Podcast: Half a Turnaround: Why ACC's recovery must be built on rehabilitation, not exits
In this episode, Jamuel talks with Oliver Hartwich about his report Half a Turnaround, which examines how ACC's outstanding claims liability more than doubled over a decade as more injured New Zealanders became stuck on long-term support.
Oliver argues that ACC has halted the financial deterioration through tighter claim decisions, not yet through proven gains in rehabilitation, and sets out reforms including a 28-day rehabilitation guarantee to restore the scheme's original promise of getting injured people back to work.
Read the report "Half a Turnaround" here.
Transcript
This transcript was automatically generated and may contain errors. For the most accurate version of the conversation, please listen to the audio.
Jamuel: Hello, and welcome to the New Zealand Initiative podcast. My name is Jamuel Enriquez, and it's my pleasure to welcome our executive director, Dr. Oliver Hartwich, into the studio. Hello, Oliver.
Oliver: Great to be with you, Jamuel.
Jamuel: Now, we're here to talk about your latest report, Half a Turnaround. It's on ACC. Ask most New Zealanders about it, and you get kind of a quiet pride.
But press a little further, and I don't think most of us could tell you much more. So Oliver, take me back to the start. What is ACC, and where did it come from?
Oliver: Well, ACC, of course, stands for Accident Compensation Corporation, and that is New Zealand's no-fault accident insurance scheme. It is quite a unique setup.
I don't think many countries around the world have something quite like us, and it really goes back to the 1960s. So in 1967, there was a report, the Woodhouse report, which promised a quite a radical bargain really for the time. The idea was that New Zealanders would give up the right to sue for personal injury, and in exchange, they would get a comprehensive no-fault insurance cover.
Now, that was the bargain at the time, but actually there is more to it than just receiving money and compensation. It was actually a promise that if you have an accident, no matter what accident, no matter how that happened, that you would be restored to your previous life. So it's actually quite a promise of rehabilitation.
And of course, this is also something that ideally lifts New Zealand's productivity as an economy because in the end, it is all about bringing people back to work, bringing them back into their old jobs or to different jobs if they can't do that anymore after an accident. But the idea was actually that this would be something to improve New Zealand's productivity and efficiency.
Jamuel: Now, your report calls 2015 to 2025 a decade of decay. Walk me through what actually went wrong because the numbers here are just so hard to believe.
Oliver: Yeah. I-it's a decade of decay. It's also been a very expensive decade if you look at it. So in 2015, we had outstanding liabilities from existing claims within ACC totaling about $30 billion.
By 2025, that had increased to $63 billion, so you can already see quite a large movement. But actually, what's behind the financial figures is perhaps even more important and more interesting because back in 2015, '16, we had about th- two-thirds of all people back at work within 10 weeks.
By '24, '25, that had dropped just under 60%. So that's quite a significant drop. It means that people were actually taking longer to be rehabilitated and to get back to their old jobs, and it really matters because what we know from experience and from international experience as well is that the first few weeks in which you are off work because of an accident are quite crucial.
They determine whether you've got a chance of returning back to the labor market, and if you don't, then even small injuries can actually turn into something chronic, and they will keep you off work for a very long time. And we can actually see this in the statistics, and I actually dug them out for the report.
So in 2014, '15, we had 11,400 people in the so-called long-term claims pool. That had then increased to 24,500 by June '25. That's basically a growth of about 114%.
Jamuel: That's a pool that doubles over 10 years. Were there just more serious injuries? Was there a wave of catastrophic cases?
Oliver: You might think that actually if you look at the figures because they are so stark really, but that's not true because the permanent impairment claims so the really serious stuff, they grew only by about 2% a year.
So by and large, I mean, these severe really life-altering cases, they were quite stable. It's actually the other stuff, so where you would think, well, actually, that is the kind of routine injury that we're dealing with, so strains and sprains and, a broken leg, a broken arm. That kind of stuff actually basically drove the increase in the long-term cases.
And y- you will ask yourself, "Well, how can that be?" Because they're not that serious. Well, the answer is because it just took longer to deal with people, and that- that's exactly what I said earlier. So if you don't tend to these relatively minor non-severe injuries in time, you risk them becoming chronic.
Jamuel: So what was ACC actually doing for these people?
Oliver: Well, whatever ACC was doing was actually it was making it harder for them to actually access the help that they needed. And so we now have an average delay before a referral to active rehabilitation of 75 days. That was before more recent reforms.
And so it just took way longer. And I mentioned before, we have got extremely good clinical evidence that after 70 days off work, it becomes much, much harder to actually get rehabilitated. So the rehabilitation journey should really start the moment actually you suffer an accident, and then within the first few days, or at least the very first few weeks, there should be a plan, a comprehensive plan to get you back to where you were.
And unfortunately, that s- just doesn't happen. Mm. If, ACC takes too long to even get you through the bureaucratic hurdles and even have a welcome conversation with you unfortunately you're often missing the boat
Jamuel: Now let's talk about the money, because this is where a problem becomes a national one.
There's a figure in here that just shocked me.
Oliver: You mean the 63.6 billion? Yeah.
Jamuel: Yes.
Oliver: Yeah. I mean, when you look at the numbers actually just purely from, $30.3 billion that was determined 2015 for the outstanding claims liability to 63.6, you think, "Well, this is just ridiculous," because it's more than doubled in a decade.
We should be a little bit cautious about that nevertheless, because not all of that is actually because of changes in the way that ACC handles things. We should take into account, of course, these are nominal figures, so there is an inflation component. We have to take into account the interest rate environment at the time, so there are different discount rates.
There are some things here that ACC cannot control. So just because it's gone from 30 to $63 billion, it sounds catastrophic. Not all of that is actually ACC's fault, so we have to be really fair about that. But there is a part of that that is definitely due to ACC's own management practices, and it's hard to really estimate this, but I think it's fair to say that this is at least 5, $6 billion.
And that is due to actually how ACC changed the way it actually deals with cases. And I'm sure we'll talk about this later, but basically it changed the way from a case management system where if you were a claimant within ACC, you had your dedicated case manager, towards something that resembles a bit more a normal kind of call center.
Jamuel: nobody wakes up and decides to wreck a working system, so how did this even happen? I mean, what broke inside ACC?
Oliver: A few things. I mean, on the one hand, what ACC did do was actually they seemed to be more willing over the years to spend on people staying off work for longer. So they were spending way more on compensation payments, so they skyrocketed over this period.
So people staying home and basically being on an ACC weekly compensation, that number went up by 68% between 2017 and '24. The interesting thing is actually that the spending on actual rehabilitation services, that only went up by 17%. Hmm. And actually, in nominal terms, the average rehab spent per claim fell over that period.
Wow. So we've got a I would say a false economy. ACC was trying to save on upfront spending on rehab, but they didn't seem to mind too much actually spending on the resulting longer term cases actually staying at home and compensating them for that. And so in a way it was this kind of false economy- Mm-hmm
trying to save some money up front, but then in doing so, risking a blowout of the claims further down the road.
Jamuel: So how did the bureaucracy change within ACC?
Oliver: Bureaucracy is exactly the right word. It became more bureaucratic . So there was a report some time ago that apparently it takes 49 steps for ACC to even sort out a welcome conversation with a new claimant.
But the real thing was actually, and I mentioned this before, it was a move towards a supposedly more modern case management system. It was called Next Generation Case Management. And it was really a move away from having your individual kind of case manager, the person who knows you, who knows your exact case, knows your history, and then works with you as the claimant towards getting you back into work and getting you rehabilitated.
That was replaced by a call center. And I mean, we all know call centers from our daily experiences dealing with all sorts of other organizations, and, you never quite know who you're talking to. Yeah. So you call one day and say "Well, I've got- had this welcome conversation with one of your colleagues, and I think I should be booked in for," whatever it is, physio.
A- and, and then you basically have to tell your whole story again. So you could never really continue the conversation. And so over time, what it did was actually it was frustrating for people involved because they never quite knew who they were dealing with. There was no continuity of care or service because well, you're, you're dealing with a new person every day, and the whole thing just slowed down.
And as I mentioned before, speed is of the essence. You have to be really fast in getting people the help they need because otherwise you're stalling progress. Other thing that ACC was actually doing was they were building in these new gates. So it's not just that you are approved once, but at various steps along the way, ACC decided, actually, no, we now need more time to reassess where we are.
So you might actually be in a situation where you have started the rehab, and then things are actually working quite nicely, they look promising, and the patient is on a good road to recovery, and then ACC says, "Okay, stop here. We'll now reassess your case, and you'll hear back from us in a few weeks."
A- and that's frustrating because, I mean, just when you have some progress and when you're getting people ready again, to then tell them, "Actually, by the way, we're now parking you somewhere," by the time that you actually have a decision what ACC is gonna do with them in the future, that initial progress might be lost.
And so that's basically what happened, and that's been identified not just by us. I mean, it's been identified by ACC itself by Treasury, by an independent review that the government ordered. So I think this is now well understood, and to ACC's credit- In 2024, they started actually moving away from this next generation case management model back towards the past, having individual case managers.
And when treasury looked into ACC's performance, which has improved in the last couple of years, treasury was quite clear actually it was this move back to old kind of tried and tested case management, one-on-one case management, that actually helped ACC turn that corner
Jamuel: So you mentioned 49 steps just to have that welcome conversation. What else went wrong?
Oliver: Well, the other thing that went wrong was previously physicians had some discretion really in prescribing what needs to be done with someone who just suffered an accident. So they had about $7,000 to design a rehab plan.
Now, that became reduced, so the theoretical maximum nowadays was about three and a half thousand dollars. But actually, as I said, it was actually i- interrupted. It came in different steps. So realistically, we're talking maybe about $2,000. And in any case, you now had to wait for permission from ACC to even start the treatment.
And so I think the real damage done here is actually that friction that the system created. It's not just that they reduced the budgets, it's not just that you try to save on spending, but it's actually that you're building in delay at several steps along the way, and that means you cannot see people when they should be seen.
You cannot get them up to speed fast enough. And then, of course, as I mentioned earlier, you, you risk regressing. So you've got a patient that's already on a positive pathway, and then they say, "Okay, stop here, and now we'll have a look at your case again." That is not just frustrating. It actually in some cases reverses all the progress made before.
Jamuel: So while head office is drowning in these 49 steps, what's actually happening to the physios in the clinics doing the work?
Oliver: Well, the physio- physios were struggling, and the accredited providers to ACC they are struggling anyway because I mean, 2023, all the other workers in the healthcare system got a massive pay rise because there was this pay equity settlement which at the time averaged about 20% pay increases for people working elsewhere.
ACC then had to compete with that. Well, that's really hard because it's just become more attractive working elsewhere in the health system, so ACC was struggling. Also, of course the budgets basically available to rehab providers went down, and so, yeah, some providers resort to demanding co-payments from their patients, which is of course contrary to the 1967 promise.
The promise was we'll rehabilitate you, and it will be a comprehensive plan. It was never said that actually once we deal with you, you are actually required to foot some part of the bill yourself. So especially for people from disadvantaged communities, they were struggling really hard to get the treatment that they needed, and it didn't help, of course.
Jamuel: Yeah, So by 2025, the founding promise cover and recovery for everyone is on life support, then the turnaround arrives, and the headline numbers look like a miracle.
Set that up for me.
Oliver: Yeah, I mean, it was obvious that something wasn't quite working. When the government realized actually just how bad ACC's figures are by setting up a new fiscal measure. You know, we always had OBRIGALL to measure the public deficit. Now we have OBRIGALL X, which excludes its ACC. So the government sensed that something was definitely wrong.
And so government pushed very hard on ACC to sort itself out. And out of that came a new board and a new management and a new approach. And then, of course, there was an independent review that was done by Affinity. And all of this really chronicled the decade of decline that we talked about before.
The government was quite clear that they wanted ACC to get its house in order, bring the numbers down, stop this outstanding claims liability from rising. And in a way, they succeeded. So the turnaround plan, well, it was a turnaround plan, and they kind of got halfway there. But as my report's called, it's half a turnaround.
And what I mean by that is actually there are different ways of, you know, cleaning up the books. Yes they were successful in halting that increase in the outstanding claims liability, and actually to their credit, they managed to reduce it even by a bit more than $300 million, so that's fine. But there are various ways in which you can achieve that One way of achieving that would've been to increase their actual rehabilitation so that people get better when they get off ACC and everything is fine.
That's not quite what happened here. What ACC really did was they made it much harder to claim. So they denied about 173,000 claims. Wow. They were much stricter actually in the claims that they accepted. They were really trying their hardest to push people off the books. Yeah. And with that comes another question.
That is actually how do we know that it's actually worked, what they have done? So maybe to preempt what would've been your next question- ... is how do we measure success here?
Jamuel: Yes, that's right.
Oliver: I mean, ACC has a very unique way of measuring that. They basically say that if you haven't received money from us for five weeks, we count you as rehabilitated.
Wow. Well, but honestly if you don't receive money for five weeks, it means precisely that you haven't received money for five weeks. It doesn't actually tell you anything about whether you're back in your old job. The funny thing is that if you really measure this, and ACC did that, you find that less than 20% of people after five weeks off ACC are actually back in their old jobs.
I mean, some of them might of course have found different occupation. For some of them it might be a requirement actually because they couldn't go back to their old jobs. But the idea that just because you're off payments for five weeks automatically classifies you as rehabilitated, that's not quite correct.
And so- ACC does not actually currently measure anything. So I mean, what they could do, and that's one of the recommendations in my report, is actually they could now check the data. They could actually for example, find out whether people that they think are now rehabilitated are actually back as taxpayers.
They could check this against IRD data. Mm-hmm. Or they could just interview them and check w-w-when asked, "Really where have you gone, and are you better now?" But they don't, so currently they only really tell us how many people they managed to get off their books, and that's not... Again, it's not quite the promise that we got from ACC when it was established.
The idea was, you've had an accident, we'll take care of you. We'll make sure that you're actually back to your normal life before and at, back to an independent life ideally. That's not what ACC really does.
Jamuel: That's just unbelievable. I mean, I get some systems just don't check every case by hand, but these are people being pushed off the books, and nobody knows if they've actually recovered or gone back to work.
So does Treasury accept this turnaround story?
Oliver: Well, Treasury d- gave us a very good report recently, and they said, yes, ACC has improved, so no doubt about that. But most of the improvement in Treasury's view comes from the return to traditional case management. Treasury does not actually quite buy the story.
My feeling is, at least that they don't buy this that the actual rehabilitation outcomes have improved. By the way ACC itself knows that there is much more to be gained from doing rehabilitation properly. First of all, they themselves now emphasize that it's early intervention, early rehabilitation, really speed, seeing people within the first few weeks, that is really important.
So ACC actually wants to do that. Whether they're quite there yet is a different matter. Interesting thing was actually that ACC's own actuaries said recently that if ACC did this better, if they sped up the rehabilitation pathways, ACC would probably save between $500 and $800 million over the next couple of years.
So that's not my figure. That's actually from ACC's own actuaries and supported, I think, by Treasury's findings. So I think the story, it's a turnaround, yes. It looks good. The numbers have stopped rising. We have actually reduced the claims liability, but we are not quite there yet because there is still a lot more to be done.
Jamuel: There is a contradiction you keep coming back to. The plan is all about early intervention, yet you say ACC is doing the opposite. Can you explain that?
Oliver: Yeah, the contradiction is exactly what I mentioned.
So ACC knows that early intervention is really important, and that's what they're aiming for, and at the same time they're doing sometimes quite the opposite. So take vocational rehabilitation. So from May 26, ACC now must approve eligibility before an employer can actually refer an injured worker for rehabilitation.
And what we have heard from providers is actually that th- there can be delays of up to three weeks, and crucially, there is absolutely no standard ACC sets for timeframes here. So I think I mentioned before, if you're an employer, you would wanna see your injured worker to some rehab. But before you can do that, you now have to wait for ACC's permission.
And for me, that is actually one of the contradictions that we see here. So in theory, everybody knows what needs to be done. ACC knows that, kn- knows that too. But in practice, be- between success and the claimant ACC basically puts itself, so it, it requires another bureaucratic process until you can access it.
So that doesn't quite go together, and for me, that is the main contradiction baked into the whole thing.
Jamuel: Now, your report actually talks about what countries are getting right, which I found hopeful.
Oliver: Yeah. I looked at three countries very briefly in the report just to see what we could po- potentially learn from them.
So for example, in Victoria, Australia we have a system that really prioritizes early intervention. And typically you wanna see a contact within three days, and it has actually managed to lift the return-to-work outcomes by up to 63% for complex injuries. I mean, com- compare that to what we have in New Zealand, where we talk about our 75 days delay.
The Victorians seem to be a lot quicker. In Ontario, Canada, we've got a similar kind of approach. There they aim to have active medical intervention and have that ready no later than 12 weeks post-injury. I mean, 12 weeks is still a very long time, but compared to what we have in New Zealand, that's a little bit faster.
And then I looked at Germany. Of course I looked at Germany. I always do. And the principle there is actually rehabilitation before pension. So they want to avoid turning this into a long-term payment. The German term for this is Reha vor Rente, meaning rehabilitation before pension. And so you have specialist rehab centers engaging with patients from the outset.
The funding is actually retrospective, so, you get your necessary care upfront, and then they sort out the bureaucracy and the paperwork afterwards, which is a very un-German approach, if I may say so. But actually, on this occasion, they do something right. They actually think, "Well, it's much more important to really deal with the patients first, because that early period is absolutely vital and crucial, and then we'll sort out the paperwork much later."
Hmm. And that works, because you have still built-in accountability mechan- mechanisms. You know who the providers are, and you can actually audit them afterwards and check whether on average they're doing a good enough job. But crucially, you get to the patients the moment they have the injury.
Jamuel: So what can we take from all of that?
How does New Zealand finish the turnaround?
Oliver: Well, I think first of all, I think we should still say this is a turnaround plan, so give the government some credit. They have analyzed the problem, they understood there is a problem, they have actually started addressing it. But to make this the full turnaround we wanna see, what we should really do is actually emphasize the need for speed.
And that is I think we should give a 28-day rehabilitation guarantee. So that's not a check-in call from a case manager. It's actually a guarantee that if you are injured and you are off work for 28 days, you will get an immediate needs assessment, and then rehab starts right there. And this would actually guarantee that we avoid this cliff, the 75-day cliff later down the track.
We would actually force ACC to become a lot faster, more responsive, and we would enshrine this in a proper guarantee. Then I think what we need to do is actually we have to make sure that we give the proper incentives to providers within the system, so that should be a sustainable system of multi-year contracts.
There should be incentives, bonus payments for su- for providers that actually successfully rehabilitate people. That could replace some of the upfront paperwork we currently have, so rather than having a very detailed assessment which only delays access to rehabilitation, we audit the providers properly afterwards and see whether they've done a good enough job.
And then, of course, we wanna continue with the case management. We never wanna go back to this kind of call center model that really failed, so support them. We should measure outcomes that ACC does, so for example, we wanna check whether people are actually back at work or whether they are just five weeks off payments, and I think ACC should ideally report on that.
They should also check whether these people are back at work by comparing their data against IRD. I mean, there are ways in which you can really ensure that people are not just nominally off the books, but really rehabilitated and back at work. Yeah. And then here's another idea. I mean, if you look at the ACC board, wouldn't it be a good idea to include people on the board who are directly affected by ACC's decisions?
So what I have in mind is put the funders, put the employers, put the unions perhaps on the ACC board with a voice. I mean, that's what's happening in other countries, for example, in Germany. Because if you're an employer or an employer association, of course you've got an interest in making sure that your people are getting back to work sooner.
And so why don't we give employers and unions a voice on the ACC board so that they can actually check what's happening within the system? And I think if we put these recommendations together, then we would have the ingredients for a proper turnaround and for a continuation of the early success story that the government has now embarked on.
Jamuel: Those fixes sound great, but they sound like they come with a cost. Does the money side stack up? Is that enough to convince the Minister of Finance?
Oliver: I think it should be. I already mentioned what ACC's own auditors believe. They see the potential of $500 to $800 million of savings if we do this right over a couple of years, and I think that price would probably pay for a lot of the upfront investment and faster access to rehab because in the end we talked about this before, it is a false economy to think that you save some pennies upfront by, by, you know, making it harder to access the services people need because in the end, you pay for that with much higher compensation payments down the track, which is basically the story of the past decade, so we don't wanna go back to that.
But apart from that, I think the government should also care for ACC reform from a different point of view. It's not just the actual fiscal liability, the stuff that we measure in iju-called X. It's actually the lost productivity for the economy. So the economy that was one of the points really of the 1967 reform.
The economy would get a much faster, much more efficient system that would also ideally increase productivity. If we do- deal with injuries much faster than before, we would get workers back to work earlier, and that would of course have an impact on New Zealand's productivity. That was the initial goal, of course, of the '60s reforms, but I think we've kinda lost sight of that.
Business New Zealand a few years ago actually had a paper out where they estimated this to be in the region of somewhere between $5 and $6 billion. So that's the kind of productivity gain we could reap if we get this right. Mm-hmm. So it's a win-win. It's a productivity win, and of course it's a fiscal win, and it's actually a win-win-win because it's actually a win for the people involved because they will be restored to their previous lives and can live independent lives without being ill or off work or injured or handicapped in any kind of way.
We want them to restore to their previous lives.
Jamuel: Last question. If our listeners should take one thing away, what should it be?
Oliver: Well, I think it is worthwhile remembering what ACC was for once upon a time, and what we thought ACC would do. So ACC was never meant to be a part of the welfare state where you can park people forever.
ACC always came with a promise, and the promise was, if you have an injury, an accident, we'll help you, we'll restore you. It's not just about the money. We're not there to just compensate you. I mean, that's part of the deal, but the actual deal is we'll make you healthy again. We'll help you to get back to your own life, to an independent life, back to work, and that was the idea.
So if people take one thought away from that, it is actually that promise, and then it's no longer about whether the numbers on ACC's books actually stack up, whether that figure is real or not, we should actually make this a human story. And the human story is there was once upon a time a promise to help you to get you back to your old life, and that is why we have ACC.
And I hope that ACC itself, as the corporation, the management, and the board, but also the government, because ultimately they are responsible for that, continue down that path and actually make ACC the insurance success story that the 1967 report, the Woodhouse report, had in mind.
Jamuel: Oliver's report is called Half a Turnaround.
It's available on our website, nzinitiative.org.nz, and it's well worth reading in full. Oliver, thank you for your time.
Oliver: Thank you, Jamuel.