Options for payment increases and how they were assessed
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What is the policy problem?
12. The purpose of the Cost of Treatment Regulations is to help contain scheme costs by capping the amount per treatment that ACC pays for various types of treatment needed by claimants.
13. The cap means that when claimants seek treatment from providers who receive regulated payments, the claimant usually has to pay a co-payment to cover the difference between what the provider charges and the payment rate the provider receives. For example, ACC used Research New Zealand to survey a sample of treatment providers in 2021 (RNZ survey) and found the average physiotherapy co-payment charged for a follow-up consultation of normal duration for an adult was $32.[1]
14. When the treatment provider’s costs rise, the co-payment charged to claimants is also likely to increase (within a year or two) unless the payment rate similarly rises.
15. Increased co-payments may mean some claimants are not able to afford to access treatment when it is required in order to complete their rehabilitation.
What are the policy objectives?
16. To assess options to address changes in the cost of rehabilitation we apply the following policy objectives:
- Claimants are able to access treatment, meaning co-payments should be affordable
- Costs to ACC are sustainable, affordable and predictable (gradual increases)
- Payments are not too dissimilar between the health and ACC systems.
Objective 1: Claimants are able to access to treatment
17. Claimants need to be able to afford to pay the co-payment for treatment that most providers charge in addition to the ACC contribution. The New Zealand Health Survey shows that cost is a reason why people do not seek treatment from their GP.[2] Although these findings are about seeking general medical treatment, we expect they would be similar for seeking accident treatment. The RNZ survey found treatment providers considered cost was a barrier to seeking treatment for between 23% and 57% of their client groups.
18. Co-payments can vary between the same type of treatment provider, depending on how the treatment is provided, the business model used and the location of the treatment provider. For example, the RNZ survey found the co-payment charged by physiotherapists for a follow-up consultation for adults aged 26-64 years varied between $5 and $100.
19. Co-payments also vary according to the type of treatment provider, depending on how close the regulated payment rate is to the fee normally charged by that type of treatment provider. For example, the RNZ survey found the average co-payment charged by GPs for a follow-up consultation or normal duration for adults aged 26-64 years was $35 while for osteopaths it was $50.
20. Adjusting payment rates to make co-payment charges more equal (or at least prevent from becoming more unequal) should be beneficial for claimants overall. The difference in co-payment charges might be causing the under use of more expensive services compared to cheaper services.
Objective 2: Costs to ACC are sustainable, affordable and predictable
21. Increases made to payments under the regulations should be kept to a level that means increases in ACC levies and appropriations (allocated through the ACC Non-Earners’ Account) are reasonable. Small, regular increases are more affordable and predictable than ad hoc larger increases.
22. The increases to payments proposed are larger than previous increases but their total cost is still relatively modest. The cost will be absorbed by existing budgets. However, if the cost of the preferred option was passed through, it is estimated it would have the following impact in 2023:
- no change in the Work levy
- a one cent increase in the Earners’ levy
- a 19 cent increase in the Motor Vehicle levy
- a $15 million increase in the Non-Earners’ Appropriation.
Objective 3: Payments are not too dissimilar between the health and ACC systems
23. Any increases in rehabilitation payments made by ACC need to take into account payments being made in the health sector, particularly in those areas where ACC and the health sector provide similar services, like payments to GPs and nurses. If payments are too dissimilar, that could cause market tensions by affecting the co-payment charged and distort behaviour. For example, it could encourage the mischaracterisation of borderline injuries to attract the largest treatment payment to enable a lower co-payment to be charged.
What drives the cost of healthcare?
24. The main component of the cost of rehabilitation, that is the cost of treating the injuries of claimants and rehabilitating them, is the cost of labour for the medical professionals who provide this treatment.
25. In previous reviews, changes in the costs of rehabilitation were estimated by examining changes in the labour cost index (LCI) for health care and social assistance industry group. The LCI aims to capture the overall rise in labour compensation after adjusting for any changes in quality.
26. The use of the LCI to estimate labour cost changes meant blanket increases were given that covered all, or nearly all, occupational groups in the health sector. This would not have been as accurate as tracking the actual pay increases of these groups. It may have over-compensated some occupational groups and under-compensated others.
27. Consideration had also been given to using the multiple employer agreements (MECAs) that the former District Health Boards (DHBs) used to set the remuneration of their health professionals. While there are other MECAs in the health sector, it is considered that the DHB MECAs were the main driver of labour costs, with private sector MECAs tending to follow the DHBs.
What options for payment increases were considered?
28. Options can be developed only if they are feasible and practical. For example, the most accurate measure of changing rehabilitation costs would be to track the average cost across the country of every type of treatment covered under the regulations. However, this would be difficult, expensive and time consuming, so this option was not developed.
29. The following options for updating regulated treatment payments, to account for increases in the costs of rehabilitation, were developed and considered:
- Leave rates unchanged
- Use the LCI for health care and social assistance to calculate increases, as has been done for previous reviews
- Use an average of all the DHB MECA increases for relevant medical professionals to calculate increases
- Use DHB MECA increases to calculate specific increases for relevant occupational groups
30. The difference between the options, in how well they meet the three objectives, is examined in a discussion of each of the options below and summarised in Table 3.
Option A: Leave rates unchanged
31. The RNZ survey indicates that most treatment providers tend to review their fees and adjust their co-payment rates to take account of cost pressures at least every one to two years. This appears to be done at a different time to when payment rates are changed because 71% of respondents said they left co-payments unchanged after the last increase in payment rates.
32. The implications of the RNZ survey are that if payment rates are not regularly adjusted upwards to take account of the cost pressures faced by treatment providers, then providers will likely raise co-payment charges within a year or two.
33. Raised co-payment charges will reduce the ability of claimants to access treatment.
34. While leaving payment rates unchanged would save ACC money in the short term, given the demonstrated cost pressures coming from sector wage increases, even larger increases in payment rates are likely to be sought at the next review.
Option B: Use LCI for health care and social assistance
35. The LCI for health care and social assistance rose by approximately 6% in the two years to mid-2021.
36. Changes in the LCI measure for health care and social assistance give a broad measure of wage movements in this sector. While it has been used in the past to estimate cost changes, the broadness of the measure means it may not be totally accurate in measuring the overall change in labour costs of those occupational groups covered by the Cost of Treatment Regulations.
37. The LCI can’t be used to give separate estimates of wage increases for each occupational group. If wages are rising at different rates for the different occupational groups, then applying a flat increase will over-compensate some groups and under-compensate others. This means Option B will be less effective at meeting the objective of giving claimants access to treatment compared to tailoring increases for each occupational group. As was discussed above, adjusting payment rates to make co-payment charges more equal (or at least prevent becoming more unequal) should be beneficial for claimants overall by not encouraging one type of treatment over another purely for cost reasons.
Option C: Use the average DHB MECA increase
38. The average DHB MECA increase from 2016 to 2021, after taking out regulated payment increases from prior reviews, was 6.61%.
39. This measure should more accurately reflect the overall change in labour costs of those occupational groups covered by the Cost of Treatment Regulations, in comparison to using the LCI, because it is based on specific data from industry awards rather than less specific labour market survey data.
40. However, this option suffers from the same disadvantages of applying a flat rate increase that were outlined for the LCI option above.
Option D: Use DHB MECA increases for relevant occupational groups
41. The DHB MECA wage increases grouped by similar occupational groups used in the Cost of Treatment Regulations are shown in Table 2 below:
Table 2: Proposed increases to treatment rates by MECA group
| Treatment provider type | Proposed increase to treatment rate |
|---|---|
| Allied health professionals | 9.36% |
| Medical practitioners, specialists and dentists | 5.70% |
| Nurses | 7.85% |
| Medical practitioners and nurses combined consultation | 4.60% |
42. Wage movements since 2016, in the main occupational groups used in the Cost of Treatment Regulations, were calculated from the wage scales agreed in the relevant multiple employer collective agreements (MECAs) used by the former District Health Boards. These were MECAs for Doctors, Nurses and Allied Health professionals. As a final step to avoid double counting, the blanket increases in payment rates given in prior reviews since 2016 were deducted. These were the increases of 1.56% from the 2017 review and 2.05% from the 2018/19 review.
43. The combined treatment rate for a consultation that involves both a medical practitioner and a registered nurse is not purely salary based. It also includes components, for materials like bandages or sutures, which are CPI based. The CPI uplift was not applied by ACC to similar contract funded treatment, so the same approach was followed for calculating comparable regulated payment rates for consistency. This is why the proposed increase for the combined treatment rate is a little lower than the other proposed increases. The CPI uplift component can be examined as part of the next review.
44. Having tailored payment increases for each of the main occupational groups should better reflect the cost pressures being faced by treatment providers. These tailored payment increases for treatment providers should flow through to give a more even effect on holding or reducing co-payments charged to claimants, compared to a blanket increase in treatment payments. This option should therefore best meet the objective of enabling claimants to access treatment.
45. A summary of how all the options have been evaluated and compared to the status quo is shown in Table 3 below:
Table 3: Evaluation of options to update treatment payment rates
| Option A: Leave rates unchanged | Option B: Use LCI increase like past reviews | Option C: Use average DHB MECA increase | Option D: Use occupational group increases from DHB MECAs | |
|---|---|---|---|---|
| Claimants are able to access treatment because it is affordable | 0 Highly likely that co-payments will increase and decrease affordability |
+ Affordability for some occupational groups could worsen |
+ Affordability for some occupational groups could worsen |
++ Affordability better maintained across occupational groups |
| Costs to ACC are sustainable | 0 Likely to be even larger cost increases proposed in the next review |
+ Costs to ACC are bearable |
+ Costs to ACC are bearable |
+ Costs to ACC are bearable |
| Payments are not too dissimilar between the health and ACC systems | 0 ACC payments will fall behind those made by Health |
+ Overall, payments should keep up with Health |
+ Overall, payments should keep up with Health |
++ Payments should more closely reflect Health increases |
Key:
++ much better than status quo
+ better than status quo
0 about the same as status quo
- worse than status quo
- - much worse than status quo
Footnotes
[1] Research New Zealand - Co-payments Survey 2021 [PDF 1.5MB](external link) – ACC
[2] Annual Update of Key Results 2020/21: New Zealand Health Survey(external link) – Ministry of Health