Tuesday, December 02, 2008

The ACC hole?

So an apparent NZ$297 million deficit in the ACC non-earners account for this year has appeared since the election according to the NZ Herald. What is that about then?

Well let's remember what ACC is - a state monopoly on basic accident insurance that replaced the right to sue for personal injury by accident. Employment based accident insurance is covered by levies on employers, motor vehicle based insurance is covered by a levy included in the motor vehicle registration and licensing fee (and part of fuel tax), but non-employment based accidents are funded by taxes.

Virtually none of this actually reflects risk as conventional privately provided insurance does. You see the ACC principle is no fault - it by and large doesn't matter whether or not you actually were negligent or not in injuring yourself, or whether someone else did it, you all pay the same and get the same type of payments. It is egalitarian through and through, so it is unsurprising that the Kirk Labour government implemented it.

However that does pose some problems. You see, employers are readily levied, although the monopoly means levies are set at types of employment not individual employers. Risky employers don't pay more, neither do good ones pay less. Motor vehicle accident cover being part of your annual licensing fee isn't entirely unreasonable, but again the safest drivers who drive the least pay not much less (if you take fuel tax into account) than the most reckless ones. Socialism at work - everyone pays the same.

It gets worse with all other accidents. You see nobody pays any levies for that, except you do through tax. So the wealthy book reader pays far more than the poor rugby player, although the relative risks are obvious. In New Zealand you don't worry about accident insurance because your employer does it, you do it through your car and it comes out of taxes - so what do you get? A monopoly that delivers monopoly service and can't manage its own finances.

The solution is simple, get rid of the monopoly and give you back your taxes. Whoa that means you have to buy accident insurance. Yes, like everywhere else in the world.

Now it is ACT policy that all of ACC be opened to competition, that doesn't mean doing away with the compulsory aspect (if that didn't exist then the right to sue would have to be reinstated, and sadly the appetite for investigating that is very low). I think it would be a relatively simple process to change this:
1. Eliminate taxpayer funding of ACC and require everyone to pay an ACC levy for themselves and their children annually, reducing taxes by the appropriate proportion. That levy would provide the cover ACC can afford with such a levy, you could of course purchase additional cover from whoever you want. This at least exposes people to realising that this cover isn't "free" or "hidden", the real cost of accident insurance is apparent. However, it doesn't reflect risk so...
2. Open up provision of this cover to any company willing to offer it. It would remain compulsory initially, and at this point based on your risk to yourself - not others. So what happens if you don't buy it? Well you don't have any cover and you can't sue. So at least you'd have some choice and choice of service quality, but insurance companies bearing the cost of people who suffer accidents that aren't their fault will want to pass that on to those whose fault it is. After all, why should you pay a higher premium because you suffered an accident that wasn't your fault? So...
3. Insurance companies set premiums based on total risk, the risk you pose to others as well as yourself. However, in order to recover from those with inadequate cover or none, the right to sue is reimposed. What about those it isn't worth suing? Well your own insurance will cover that risk, because it is a reality of life - such people pay next to no tax now so are effectively out of the system anyway. What about those without insurance? Well they have no cover, and face being sued. Those with insurance let the insurance company cover their own injuries and injuries they cause others.

However don't expect any of this to be even raised by the current government. At the most it will challenge the ACC employer account monopoly (which National scrapped last time). So we continue with the most socialist accident insurance system in the world - a system which pay quickly, but pays poorly. You don't want to have an accident in New Zealand without additional accident insurance.

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