Chapter 2

Views on Schedule 4

2.1 This inquiry has received 13 submissions from various stakeholders. Submissions in support of Schedule 4 were received from the Department of Families, Housing, Community Services and Indigenous Affairs (FaHCSIA) and the National Welfare Rights Network. Ten submissions were received from various insurance providers and statutory authorities who oppose Schedule 4. This chapter discusses these views.

Views of the Department of Families, Housing, Community Services and Indigenous Affairs (FaHCSIA) and National Welfare Rights Network

FaHCSIA

2.2 FaHCSIA states that the purpose of the legislation is to:

make it a legal requirement that persons such as compensation payers, insurers and regulators notify Centrelink before personal injury compensation payments are made;[1] and
prevent double-dipping by injured workers in both the compensation and social security systems. Current long-standing arrangements, whereby compensation payers and insurers are issued with a preliminary notice by Centrelink, requires considerable manual intervention.[2]

2.3 FaHCSIA notes that the requirement to report workers compensation will apply to all forms of compensation, due to a conception that 'non-economic loss damages' are wrongfully classed as 'economic-loss' payments.[3]

2.4 In anticipation of Schedule 4, Centrelink will improve its processes by enhancing its Business Services Online Serves portal from 1 October 2011 'to allow for electronic individual and bulk notification of periodic and lump sum payments by compensation payers, insurers and regulators'.[4]

National Welfare Rights Network

2.5 The National Welfare Rights Network supports the legislation, writing that:

Our submission is based on the experience of many of our clients who would have benefited by information being directly provided to Centrelink. In many cases they would not have incurred a significant debt. In others, Centrelink’s awareness of a person’s receipt of compensation would allow for intervention (for example with a social worker) which would help that person plan how to manage their funds for the duration of their compensation preclusion period. It is our experience that many people do not properly understand the impact of a lump sum compensation payment on their ability to receive social security payments.[5]

2.6 The National Welfare Rights Network contends that the issues relating to workers compensation and social security benefits arise as a result of a lack of education:

It is our experience that many people do not properly understand the impact of a lump sum compensation payment on their ability to receive social security payments. It is also our hope that this new requirement will also result in more prompts to alert a person to the social security implications of compensation payments – at either the point of contact with Centrelink or at the time the person is receiving advice from their solicitor.[6]

2.7 The Network submits the following Case Study in support of their views:

In 2010 the Welfare Rights Centre located was referred a case of a woman of Age Pension age whose claim had been rejected. Centrelink had previously determined that her Age Pension was not payable because she had received a lump sum payment of compensation and there was a preclusion period in place until November 2011. The lump sum payments totalling $310,000 were used, in part, to pay out her credit cards and mortgage and to renovate her home to accommodate her disability. However, by and large, they were used to support her son who had a long history of drug dependence and alcohol abuse. The client did not recall being advised as to the impact of receipt of compensation on her ability to receive payments from Centrelink.

The Centre assisted the mother and son in obtaining medical reports in relation to their health including in relation to the son’s substance addiction. The Centre represented the client, who was accompanied by her son, before the Social Security Appeals Tribunal. The Tribunal accepted that the client had placed herself in significant hardship by expending her money supporting her son, keeping him safe and supporting his efforts to become drug free. The Tribunal agreed that these circumstances could be said to be exceptional that part of the lump sum compensation payment was to be disregarded, which resulted in the preclusion period ending in September 2010.

Welfare Rights Centres regularly see clients who have not properly understood the impact of their receipt of a lump sum compensation payment on their ability to receive social security payments.

It is true that some people, owing to their injury, have poor capacity to understand this advice, However, but many times their recollection is simply that their solicitor did not advise them in relation to this.

When examining what the money was spent on, it is common for a person to have expended funds on, for example a gambling or substance abuse problem.

Clients with poor decision making abilities or poor judgment can spend the money in a manner which does not benefit them financially in any way, for example, renovating their Department of Housing premises, or loaning the money to “friends”.[7]

2.8 In summarising their submission, the National Welfare Rights Network claims that the legislative changes increase the likelihood of Centrelink properly informing their clients as to the repercussions of receiving compensation payments, and that they will have more control in limiting the debt their clients may accrue.

Views of insurers and statutory authorities

2.9 The committee received submissions from a number of insurers, statutory authorities and other providers of workers compensation. These agencies voiced the following concerns with Schedule 4:

(a) the new provisions would not only apply to insurers and statutory authorities but to small businesses, non-government and not-for-profit organisations such as churches and even individuals (particularly in common-law law suites);

(b) definitional issues, specifically to do with the terms 'recompense', 'lump sum' and 'periodic payments';

(d) the lack of consultation with potentially affected industries.

2.10 These reasons are explained in greater detail in the following sections (respectively).

Wide-scale impact of the Schedule

2.11 The insurance company Allianz, and Seafarers Safety, Rehabilitation and Compensation Authority voiced their concerns about the Schedule's potential impact on smaller businesses, in particular not-for-profit organisations. The need to notify Centrelink would place a substantial personnel and financial burden on these organisations, to handle the compensation claims and their obligations to Centrelink. It is the view of Allianz and the Seafarers Safety, Rehabilitation and Compensation Authority that the administrative burden this schedule places on not-for-profit and small businesses would be unmanageable.[8]

2.12 WorkCoverWA expressed concern at the implementation of new administrative processes by Centrelink without consulting the insurance providers. WorkCoverWA believes this will lead to administrative and reporting issues once Schedule 4 commences.[9]

2.13 Addressing the increase in workload, WorkCoverWA stated that:

Insurers (and possibly employers) will need to make IT and other process changes to enable provision of the data. Such changes require a lead-time and significant expenditure. WorkCover WA usually allows insurers a twelve month lead time if an initiative requires redesign of IT systems. The measure contained within this Bill is intended to be operational from 1 October 2011. If system changes are not made, the data will need to be manually provided to Centrelink. Either way there is a significant administrative burden placed upon insurers (and possibly employers) with very little notice.[10]

2.14 In relation to the implementation of new processes, the NSW Self-Insurers Association Inc. stated that:

A secure electronic reporting portal is being built by Centrelink to allow reporting of payments without the need for faxing of information, and to create formal records of advice provided to Centrelink. High-volume payments (such as weekly payments and the like) may be covered via some sort of data batching arrangement. While Centrelink responses will still be faxed back, plans are being made to extend the reporting system to include electronic responses. Unfortunately there are no plans to include the HIC in this arrangement. This should be considered to reduce red tape. Consideration should also be given to obtaining this information from state government authorities to who this information is already provided.[11]

2.15 Safety Rehabilitation and Compensation Licensees Inc. noted that:

... we are told that the Commonwealth Government are looking to increase their workforce considerably to manage this new data process which will place considerable administrative hardship on already struggling businesses, to reduce fraudulent behaviour of less than .5% of the total benefit expenditure. It would appear that the cost of implementing this new process to save the Government money in fraud or overpayments may ultimately cost the Government much more than this cost, in administration costs alone.[12]

Definitional Issues

2.16 Several submitters identified various definitional issues which they claim makes the scope of Schedule 4 unmanageably broad.

Recompense versus Compensation

2.17 The newly inserted term 'recompense' was identified by several submitters as highly problematic.[13] This term is introduced for the purposes of the amendment in new subsection 17(7). The definition of the term is almost identical to that of compensation, which is defined in subsection 17(2) of the Social Security Act 1991:

(a) a payment of damages; or

(b) a payment under a scheme of insurance or compensation under a Commonwealth, State or Territory law, including a payment under a contract entered into under such a scheme; or

(c) a payment (with or without admission of liability) in settlement of a claim for damages or a claim under such an insurance scheme; or

(d) any other compensation or damages payment;

(whether the payment is in the form of a lump sum or in the form of a series of periodic payments and whether it is made within or outside Australia) that is made wholly or partly in respect of lost earnings or lost capacity to earn resulting from personal injury.

2.18 The bill's new definition of recompense is almost identical to the above definition of compensation. Subsection 17(7) of Schedule 4 states that recompense for a personal injury means any of the following payments made in respect of the injury:

(a) a payment of damages;

(b) a payment under a scheme of insurance or compensation under a Commonwealth, State or Territory law, including a payment under a contract entered into under such a scheme;

(c) a payment (with or without admission of liability) in settlement of a claim for damages or a claim under such an insurance scheme; and

(d) any other compensation or damages payment.

2.19 The contention surrounding this term lies in the omission of the below section (from subsection 17(2), paragraph (d) of the Social Security Act 1991), which is present in the definition of compensation:

(whether the payment is in the form of a lump sum or in the form of a series of periodic payments and whether it is made within or outside Australia) that is made wholly or partly in respect of lost earnings or lost capacity to earn resulting from personal injury.

2.20 Insurers claim that the omission of this clause in subsection 17(2), paragraph (d) of the Social Security Act, broadens the scope of personal injury compensation payments that may be taken into account by Centrelink when evaluating income support eligibility. Such payments may include (over and above economic-loss payments):[14]

past economic loss;
future economic loss;
gratuitous care;
general damages;
compensation for relatives;
funeral expenses;
medical and related expenses;
medication and pharmacy expenses;
rehabilitation expenses;
artificial aids and appliances;
statutory workers compensation permanent impairment entitlements;
payments for time off work (ie workers compensation payments);
domestic assistance (ie cleaning, lawn mowing);
home or motor vehicle modifications; and
travel expenses.

2.21 Comcare claims that these issues with the definition of 'recompense' may lead to:

health providers less likely to want to treat compensation recipients;
prices for health services to compensation recipients may rise to compensate for delayed payment; and
health providers may be less likely to bill insurers directly, requiring direct payment from injured workers who will suffer from delayed reimbursement.[15]

Definition of 'lump sum' and 'periodic payments'

2.22 A number of submitters have expressed concern at the Schedule's definitions of 'lump sum' and 'periodic payments'.[16]

2.23 According to these submitters, there is no clear line between lump sum payouts and periodic payments. Allianz notes that while an individual may be on regular weekly or fortnightly payments, they may also receive occasional lump sum payouts to cover medical costs and/or equipment. The submission raises the point of whether these sorts of payments will be considered as part of ongoing costs or as separate lump sum payments.[17]

2.24 Allianz also raises concerns over the term 'anyone'. If a payment is made by the insurer directly to a medical service provider, this payment may affect income support:

While lost income (or economic loss damages) payments can be of a one-off or lump sum nature (as well as being "periodic payments"), so are many millions of payments made to injured persons or "anyone", such as to a medical services provider or chemist. In the absence of any definition of "lump sum" (eg one restricting it to lost income payments), and in light of the unconstrained types of payments covered by the definition of 'recompense', legal advice to Allianz suggests that all types of payments (whether related to lost income or not) would need to be notified.[18]

Notification Period (14 days)

2.25 Insurance agencies also noted the difficulties associated with providing 14 days notification to Centrelink prior to the commencement and/or changes to workers compensation payments.

2.26 According to Allianz, 14 days notification is in breach of most state laws.[19] A submission by the Payroll Association to a 2003 Productivity Commission inquiry into Workers Compensation[20] outlines the various State regulations, which require the payment of workers compensation to recipients anywhere between 2 to 7 days after the approval date. This would be in clear breach of the new regulations outlined in Schedule 4. Given this incompatibility, insurance providers would be in breach of either the State laws or that of Schedule 4.

2.27 Insurance companies also raised the issue of awareness. When dealing with workers compensation claims, often the insurance providers are not aware of claims until after they have been processed by payroll, when employers seek reimbursement from their respective insurance providers.[21] Consequently, insurance providers only become aware of claims after the fact and would not be able to provide notification of payments within the 14 day period. While there is an amendment to the Schedule allowing insurers and the Secretary of FaHCSIA to enter into individual agreements to nullify the effects of this notification requirement, this amendment appears to be problematic.[22] WorkCoverWA states that:

I understand an amendment to the Bill allowing for individual agreements with compensation payers has been designed to address the issue at (5) above. However in Western Australia this would require notification agreements with the Insurance Commission of WA, all eight approved insurers, twenty seven self insurers and potentially any employer, if their insurer does not assume responsibility for the notification.

This arrangement may provide greater flexibility, but it is an arbitrary method of addressing the problem. As yet there is no detail on how these agreements will be applied in practice. In any event, the requirement to negotiate agreements with a large number of compensation payers has the potential for high administrative overheads and may erode the projected cost savings to Centrelink.[23]

2.28 The NSW Business Chamber adds that:

We understand that consultation, when it occurred, has led to further amendments to Schedule 4, which we are told will address concerns regarding its impact on workers compensation schemes, authorities, insurers and employers. However the solution does rely on insurers (and it is unclear to us if this means individual agreements will need to be struck with every insurers in the privately underwritten states compared to a single agreement in centrally managed fund states) and the Secretary of the department reaching an agreement. Should agreement not be possible it would seem considerable administrative and financial obligations may fall on employers and others. Not only that those obligations would include notification requirements which are impossible to meet.[24]

2.29 Comcare also raised concerns with the vagueness of this amendment, writing that:

One of the problems identified with this option is that post payment notifications would require Centrelink to continue to recover overpayments of income support, undermining the policy objective of the Bill to reduce the risk of compensation recipients incurring an income support debt due to receipt of unreported compensation payments. This is a particular problem in cases where a significant back-payment is made, for example following a lengthy AAT or Court process.

-      At this stage, FAHCSIA and/or Centrelink have not confirmed:

-      the form of the agreement

-      whether there will be a template agreement, or whether each agreement will be individually tailored

-      who the agreement would be between, i.e. in Comcare’s case would the agreement be at the jurisdiction level, or with each individual licensed self-insurer?[25]

2.30 Comcare emphasises that individual circumstances may change as often as on a weekly basis. Moreover, under the various state based statutory obligations, pay rates changed according to the length of time an individual has been the recipient of workers compensation payouts.[26] This would mean that if insurance providers were to abide by the Schedule's 14 day notification period, payments would have to be delayed to individuals.[27] In relation to this TNT claims that:

[T]he main concern that TNT has with the proposed Bill is with the delays in making payments of weekly benefits compensation to our employees. As an employer that looks to engage our workforce, and ensure that the employee is a valued member of our business, withholding benefits that are rightly due to the employee appears to be an injustice to the individual, in particular at a time when they are most in need our support.[28]

2.31 Comcare adds that:

The potential ramification of this requirement is a delay in compensation payments being made to injured workers (or to their employer in reimbursement of paid leave taken pending payment).

Urgent clarification is required surrounding the usual practice of employers continuing to pay injured workers post lodgement of compensation claim out of their accrued leave. How does this practice interact with the s1167A(1)(b)? If this practice were to be upset by the operation of s1167A(1)(b), there are very real and immediate financial impacts upon the injured worker at a time where financial stability is essential.[29]

2.32 In addition to delaying workers compensation payments, WorkCoverWA and Allianz also emphasise the workload that the 14 day notification period would impose upon Centrelink and insurance providers.[30] The following table relates only to the number of workers' compensation payouts and does not include other forms of compensation that may be taken into account by Centrelink, such as claims related to Product Liability, Public Liability and other cases briefly listed in paragraph 2.21 above:

Item	How Many?	No. of related payment notifications
New workers compensation claims per annum	Approx 230,000	At least 230,000 (assume at least 1 medical payment each)
No. of injured workers taking some time off work	Approx 217,500	At least 217,500 (assume at least 1 time-off-work payment)
No. of injured workers – more than 1 week off work	Approx 129,000	At least 65,000* (assume 50% cessations)
No. of injured workers on periodic payments (ie more than 2 weeks off)*	Approx 65,000⁺	Approx 260,000 (assume 4 notifications each)
No. of weekly payments made per annum*	Approx 600,000	Up to 600,000
No. of other payments "in respect of an injury" made per annum	Approx 20 million	Approx 20 million
Total		Up to 21.4 million

*Estimated
+ Some workers can be on statutory benefits for decades and in anyone year could have several changes in the amount of benefit (eg indexation). Thus, it is assumed that the average number of changes per year needed to be notified is four, but the average could be much higher.[31]

Lack of consultation

2.33 Contrary to statements in the FaHCSIA submission,[32] a number of submitters[33] argue that there was a lack of consultation with industry bodies and employers. They voiced their concerns that only two or three government agencies were consulted, and that these agencies voiced their concerns regarding Schedule 4.[34] However, there were no further consultations with the larger private insurance groups and smaller organisations, NGO's and not-for-profit organisations such as churches.

2.34 In their submission, NSW Self-Insurers Association Inc. stated that:

Overwhelmingly our members were very concerned that such a large scale reporting requirement to Centrelink could be firstly considered in a bill, utilising insufficient consultation with insurers/stakeholders, which imposes a huge administrative impact on Self and Specialised Insured Employers in NSW. Further, that the commencement date of the Bill is 1 October 2011, leaving very little time for organizations to consider resourcing or compliance.[35]

2.35 Allianz claims that this has disadvantaged smaller administrators and providers of workers compensation because they did not know of this legislation or the potential impact it may have on their organisation.[36]

2.36 Australian Chamber of Commerce and Industry noted their concern with this Schedule and the potential ramifications. They also noted that they were not aware of this Schedule until very recently and have consequently been unable to submit a more considered submission.[37]

Recommendation 1

2.37 The committee recommends that the Senate pass the Bill.

Recommendation 2

2.38 The committee recommends that FaHCSIA engage in discussions with concerned parties to:

clarify their legislative obligations under Schedule 4 and any issues insurance providers and employers may have in meeting these requirements; and
establish a reporting framework that takes into account the various state requirements as they relate to workers compensation payments.

Senator Annette Hurley

Chair

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