Back in 2008, the Rann Government devoted a great deal of effort to turning around the chronically underperforming workers’ compensation scheme in South Australia. Facing a surge in unfunded liabilities and declining return to work rates, the Government fought against entrenched opposition from the legal profession, union movement and minor political parties to push through its reforms to WorkCover SA.

These reforms lifted South Australia’s return to work performance considerably in their first year of operation. In 2008-09, when many other jurisdictions in Australia were feeling the bite of the global financial crisis, SA’s RTW rate and durable RTW rate both showed a remarkable improvement.

In the years since, South Australia’s return to work rates have again begun trending downwards, at a time when most other Australian states are bouncing back from the GFC. While the state is performing better than before the Rann Government’s reforms, the 2010-11 Return to Work Monitor shows that South Australia continues to lag significantly behind the rest of the nation.

Over the last financial year, SA’s return to work rate was 80%, compared to a national average of 86%. The durable return to work rate fell to 70%, compared to the Australian average of 77%. Injured South Australians who had a durable RTW would return to work an average of 20 days later than their interstate counterparts.

The Return to Work Monitor gives an insight into some of the continuing problems with SA’s workers’ compensation architecture.

Claims agents a drain on the system

In South Australia, all claims are handled by the monopoly provider Employers Mutual Limited (EML). A review into the state’s workers’ compensation arrangements, conducted by John Walsh of PricewaterhouseCoopers and published earlier this year, found a number of shortcomings with SA’s present claims management system, including:

• A high employee turnover leading to a lack of institutional memory;
• A lack of formal training among case managers; and
• A lack of effective communication between WorkCover and EML.

At present, part of EML’s remuneration structure relates to claimants benefits, creating an incentive for claims managers to get cases off their books by expediting return to work or terminating claims. Terminating payments can often be an easier option than managing return to work.

The Return to Work Monitor shows a decline in the number of active compensation claims in South Australia, from 47% of respondents in 2007-08 to 35% in 2010-11. The fact that the number of active claims has declined without an increase in the return to work rate suggests that the system may have been more proactive in terminating claims than managing return to work.

According to data provided to the RTW Monitor by WorkCover SA, the average claim cost in South Australia ($17,500) has continued to rise steadily. Average claim costs in SA are the most expensive out of any state or territory in Australia.

On the recommendations of the Walsh Review, WorkCover SA is preparing to put its claims management requirements out to competitive tender.  It is hoped that opening up the provision of claims management to other companies will reduce the overall costs of the system.

Rehab costs continue to rise

South Australia is second only to Queensland in the number of injured workers that receive rehabilitation services. In 2010-11, 67% of injured SA workers interviewed for the Monitor  were provided with rehab, a figure that has trended upwards in the last two years and is well above the national average of 43%. Rehabilitation costs have risen sharply over the last six years. An average of $2700 per worker is being spent on rehab services in 2010-11, a substantial $1000 per worker more than the national average.

The Walsh Review noted that there was no correlation between the state’s spiralling rehabilitation costs and the likelihood of successful return to work. Walsh wrote at the time that the vocational rehabilitation system will continue to impact the financial health of workers’ compensation in South Australia unless it is urgently addressed.

WorkCover SA is currently working to implement some of the recommendations contained in the Walsh Review. There are plans to revise the remuneration structure for vocational rehabilitation providers. This revision intends to shift rehab provider incentives towards successful return to work outcomes.

Future directions

Last week, Jay Weatherill succeeded Mike Rann as South Australian Premier. Turning around WorkCover’s fortunes will perhaps be the single biggest litmus test of Mr Weatherill’s leadership. A number of initiatives are already underway to lift return to work rates and improve WorkCover’s financial health, in addition to those mentioned above.

The State Government recently introduced further legislative changes to Parliament with the aim of lifting return to work rates and reducing WorkCover’s financial burden on businesses.  Under this model, the WorkCover levy will be collected at a lower rate for businesses with fewer and more inexpensive claims than the industry average.  

WorkCover SA this year launched its “Recover Better at Work” campaign, aimed at educating employers and workers how to manage injuries and return to the workforce in a timelier manner.

These initiatives may help improve South the state’s performance.

In the meantime, South Australia continues to be poorest performer on virtually all measures.  Claimant angst, low return to work rates, expensive rehab that is not cost effective, high premiums for employers, and frustration experienced by those who work in the system are recurring features of the South Australian system, and the state faces an unenviable task in the years ahead.