'Snouts in the trough' circle Australia's $60b workers' comp system

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A key regulator has referred conduct at the nation's largest workers' compensation insurance scheme to the NSW anti-corruption authority amid repeated warnings about its deteriorating financial position and solvency risks.

Separately, the Victorian workers' compensation scheme, which lost more than $800 million last year, has been accused by an ombudsman of presiding over immoral and unethical practices after external insurance agents were offered financial incentives to terminate coverage for injured workers.

These are among the revelations from a joint investigation by The Age, The Sydney Morning Herald and ABC TV's Four Corners into Australia’s $60 billion workers' compensation system that has uncovered mismanagement of the state government-run scheme in NSW and "unethical" conduct in Victoria.

Problems in the two schemes, which cover almost half the nation's workforce, are leading to delays and to denials of medical treatment, making some workers sicker and delaying their return to their jobs.

Sensitive documents

The joint investigation accessed hundreds of sensitive NSW government documents, as well as a cache of leaked documents handed over by a whistleblower at icare, which runs the biggest workers' compensation scheme in the nation and covers more than 3 million workers in NSW.

The leaked internal icare documents detail claims of credit card theft, concerns about international trips that were not disclosed in a timely fashion and how some contracts were awarded. The NSW regulator that oversees icare confirmed it has referred conduct within the organisation to the Independent Commission Against Corruption.

The government documents reveal as many as 52,000 injured workers in NSW have been underpaid up to $80 million in compensation for loss of wages in one of the biggest underpayment scandals involving a government agency in the country.

Retired senior EY partner and actuary Peter McCarthy, who spent 35 years advising governments on workers' compensation, was scathing in his assessment of the current state of the system. "All these people have their snouts in the trough. It's a disaster. Unmitigated disaster," he says.

‘Grave concerns’

Icare, which manages the NSW workers' compensation scheme, covers more than 3 million employees for weekly payments and any medical treatments they require if they are injured at work. Employers are required under law to take out a workers' compensation policy as a safety net for workers. In NSW, most businesses use icare, which collects more than $2.5 billion a year in premiums.

Icare replaced the WorkCover Authority of NSW, which was dissolved after running up a deficit. It was set up in 2015 with a $4 billion surplus, but bureaucrats and regulators are concerned about its deteriorating finances.

The chief executive of workers' compensation regulator State Insurance Regulatory Authority, Carmel Donnelly, told the joint media investigation she had "grave concerns" about icare and was deeply disappointed in its performance.

She says she has commissioned accountancy giant EY to interrogate icare’s numbers, particularly its valuation of liabilities, which is the amount it sets aside to fund future claim payments.

"What I have done is commission an assessment of their latest valuation myself with independent actuaries, and I do have some questions about it, which I have raised with icare," she says.

Government documents show SIRA’s concerns about the deterioration of icare's financial position stretch back to at least June 2018.

SIRA CEO Carmel Donnelly has grave concerns about icare and has referred some matters to ICAC. Credit: Steven Siewert

One email dated June 6, 2018, from NSW Treasury notes that the regulator is "increasingly concerned about the financial viability of the workers’ insurance scheme". Concerns include ongoing losses, problems with icare’s policy system, and service charges, which it says are high relative to other jurisdictions.

An August 2019 briefing note by Treasury expresses concerns about the validity of icare's plans to improve its financial performance. It says: "In recent years, Treasury had identified what appears to be over-optimism in icare's financial projections."

In other documents, SIRA warns Treasury that the fund’s "liabilities are now greater than their assets by $459 million''. Another Treasury note in March 2020 says "the fund’s solvency is at risk".

McCarthy has studied the financial accounts and icare’s external actuarial report by Finity and believes the organisation's financial deterioration is worse than reported. "I’m saying the liabilities are undercooked by about $6billion, money they don’t have," he says.

In an interview, icare CEO John Nagle vigorously denies there are any solvency issues and says he welcomes SIRA’s scrutiny of its accounts and valuations. "When you look at the risk of ruin, we know that we've ample funds for the next 10 years, if we do nothing,'' Nagle says.

"So the funds are incredibly strong. We're just going to take a sound and sober approach to restore our financial position."

Asked what happened to the $4 billion surplus, Nagle says some of it went in an increase in worker entitlements owing to legislative reforms and some of the deterioration is blamed on "rampant medical inflation" and "changed economic circumstances".

However, an independent report commissioned by the regulator in December found that icare's soaring medical expenses were largely in icare's control and coincided with the introduction of a new claims management model.

Nagle says he is not aware of any ICAC investigation into the organisation and he is not concerned about it. "I know now, coming up six years in the public service, there seems to be a culture of complaint or issues [of] alleged corruption or malfeasance," he says. "Most of them are anonymous. Most of them go to parties. If they come to us, we investigate them.

John Nagle, CEO of icare, which runs the NSW workers' compensation scheme. Credit: Jessica Hromas

"And we are confident about what we're doing, that we can show with clarity, how we've gone about our processes so I'm not concerned about it at all."

He says icare is in the middle of a transformation and says the organisation has achieved $2.4 billion in savings. "We haven't landed all of our outcomes yet on the journey that we've been on," he says.

McCarthy disputes the savings and says there have been increases in costs in the scheme.

Icare’s board is chaired by long-time Liberal Party donor and former Macquarie Group executive Michael Carapiet.

The board is ultimately accountable to NSW Treasurer Dominic Perrottet, who told the joint investigation in a statement the move from WorkCover to icare was a once-in-a-generation transformation.

'I don’t like the word icare. What a name. They don’t care. They just don’t care.'

Injured worker Greg Dayman

"All significant reforms come with challenges, and this process is no different,'' he says. "The management team and board have been instrumental in driving this change and seeking to strike a fairer balance between providing for injured workers and meeting the needs of employers.

"Labor left the state’s workers' compensation scheme a mess, facing a $4billion deficit, and jeopardising care for injured workers and leaving employers facing significant premium hikes.''

The government introduced legislation to enable icare to start afresh with a surplus of $4 billion after introducing a scheme that automatically terminated injured workers after five years unless they could prove they met a Whole Person Impairment threshold, which measures how badly a worker has been injured, of more than 20 per cent.

This enabled the actuaries to reduce their liability projections for the scheme and produce a surplus. But the changes, which were effective from 2017, meant thousands of workers, including Greg Dayman, had their weekly payments terminated.

Greg Dayman at his unit in Woolooware. He was thrown off workers' compensation in 2017 when the rules changed.Credit: Wolter Peeters

Dayman says: "I cringe when I hear the word icare. I don’t like the word icare. What a name. They don’t care. They just don’t care."

Treasury documents also reveal icare has underpaid tens of thousands of sick and injured workers up to a total of $80 million in claims benefits. And icare delayed informing SIRA of the underpayment scandal for three months and didn’t tell Treasury at all.

NSW opposition finance spokesman Daniel Mookhey describes the underpayment scandal as one of the country’s worst. "It certainly is the biggest example of underpayment in Australia by an Australian government," he says.

Nagle disputes the size and number of underpayments and says it will take another six months before repayments begin.

Return to work performance rates ‘abysmal’

Icare’s transformation began in 2018 when it moved to a new claims model and a single agent, EML, to manage all new claims.

The new computer-driven claims model cost hundreds of millions of dollars to implement and was supposed to make claims management more efficient through automation. It did the opposite. Workers struggled to get treatment owing to the lack of human contact in the early days of an injury and employers were ignored.

This led to a significant decline in return to work rates, a crucial indicator of how workers' compensation schemes are performing.

Donnelly describes icare's return to work rate as abysmal. "The return to work rate is completely unacceptable and the financial deterioration is a concern. There are actions and lessons that can be learnt and there’s an urgency,” she says.

'It's unacceptable'

"In January 2018, and for many years before that, for example, six months after an injury, only one in 10 workers was not back at work. It's now two in 10. That's thousands of workers. It's unacceptable."

McCarthy says since icare's new claims model started in 2018, there are now about 20,000 more people off work long-term than before the new claims model. "That is a terrible result," he says.

The poor return to work rate owing to management of claims has pushed up weekly payments and medical costs."The costs of extra healthcare, the cost of extra weekly benefits increase the liabilities for the scheme, and ultimately lead to higher premiums,” Donnelly says.

Nagle says icare "anticipated" the rate would go backwards initially but that it went back further than expected. "We've been working with our service providers to close that gap ever since," he says.

David Bruce at his home in the Sydney suburb of Belrose. He has been affected by delays in the workers' compensation system.Credit: Kate Geraghty

The new claims management system has delayed 27-year-old David Bruce's access to treatment and lengthened his time on workers' compensation payments.

Bruce lodged a claim in September 2018 after a back injury at work required surgery. "I was just getting ignored," he says. "The case managers never returned a phone call once in a period of six months."

Since September 2018, he has churned through more than 10 case managers, which added to his stress. Bruce says not getting proper attention resulted in a secondary injury, which required a second surgery. He also developed mental illness issues and had to see a psychologist.

"I think I’d be back at work now," he says. "I think I’d be back to pre-injury if I had been treated early enough. But that can never be an option."

Executive salaries grow

Despite the problems, executive remuneration at icare has soared.

McCarthy says in 2015, prior to icare being created, there were two people who had an average salary of $305,000. "They [icare] now have 45 people, which is a 22-fold increase in the number of executives, who received on average $300,000," he says.

"The salaries of the top seven executives average around $660,000. So there are seven people who are taking an enormous amount of salary."

A confidential NSW Treasury briefing says "icare’s executive team is likely the highest paid in the NSW government sector".

Nagle refuses to say how much he is paid or the size of his bonus last year. "My salary and all the salaries in icare are determined by our board," he says.

"We're not part of the government employment sector. Our board has actually determined our salary range. I'm not releasing that."

Questions are also being raised about how icare awards contracts.

In 2016, icare awarded a lucrative contract without a tender to a small New Zealand company, Perceptive, to develop a tool to measure customer satisfaction and surveys, known as net promoter scores, which it also used to award executive bonuses.

Icare consultant Tony Pescott manages the project and a year after the contract was signed off, he lodged a conflict of interest form saying his son owned the firm.

The contract went from 2016 until 2019 and was worth an estimated $11million, according to icare.

Company searches reveal there was more to the Perceptive deal than stated in the leaked conflict of interest declaration. Tony Pescott owns shares in Perceptive, along with his son.

"That's a huge governance issue and conflict of interest," McCarthy says. "How on earth icare let that happen is just unbelievable," he said.

Nagle signed off on the Conflict of Interest form. "I wasn't aware that he owned shares; I was aware that his son was at Perceptive," he says.

"And when I discussed it with him, we decided that he should declare that he had an interest or his son was at Perceptive and that's what the conflict of interest declaration was about."

Pescott confirmed he owns shares in the New Zealand company but says it was in his capacity as a trustee for a family trust. "I never received any financial benefit in my capacity as a shareholder nor as a beneficiary and trustee," he says.

Icare said in 2018 ICAC asked icare about Tony Pescott’s relationship with Perceptive. ICAC subsequently advised it wouldn’t make any further inquiries or start a formal investigation.

Peter McCarthy was a senior actuary for 35 years and is now speaking out about alleged wrongdoing and mismanagement in the workers' compensation system.Credit: Wolter Peeters

Other leaked documents include a 2016 procurement compliance report that rates some of its processes as "high" risk and says some of its disclosure practices breach the law.

They include emails raising concerns about a senior executive taking an international trip with a company that had been granted a contract by icare without lodging a gift and declaration benefit form until it was raised by the compliance department; a lack of transparency on contracts being awarded; and contracts exceeding $150,000 that had not been put on the public register.

One leaked document is a spreadsheet itemising a spurt of thefts of Cabcharges, as well as cash, technology and credit card fraud. Correspondence refers to a meeting held on November 10, 2016 to discuss the thefts and that a decision was made not to inform the police because it was seen as "a waste of time and not material" to icare’s multibillion-dollar operations.

Reported to ICAC

Donnelly confirms she has referred some matters to ICAC. "I'm not going to go into detail," she says. "It's not appropriate for me to comment about where they are, but there have been matters that I've reported to ICAC and I will continue to be proactive about that."

There have also been issues on a lack of transparency in contracts. On February 25, 2020, icare published 77 contracts worth almost $157 million on the NSW contract database. Some were more than two years old and none were disclosed within the required period of 45 working days.

Some contracts still don’t appear on the database.

The joint investigation was told that earlier this year the situation at icare was so dire some staff hatched a plan to target 13,000 injured workers to cut them off, regardless of their circumstances.

It profiled anyone whose claim was less than 2½ years old. Insurance agents were told of the plan. Donnelly says she has heard about the plan but icare denies it.

Premium hikes were also considered but have been put on hold due to the COVID-19 pandemic.

Insurance agents 'gaming' the system

In Victoria, the workers' compensation scheme, WorkSafe, recorded a loss of $823 million in the year to June 30, 2019, and an additional $650 million in the six months to December 2019.

In December 2019, Victorian Ombudsman Deborah Glass released a report into workers' compensation that describes the Victorian scheme that manages complex claims as “failing to deliver just outcomes to too many people”.

A few months before the public release of the report, the WorkSafe CEO, the chairman and a few board members quietly left and new appointments were made in November.

Glass told the joint investigation she has evidence insurance agents were doctor-shopping and cherry-picking evidence to terminate claims for financial incentives.

"What I saw was, in some of those cases ... downright immoral and unethical," Glass says.

Glass says "nothing short of wholesale changes to the system" will address the problems she has identified.

"This is about people's lives. This is about human suffering, and what you see are references to numbers and files and claims," she says.

Victoria’s Workplace Safety Minister Jill Hennessy says she has initiated an independent review into the system.

"Workers' comp' is meant to be a safety net,'' Hennessy says. "It is part of that social obligation by the state to ensure that people who are injured at work are not only appropriately compensated but appropriately incentivised to go back to the workplace.''

Correspondence obtained by the ombudsman shows how insurance agents are rewarded if they meet set targets to kick people off the system. It says: "We cannot take our foot off the accelerator as Maximum Reward for this measure is currently worth $687,000!! … we can do this!”

In another email, a staffer encourages workmates to deliberately use a doctor with a record of rejecting claims. "Two outcomes that … I have done in the last two days resulting in terminations of claims from one doctor Dr X. Can we please use him more."

Glass says: “There are a series of moments in time when there is an incentive for the agent to return that worker to work. If you're a seriously, and some cases, catastrophically, injured worker, the incentive on the agent is to produce some form of medical evidence that allows them to terminate the claim at that point.”

One of those performance targets is 130 weeks.

Victorian Scott Ginters was terminated by insurance agent Allianz after 130 weeks. He was still recovering from a horrific accident in February 2017 when a seven-tonne excavator ran over him and crushed his legs and pelvis.

He spent more than six months in hospital and had several surgeries, as well as rehabilitation to learn how to walk again. When Allianz terminated his claim, he was still struggling to walk and was battling depression.

"It put me in a point where I have never been so low or felt so low in my entire life as I had at that point. I became suicidal," he says.

Scott Ginters: 'My physical impairment was 63 per cent and mental was 18 per cent.'Credit: Chris Hopkins

Ginters challenged Allianz’s decision to terminate his payments and a medical panel overruled the agent’s decision."My physical impairment was 63 per cent and mental was 18 per cent. That's how I was assessed,” he says.

Allianz declined to comment on Ginters' case, citing privacy laws. In a statement, it says it is committed to supporting workers and other stakeholders.

Ginters says: "Every day was a fight. And those periods of time when you weren't fighting, or when I wasn't fighting, I was lying in bed with the doona surrounding me in a cocoon.''

Watch the joint investigation on ABC's Four Corners tonight at 8:30 pm AEST.

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