The Workers Compensation system needs reforms, not cuts

The Greens are calling on the Government to end its months-long refusal to compromise, to listen to expert evidence, and finally engage in genuine negotiations for reform to the workers compensation system.

Following extensive consultation and engagement with experts, businesses, injured workers, and the union movement, the Greens have developed an evidence-based package of reforms. These reforms would set up the workers compensation scheme for continued stability and lower costs, and would return injured workers to health and work when it is medically appropriate to do so - all without cutting off seriously injured workers from support when they need it most.

The evidence, historical experience and the government’s own modelling has proven that the only way to deliver real and sustainable cost savings to the scheme is by improving the return to work rates for injured workers. Without that structural improvement, any savings through artificially increasing exits from the scheme by legislating away support will be transient at best.

The Greens’ proposed package of reforms, detailed further below, would:

• Bring return-to-work rates up to at least industry standard (saving icare over $450 million per year) by:

  • strengthening the regulator’s arm to impose penalties on the insurers who currently routinely breach claims management requirements without consequence

  • enforcing liability determinations within timeframes that are medically and economically appropriate

  • including return-to-work provisions for private sector workers as a matter that can be resolved by the NSW IRC

• Preserve entitlements for legitimate psychological injury claims while assisting small business to assess liability for complex cases by:

  • legislating a small business assistance service, to provide advice and guidance on their obligations, and give them access to legal advice if they suspect the claim to be illegitimate

  • ensuring that definitions for psychological injury capture genuine injury while preserving WPI thresholds to ensure seriously injured workers are looked after

• Further improve icare’s finances by:

  • ending frivolous and costly legal disputes by ensuring that insurance companies are required to obtain legal advice that they have a 'reasonable prospect of success' before they’re entitled to scheme funding for legal costs to defend claims denials

  • giving stronger powers for icare to enforce wage declarations across businesses, to make sure everyone is paying their fair share of the premium pool

 

Quotes attributable to Abigail Boyd, Greens NSW spokesperson for Treasury, Industrial Relations and Work, Health and Safety:

“Our proposed changes to the scheme and legislation are about genuine reform and working to find common ground across party lines, without compromising on morals and the Parliament’s responsibility to injured workers.

“Our package of reforms are a set of sensible, responsible and evidence-based changes that will deliver real and lasting improvements to the scheme, resulting in lower costs for businesses and better outcomes for workers – without abandoning the most seriously injured workers at their time of greatest need.

“We need genuine reforms that listen to the findings of multiple reviews and will serve to stabilise the system in the medium- to long-term, not these lazy cuts put forward by the Labor government that will deliver at best a short term financial sugar hit paid for by the most injured workers. The 2012 package of cuts saw return-to-work rates return to pre-reform levels within two years, with any financial benefits totally subsumed soon after, while leaving horrific and tragic outcomes for injured workers in its wake. We must learn from the mistakes of the past.

“It is the Labor Government who are refusing to compromise. The so-called compromise put forward by lower-house cross-bench MPs last week is a misdirection that maintains the exact same effect as the Government’s original plan, but will just end up costing the system, and therefore employers, more.

“The Greens will not accept an increase in WPI levels. Evidence to the Public Accountability and Works Committee made it very clear that a 31% WPI in NSW would be close to double that utilised in South Australia or Victoria. We heard from many injured workers who were assessed as suicidal and still rated only 21% or 22% using PIRS. To increase above the existing thresholds, whether 25%, 28% or 31%, would be callous, cruel and without any relationship to any medical or legal justification.”

The Greens’ proposed package of reforms:

• icare’s return to work rates are the lowest in the system, despite everyone (self-insurers, specialised insurers) operating under the same legislation. Oftentimes, it is the same insurer providing services to both the Nominal Insurer and specialised insurers. There is no justification for such stark differences in scheme performances.

→ The Greens amendments will empower the insurance regulator to actually regulate the insurance companies, to bring Return to Work Rates up to at least industry standard. We estimate this would save the scheme over $450 million per year.

• Insurance companies consistently breach their legislative obligations when it comes to timely decisions about liability and medical assistance, leaving businesses and workers in a state of limbo. Delays in liability decisions drive down return-to-work rates for psychological injuries by almost 60%. According to SIRA, psychological injury claimants who receive their first payments within two months of making a claim have a 24% higher return-to-work rate and end up costing the scheme almost 20 times less than those who do not.

→ The Greens amendments will enforce liability determinations within timeframes that are medically and economically appropriate, with extensions only available as an exception not the norm.

• Small businesses report the lack of experience and knowledge of what to do when an employee makes a workers compensation claim, resulting in stress, delays and outcomes perceived as unfair to small businesses and workers alike. This is confirmed by icare analysis. Large employers represent 47% of the workforce, make up 58% of new claims, yet their claims cost only 49% of the total cost of claims. Meanwhile small and micro employers, representing 25% of the workforce, were responsible for only 15% of new claims – however these claims represent 27% of the total claims cost. This is evidence that it is not the volume of claims that causes financial difficulties to the scheme, but rather how the claims are handled.

→ The Greens amendments will legislate a small business assistance service, to provide advice and guidance of their obligations, and access to legal advice if the employer suspects the claim to be illegitimate.

• Employers and workers report difficulties from both sides of the system when trying to manage an employee’s return-to-work, leaving workers with capacity to work in the scheme longer than is required, increasing the cost of claims and resulting in negative health outcomes for workers.

→ The Greens amendments will include return-to-work provisions for private sector workers as a matter that can be resolved by the NSW IRC, mirroring reforms recently delivered for public sector and local government workers.

• Under-reporting of wages, resulting in underpayment of premiums, is rife across the scheme. This increases premiums for employers who are doing the right thing.

→ The Greens amendments will give stronger powers to enforce wage declarations across businesses to make sure everyone is paying their fair share, and not a dollar more.

• Legal fees and investigations cost the scheme $332 million per year. While workers must prove 'reasonable prospects of success' to access legal support through the scheme, insurers do not have to meet the same standards. As a result, as Unions NSW point out: This means insurers have nothing to lose by mounting expensive legal challenges to a workers compensation claim. If they win, they do not have to pay out the claim. If they lose, only the public and businesses have wasted money.

→ The Greens amendment will ensure that insurance companies are required to receive legal advice stating that they have a 'reasonable prospect of success' before they are funded by the scheme for legal costs to defend their denial of a claim or aspect of a claim.

Costing and impact on premiums

icare have assumed savings of $416m from increasing the WPI threshold. The savings we have identified exceed that amount, without cutting support away from vulnerable injured workers.

The $500m improvement in icare’s finances since the Government first put forward their package of cuts is sufficient to negate at least 12% of the premium rises the Government was forecasting as otherwise needing to be imposed, already negating the 12% increase the Government argued icare required for the 2026/27 FY. This, plus the savings we have identified - calculated on a conservative basis - entirely negate the need for premium increases over the forecast period.

Further, as we saw in 2023, and the years preceding it, icare premiums are entirely at the discretion of the Minister, and can be set at a rate below that being requested by icare.

Not-for-profits and the community services sector have identified a structural issue with their funding from the government. NCOSS and others have pointed to threats to community service viability through chronic underfunding by Government in the face of statutory wage increases and the costs consequential on those wage increases such as workers compensation premiums. Following the Fair Work Commission’s annual minimum wage determination, community services workers received a 3.5% pay, which was paid by the NSW Government, however it once again did not include all consequential costs. As premiums are calculated as a percentage of wages, any increase to the wage bill will automatically result in an increase in premiums paid.

Prior to the 2023 election, the NSW Labor government made a costed election commitment to “Review funding models for community services to stop the "race to the bottom" on wages, provide secure jobs, and ensure adherence to award conditions.”

NCOSS has made clear what a review of the funding model must entail:

• Immediately increase recurrent baseline funding for essential social services by 20% to reflect the real costs of service delivery across the sector.

• Introduce an evidence-based, data-informed funding model that is linked to demand indicators, population growth and demographics, economic and workforce conditions and the real cost of service provision for the sector, including a consistent, transparent and evidence-based approach to indexation.

 

→ The Greens will continue calling on the NSW Labor government to immediately uplift community services sector funding in line with NCOSS’s pre-election budget submissions over multiple years.

→ The Greens will demand the NSW Labor government comply fully with the letter and the spirit of their election commitment.