunal.
The reviewers conclude that, “The full implementation of the legislation related to Medical Panels has been affected by several factors” and the most important of these relates to legal challenges to the constitutional validity and authority of Medical Panels.
The uncertainty will continue for a very long time, as the “very real issues” referred to by Mr Justice White in Campbell are identified and work their way through the judicial process to be ultimately decided by the Supreme Court, if not the High Court.
Sufficiency of the Fund
The reviewers have concluded that a cautious view should be taken in estimating the financial impact of the amendments, primarily because “the key amendment (WCRs) is at an early stage and that there are challenges to some aspects of the legislation”.
There are some key conclusions:
“(f) The funding level of the scheme has increased from 61% at 30 June 2008 to 66% at 31 December 2010.
(g) Were it not for favourable claims experience, the funding level at 31 December 2010 would have been 58% only.
(h) The favourable claims experience derives essentially from a focus on paying lump sum redemptions to long tail claims, a ‘window’ existing for such redemptions until 30 June 2010.”
That “favourable claims experience” will not be replicated in the future, because of the limiting effect on redemptions of the amendments and WorkCover policy.
A reduction in the funding level to 58% would be unacceptable and make it extremely difficult to maintain a levy rate of 2.75%, never mind reduce it further within the target range of 2.25% to 2.75%.
Employers should not expect any reduction in the levy rate any time soon. There is no material difference between the hindsight levy rates before and after the amending Act and, whilst the reviewers conclude that, “There is still the potential for reductions in break-even levies in the future”, that potential rests upon the extent to which “the full intent of the amending Act can be realised”.
I frankly doubt that the “full intent” of the amending Act will ever be realised.
CAMPBELL AND YAGHOUBI
The Full Court determined in these cases that any opinion provided by a Medical Panel is binding and to be accepted as final and conclusive, with the specific exception that it is not binding on the Workers Compensation Tribunal which retains, “the overall supervisory responsibility for the dispute resolution process” and “it remains for the Tribunal to determine what weight shall be given to an opinion (of the Medical Panel)”.
Each party in the proceedings came away with something of a win and it now appears that neither party will appeal to the High Court.
WorkCover will take heart from the fact that the Supreme Court accepted unreservedly their contention that a compensating authority may refer a medical question to the Medical Panel at any time.
The Government will presumably be satisfied that its submission that a “body or person” does not include the Tribunal was accepted by the Supreme Court, which neatly did away with the need for much of the argument on the constitutional validity of the Medical Panels.
The outcome, whilst settling some of the questions surrounding Medical Panels and their operation, will nonetheless raise many others and, in particular, the extent to which an opinion of a Medical Panel is binding on the Workers Compensation Tribunal.
In my view, the greatest impact of the Supreme Court judgment in the cases of Campbell and Yaghoubi relates to the impact upon WorkCover’s ability to efficiently utilise the medical panel to cease payments of income maintenance because of a work capacity review at 130 weeks. It can be expected that many persons whose payments have ceased because of a work capacity review at 130 weeks will lodge a Notice of Dispute with respect to the assessment and, once in the Tribunal, the process will be protracted and the outcome uncertain.
This matter came to the Supreme Court as an appeal in a matter involving WorkCover’s determination that the worker had a current work capacity pursuant to section 35B of the Act. The Tribunal had taken the view that the determination was voidable on the grounds of procedural irregularity in that the worker had been denied procedural fairness because he had not been provided with the opportunity to make any meaningful submission or provide further material to WorkCover before it made its section 35B determination.
The Court pointedly gave direction to the Tribunal that it should get on with determining the substantial merits of each case. It said that: “It may be observed that had the worker proceeded to litigate his dispute considering his work capacity and addressed the substantive merits of his case through proceedings in the Tribunal, that dispute would, in all likelihood, have been resolved by now. Instead, the Tribunal is yet to embark on that dispute. More than 12 months has been spent dealing with issues other than the substantial merits of the dispute”.
What remains to be seen, is whether workers’ solicitors will continue to pursue technical arguments which, in turn, will need to be disposed of by the Full Supreme Court and further delay the full and effective implementation of the worker capacity reviews.
MORE TO COME
On 23 May 2011, WorkCover announced its intention to commence a procurement process for the provisions of future claims management services and claims legal services for the scheme. The current contracts expire in December 2012.
WorkCover’s new IT claims management system is being constructed to deal with more than one agent and it can be expected that CGU, QBE and Allianz will be interested in returning to the scheme and Gallagher Bassett will likely seek a berth. EML will, no doubt, seek to continue but I doubt that any more than three contracts will ultimately be offered.
WorkCover has also committed itself to the introduction of a new employer payments scheme. The new approach is proposed to take effect for the 2012/2013 financial year but will require legislative amendments towards the end of 2011.
The approach is radically different and there will be winners and losers out of the change, hidden risks and unintended consequences!
We will have more to say about the proposed changes later in the year.
Suffice to say the changes will put the rabbit in the spotlight once again!
To read John Walsh's (Managing Partner, Donaldson Walsh Lawyers) full August Update and the March & May Special Report on the WorkCover Scheme please visit http://www.donaldsonwalsh.com.au.
To contact John directly please visit his profile page at http://www.donaldsonwalsh.com.au/our-people/john-walsh
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