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May, Roshana; Casey, Petrina --- "Principles of an effective workers' compensation scheme" [2014] PrecedentAULA 61; (2014) 125 Precedent 31


PRINCIPLES OF AN EFFECTIVE WORKERS’ COMPENSATION SYSTEM

By Roshana May and Petrina Casey

What might ‘national minimum standards’ for workers’ compensation look like? How should they be set and implemented in the context of workers’ compensation schemes? These questions can be tackled from several different perspectives, including recent work done on the national minimum standards for the National Injury Insurance Scheme (NIIS), and the model work, health and safety legislation.[1] Further questions around harmonisation arise, and whether a national scheme should be developed. Are minimum standards sufficient? Shouldn’t we aim for the ‘ideal’ or best practice scheme design principles? Is a national scheme needed to deliver best practices, and could the various cultures that currently exist within workers’ compensation schemes be accommodated? Finally, how can the health benefits of work best be taken into consideration?[2]

THE AUSTRALIAN WAY

The workers’ compensation landscape in Australia is perhaps best described as a patchwork of arrangements. Internationally, Australia is somewhat unique, being one of only three countries where workers’ compensation schemes are organised at state level (the other two being Canada and the US). Most European countries have schemes that are integrated with their social security systems, while New Zealand and the Scandinavian countries have schemes that provide national coverage for all injuries (national schemes). The 11 distinct Australian workers’ compensation schemes (including the three Commonwealth Schemes: Comcare, Seafarers and Military) have evolved largely in isolation from one another, with significant variations in key areas of scheme design, including eligibility and benefit entitlements.

Because of this ‘patchwork’ of schemes, the debate continues about the virtues or otherwise of a national scheme or of harmonising workers’ compensation arrangements. Proponents of harmonisation argue that state-based schemes lead to inequitable treatment of workers; increased administrative complexity and inefficiencies for participants; burdensome compliance frameworks; sub-optimal outcomes for workers and employers; and perhaps even a ‘race to the bottom’ or ‘lowest common dominator’ as states compete to have the lowest premiums. On the other hand, proponents of the current state-based arrangements contend that they promote interstate rivalry or competitive federalism, stimulating scheme innovation. As states compete for business investment attracted by lower premiums, they can recognise the local needs and conditions; and there is the potential to develop closer relationships with stakeholders, such as workers, employers, unions and providers. However, with the exception of a few areas of scheme ‘design’ – for example, cross-border legislative provisions, claim form requirements, accreditation standards for workplace rehabilitation-providers and discrete national self-insurance harmonisation projects[3] – there has been little tangible progress towards fulfilment of the harmonisation ‘project’ commenced in 2010.[4]

Another recurring theme discussed and debated in the many scheme reviews conducted over the past 30 years is the relevance of ‘fault’ in determining access to compensation benefits, and the merits or otherwise of ‘no-fault’ arrangements compared with ‘common law/fault-based’ arrangements.[5] Generally, workers’ compensation schemes have evolved from the ‘no-fault’ principle. However, over time, many have introduced elements of common law so that what in fact exists today is a mixture of no-fault and fault-based elements.

From a health policy perspective, there is evidence that no-fault scheme arrangements are associated with improved health outcomes.[6] There is, however, evidence – particularly from the US – that no-fault schemes can be more expensive.[7] One of the main factors contributing to higher costs is the difficulty in containing lifetime medical costs.[8] There is also a higher propensity for claimants in ‘no fault’ arrangements to access medical treatments at higher rates, leading to a significantly greater medical cost.[9]

From a legal viewpoint, common law is seen as an effective means of policing occupational or workplace health and safety regulation and ensuring that employers employ best practice and systems in their workplaces. It is also viewed as the best mechanism for adequately ‘compensating’ an injured person for the wrongs of another and as an opportunity for the injured to ‘take control’ of their futures.

However, no-fault and common law are rarely mutually exclusive, with most workers’ compensation schemes being a ‘hybrid’ of the two, adding to the complexity of compensation schemes. The Productivity Commission (PC) in its 2011 review, Disability Care and Support, focused on the insurance arrangements for injury and the impact of compensation on health outcomes and recovery,[10] particularly for the catastrophically injured. For the catastrophically injured, the PC recommended the formation of the National Injury Insurance Scheme (NIIS), reflecting its findings that existing fault-based insurance arrangements do not meet people’s care costs efficiently.[11]

It is worth noting that Australia almost introduced a national no-fault scheme in 1974 following the National Committee of Inquiry into Compensation and Rehabilitation Australia, chaired by Justice Woodhouse. The government of the time had intended to enact legislation, as outlined in the National Compensation Bill 1974 but, following a change of government, the Bill was not enacted.

SCHEME REVIEW AND DESIGN

While the circumstances that typically lead to the review of individual schemes differ, they are generally driven by political imperatives to control premiums, or unfunded liabilities, usually resulting in benefit reductions or decreased access. The other driver for change, albeit less frequent, is scheme profitability, resulting in premium reductions and increased access to benefits.[12] Rarely is there an opportunity to design from a blank canvas. The existing scheme design, the culture, the political, social and economic environment all influence the scheme design review process.

Policy discussions of the merits or otherwise of state-based scheme arrangements and of common law arrangements will undoubtedly continue, and inevitably many of the current scheme arrangements will be reviewed to accommodate the NIIS. However, these are not prerequisites to implementing ideal scheme principles where the aim is scheme sustainability and optimising injured workers’ outcomes. In addition, there is a broader evidence base emerging that needs to be considered when designing schemes and establishing benchmarks, including the effects of the compensation system (or elements of the system) on its participants and the health benefits of work.

The ’compensation effect’ on health and wellbeing

Notwithstanding the difficulties in conducting research in this area,[13] and noting that not all researchers agree,[14] there is a growing body of evidence suggesting that compensation status has a negative effect on the injured person’s health and that people with ‘compensable’ injuries may have poorer health outcomes than those with similar but ‘non-compensable’ injuries.[15] Prolonged exposure or the ‘time taken to deal with a claim’ is associated with stresses that may hinder recovery.[16] Additionally, evidence suggests what scheme participants report to be significant stressors in the compensation process: numerous assessments, situations where claimants are confronted with the traumatic history of the injury event, delayed funds and financial risks.[17]

This so-called ‘compensation effect’[18] generally falls into one of two broad categories: ’secondary gain’ and ‘secondary victimisation’.[19] The ‘secondary gain’ theory proposes that being involved in a compensation process creates an unconscious incentive for the injured person to remain unwell. In contrast, the ‘secondary victimisation’ theory proposes that being involved in the compensation process is complex and stressful and that it gives rise to renewed victimisation for the injured person.[20]

Taking this evidence together, effort is required to minimise system-generated stressors and to improve scheme design so that people are supported to exit the schemes as quickly as possible.

The health benefits of work

It is widely recognised by all the Australian compensation regulators, and by numerous medical colleges and faculties, that work is generally good for health and wellbeing. The Consensus Statement of the Health Benefits of Work[21] endorses the view that long-term work absence, work disability and unemployment all have a negative impact on health and wellbeing; that work must be safe so far as is reasonably practicable; and that work practices, workplace culture, work-life balance, injury management programs and relationships within workplaces are key determinants, not only of whether people feel valued and supported in their work roles, but also of their individual health, wellbeing and productivity.

Scheme design to date has focused on ‘incapacity’ rather than ‘work capacity’, thereby placing emphasis on work absence. Work absence is the major determinant for receipt of compensation benefits. Work absence is, in most cases, discretionary – at the worker’s, their doctor’s or their employer’s discretion – in that there is no medical requirement that the worker remain absent from work.[22] Culture around sickness or illness certification requires a major shift to focus on capacity, together with community recognition of the positive impact of work on health. Scheme design must accommodate consistent language, positive incentives and support around the health benefits of work.

In line with this evidence, workers need to be supported where possible to recover at work by ensuring the support and interventions provided are work-focused and co-ordinated within the workplace.[23] Fundamentally, workers’ compensation schemes are (or should be) about supporting people to stay at, recover at, or return to work. If return to work is not the focus, then workers should be supported through active community participation and to gain independence in other areas of their life.

If return to work (optimised work outcomes) is the primary objective of workers’ compensation schemes, how do we design a scheme to deliver that objective while providing financial, medical and social support to the injured worker? While this may be simplistic, we know this must be done in an affordable and sustainable way and must account for people injured at work who will not return to the workplace. If agreement could be reached on the primary objectives of workers’ compensation schemes, perhaps agreement could then be reached on the best practice scheme design principles to deliver those objectives? Surely minimum standards should be best practices?

SCHEME OBJECTIVES AND ACHIEVING NATIONAL CONSISTENCY

Given that each state has its own workers’ compensation system and culture, evolved through many decades and influenced by the different motivations and imperatives of different stakeholders, change will always be difficult. In the absence of a national scheme, which is unlikely in the short or medium term, there is still scope for greater harmonisation or uniformity, with minimum standards for delivery of workers’ compensation insurance benefits across the nation.

In response to the PC’s 2004 report into health and safety and workers’ compensation,[24] the states, territories and Commonwealth, through the ‘Heads of Workers Compensation Authorities’ (HWCA), embarked on a number of activities to achieve the vision of promoting and implementing best practice in workers’ compensation arrangements in Australia and New Zealand in the areas of policy and legislative matters, regulation and scheme administration.[25]

The HCWA strategy[26] outlined key activities to be undertaken in the area of ‘harmonisation’ including streamlining of processes, data collection and setting of minimum benchmarks for scheme design and scheme objectives. Since 2010, little more than a streamlined claim form has been achieved. Activities slowed and seemingly came to a halt in or around 2012. However, since then, there has been substantial scheme reform in several states – NSW, QLD, SA – and reform is underway in the Commonwealth, driven by ‘financial instability’ (premium increases and reducing funding ratios). The impetus and goal underpinning this tranche of reform has been scheme sustainability and stability.

The state schemes have similar visions, purpose and objectives, typified by the NSW workers’ compensation system:[27]

• To secure the health, safety and welfare of workers by prevention of work-related injury.

• To provide prompt, effective and proactive treatment and management of injuries.

• To provide and pay for necessary medical and vocational rehabilitation following injury to assist in and promote early return to work.

• To provide income support to workers and their dependants during incapacity.

• To provide payment for permanent impairment or death and payment of reasonable medical and other related expenses.

• To be fair, affordable and financially viable ensuring employer contributions are commensurate with risk.

It is clear that while the primary objective of the schemes is to provide necessary support and assistance to achieve optimal restoration to health and work outcomes (while at work), the secondary objective is to provide this within an affordable and sustainable environment. Another stated objective is to assist in optimising work outcomes in a way that protects the safety, health and wellbeing of Australian workers.

Principles of an effective workers’ compensation system

To achieve national consistency, the fundamental principles of effective workers’ compensation scheme design would include:

Scheme stability and predictability: a fully funded scheme, with stable and predictable performance, which allows the scheme to be sustainable without legislative change for a substantial period (in excess of five to seven years).

Affordability: premiums are affordable by those required to pay them.

Work outcomes are optimised: The health benefits of work are recognised and all stakeholders – employers, employees, doctors, health-providers, insurers/claims agents – are focused on recovering at, or returning to safe work depending on the injured worker’s capacity.

Fair and just compensation: ensuring injured workers are fairly and consistently compensated for the injuries they sustain, with a focus on those who have suffered severe or catastrophic injury.

Scheme efficiency: that the majority of premiums collected is returned to injured people and administrative costs associated with running the scheme are kept to a minimum, while keeping system-generated stressors to a minimum.

Scheme adaptability: the capacity to respond to changes in economic and social climates and the efficient collation and analysis of data to measure scheme outcomes and performance (recognised by the PC as a ‘core feature’ of a national disability insurance scheme).

THE SEVERELY INJURED – CATASTROPHIC INJURIES, THE NIIS AND MINIMUM BENCHMARKS

For catastrophic work injuries, the PC proposed the NIIS – a federation of no-fault workers’ compensation schemes, drawing on best practice arrangements already in place around Australia. Identifying catastrophic injuries as major acquired brain injuries, spinal cord injuries, burns and multiple amputations, the PC said: ‘In most instances, people need lifelong supports and, particularly in the initial post-injury phase, have intensive clinical needs and require post-treatment supports, early interventions and rehabilitation.’[28]

State and territory governments are encouraged to transfer the care and support of catastrophic workplace claims to the NIIS through a contractual arrangement with their respective workers’ compensation schemes. It is anticipated that all jurisdictions will endeavour to agree minimum benchmarks[29] to provide no-fault lifetime care and support for people ‘catastrophically injured through workplace accidents’ by as early as July 2016.[30]

It is imperative that all states and territories modify their existing scheme arrangements to achieve minimum benchmarks for workplace accidents, as clause 115 of the ‘Intergovernmental Agreement on NDIS Launch’ contemplates that the states will carry 100 per cent of the cost of participants in the National Disability Insurance Scheme (NDIS) who are in the NDIS ‘because they are not covered by an existing or new injury insurance scheme that meets the minimum benchmarks for workplace accidents’.

Minimum benchmarks have not yet been published. And given the variance in the duration and quantum of benefits across jurisdictions, significant work will be required by some states to meet whatever minimum benchmarks are set. The benchmarks must, as a minimum, address the following:

Coverage and eligibility: For example, consistency in the definitions of worker, employee, contractor, workplace accident to ensure equitable access to scheme benefits and supports.

Assessment criteria: An objective, injury-based criteria such as that used by the NSW Lifetime Care and Support (LTCS) model[31] to determine catastrophic injury (excluding those long-term benefit recipients whose injuries are not ‘catastrophic’).[32] Consistency in applying impairment measures (for example, national guidelines for permanent impairment threshold measurement).

National cross-border/cross-jurisdiction arrangements across all states and territories (as to which NIIS scheme applies and in what circumstances).

Coverage for those industries with separate compensation schemes: for example, NSW coalminers, NSW police, firefighters and paramedics, seafarers and military.

Alignment with state motor accident schemes, especially in relation to journey claims.

Access to appropriate rehabilitation and/or education and vocational training for the life of the injury.

Benefits: lifetime support for medical treatment, rehabilitation, attendant care services, domestic assistance, aids and appliances and artificial members (or other body parts), home and transport modification (mimicking the Agreed Minimum Benchmarks for Motor Vehicle Accidents).[33]

Income support.

CONCLUSION

Minimum standards for workers’ compensation schemes in Australia must be considered within the context of the ideal scheme design principles and as part of a national harmonisation program subscribed to by the coalition of all workers’ compensation regulators.

The primary focus must be on the injured worker and the restoration of their health at work and improvement in work capacity. This will necessarily result in consideration of better return-to-work options, leading to improved return-to-work outcomes. As a natural corollary, the evidence of the health impacts of compensation scheme design must be given greater weight than at present. The health benefits of work must be used as a tool in scheme design, again focused on achieving better outcomes for injured workers.

The HWCA should continue to work towards the objectives outlined in its 2010-2013 strategy. However, harmonisation or a national scheme are not prerequisites to the agreement and implementation of the principles of effective scheme design across the various workers’ compensation jurisdictions. Minimum standards in terms of benefit delivery, outcomes for injured workers, funding ratios and premium standards are achievable and should be pursued in line with the principles outlined.

Roshana May has been practising for over 25 years personal injury law, specialising in workers’ compensation regulation, processes and scheme reform. After 8 years with Slater + Gordon in Sydney, she has recently moved into consultancy and private practice. EMAIL: roshana@roshanamay.com.au.

Petrina Casey is director of Cortex Solutions. She is a member of the Safe Work Australia Expert Work Health and Safety and Workers Compensation Panel and a lecturer in personal injury scheme design at the Griffith University Business School. Petrina is in the final stages of PhD research on health and social outcomes for compensation scheme participants. EMAIL: petrina@cortexsolutions.net.au.


[1]http://www.safeworkaustralia.gov.au/sites/SWA/about/Publications/Documents/598/Model_Work_Health_and_Safety_Bill_23_June_2011.pdf.

[2] Australasian Faculty of Occupational & Environmental Medicine Position Statement, Realising the Health Benefits of Work, October 2011, The Royal College of Physicians.

[3] HWCA, Harmonisation Activities, www.hwca.org.au/harmonisation _activities.phpdate, accessed 23 September 2014: http://www.hwca.org.au/harmonisation_activities.php.

[4] http://www.safeworkaustralia.gov.au/sites/SWA/about/Publications/Documents/566/ NationalWorkersCompensationActionPlan2010_2013.pdf.

[5] Productivity Commission, Disability Care and Support, 2011. Chapter 17, Insurance Arrangements, discusses the strengths and weaknesses of common law versus no-fault insurance arrangements,

[6] JD Cassidy, LJ Carroll, P Cote, M Lemstra, A Berglund, A Nygren, 2000, ‘Effect of eliminating compensation for pain and suffering on the outcome of insurance claims for whiplash injury’, New England Journal of Medicine, Vol. 342, No. 16, pp1179-86. See also I Cameron, D Rebbeck, T Sindhusake, D Rubin, G Feyer, AM Walsh, WN Schofield, 2008, ‘Legislative change is associated with improved health status in people with whiplash’, Spine, Vol. 33, No. 3, pp250-4.

[7] JM Anderson, P Heaton, and SJ Carroll, 2010, The US Experience with No-Fault Automobile Insurance: A Retrospective, Santa Monica, CA: RAND Corporation.

[8] JM Anderson, P Heaton, and SJ Carroll, 2010, The US Experience with No-Fault Automobile Insurance: A Retrospective, Santa Monica, CA: RAND Corporation.

[9] G Atkins, 2013, ‘Sustainability of Common Law – Presented to the Actuaries Institute Injury Schemes Seminar’, 10-12 November 2013, Finity Consulting http://www.finity.com.au/publication/injury-schemes-seminar-2013-sustainability-of-common-law/.

[10] Appendix J, Productivity Commission, see note 5 above.

[11] Ibid, Chapter 17, p789ff.

[12] For example, the NSW Scheme: see Media Release, Review of WorkCover Authority of NSW

Final Report for immediate release, 17 September 2014.

[13] G Grant, and DM Studdert, Poisoned Chalice: ‘A Critical Analysis of the Evidence Linking Personal Injury Compensation Processes with Adverse Health Outcomes’, Melb UL Rev, 2009. 33: p865.

[14] NM Spearing, and LB Connelly, ‘Is compensation "bad for health''? A systematic meta-review’, Injury-International Journal of the Care of the Injured, 2010, 41(7), p683-92.

[15] Australasian Faculty of Occupational Medicine and Royal Australasian College of Physicians (AFOM), 2001, Compensable injuries and health outcomes, Sydney: RACP, 2001. See also: I Harris, J Mulford, M Solomon, J van Gelder, JY Young, 2005, ‘Association between compensation status and outcome after surgery: A meta-analysis’, JAMA, Vol. 293, No. 13, pp1644-52; Cameron, Rebbeck, Sindhusake, Rubin, Feyer, Walsh, and Schofield, from note 6 above; M Sterling, J Hendrikz, J Kenardy, 2010, ‘Compensation claim lodgement and health outcome development trajectories following whiplash injury: a prospective study’, Pain, vol. 150, pp22-8; DF Murgatroyd, ID Cameron and IA Harris, 2011, ‘Understanding the effect of compensation on recovery from severe motor vehicle crash injuries: A qualitative study’, Injury Prevention, Vol. 17, No. 4, pp222-7.

[16] GM Grant, ML O’Donnell, MJ Spittal, M Creamer and DM Studdert (2014), 'Relationship between stressfulness of claiming for injury compensation and long-term recovery: A prospective cohort study', JAMA psychiatry 71(4), pp446-53.

[17] N Elbers, L Hulst, P Cuijpers, A Akkermans and D Bruinvels, ‘Do compensation processes impair mental health? A meta-analysis’, Injury, 2013; 44, pp674-83.

[18] Acknowledged in Appendix J, Productivity Commission, see note 5 above.

[19] NA Elbers, AJ Akkermans, P Cuijpers and DJ Bruinvels (2013), ’Procedural justice and quality of life in compensation processes’, Injury 44(11): 1431-6.

[20] A Collie, 2011, ‘Patching up Australia’s Accident Compensation Scheme’, The Conversation.

See also Elbers, Akkermans, Cuijpers and Bruinvels , note 19 above.

[21] Australasian Faculty of Occupational & Environmental Medicine Position Statement, Realising the Health Benefits of Work, October 2011, The Royal College of Physicians.

[22] Ibid.

[23] G Waddell, K Burton, AK, Nicholas, AS Kendall, 2008, ‘Vocational Rehabilitation, What works, for whom, and when?’, Department of Work and Pensions, UK.

[24] Productivity Commission Inquiry Report No. 27, 16 March 2004. National Workers' Compensation and Occupational Health and Safety Frameworks http://www.pc.gov.au/__data/assets/pdf_file/0006/18546/workerscomp.pdf.

[25] http://www.hwca.org.au/vision.php.

[26] http://www.hwca.org.au/documents/HWCA%202010%20-%202013%20Strategy.pdf.

[27] Section 3, Workplace Injury Management and Workers’ Compensation Act 1998 (NSW). See also s5 Workers Compensation and Rehabilitation Act 2003 (QLD); s3 Workers’ Compensation and Injury Management Act 1981 (WA); s2 Workers’ Rehabilitation and Compensation Act 1986 (SA); s2A Workers Rehabilitation and Compensation Act 1988 (TAS); s3 Accident Compensation Act 1985 (VIC).

[28] See Note 5 above, page 43.

[29] Clause 114, Council of Australian Governments, Intergovernmental Agreement on NDIS Launch.

[30] Document 9, National Injury Insurance Scheme (NIIS), Background Brief for Safe Work Australia (SWA), May 2013; and Heads of Agreement (HoA) between Commonwealth and NSW for NDIS Full Scheme. http://www.treasury.gov.au/~/media/Treasury/Access%20to%20Information/Disclosure%20Log/2013/1318/Downloads/PDF/Document%209.pdf.

[31] The Lifetime Care and Support Authority Guidelines. May 2012. Eligibility for participation in the Lifetime Care and Support Scheme.

[32] See note 5 above.

[33] Minimum benchmarks for motor vehicle accidents, Commonwealth Treasury, 2 May 2013.


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