‘Fuel to the fire’: WorkCover hikes put heat on health service budgets

Victoria’s health services face having to cut staff or services amid a budget squeeze they say has been worsened by the surge in WorkCover premiums.

New data shows smaller providers have been forced to find an average of $140,000 this year in savings just to afford workers’ compensation, with the threat of more hikes looming as the state government tries to overhaul its “fundamentally broken” scheme.

Health services are under increased pressure to meet rising costs. Credit: Nine

Victorian Healthcare Association (VHA) chief executive Leigh Clarke said it was becoming increasingly difficult for health services to absorb growing costs while also being asked to find ways to cut spending.

“Just as households are feeling the crunch of inflation outpacing wage growth, health services are not being funded in line with the true cost of delivering services,” Clarke said.

“Health services are facing significant pressures as they were recently asked by the Victorian government to find back-of-house efficiencies. Requiring health services to pay even higher premiums while at the same time asking them to do more with less is only going to add fuel to the fire.”

The average premiums for WorkCover for businesses in Victoria rose by 42 per cent on July 1.

The Allan government has warned more premium hikes could follow if it cannot pass new legislation that would restrict some mental health claims. If unsuccessful, advice provided to the state says the current average premium of 1.8 per cent of payroll would need to rise as high as 2.5 per cent – the highest rate in the country.

Clarke said health services were already facing financial pressure from the first increase and needed to be protected from further hikes.

She said WorkCover premiums were one of many factors outside the control of health services that were adding to a “structural deficit” in hospital budgets.

A survey by the VHA found that on average, registered community health services were paying $140,000 more in annual WorkCover premiums since the July 1 hike.

These smaller services also had their premium caps – which previously limited annual increases to 30 per cent – more than doubled. Premiums, which are levied on a case-by-case basis based on the number and size of claims, can now jump by as much as 75 per cent in a year.

Meanwhile, financial records for one Victorian hospital – seen by The Sunday Age – show its annual premium costs had almost doubled since July 1 from $1.4 million to $2.72 million.

“Overall funding for Victoria’s healthcare services needs to match inflation to meet rising demand and deliver quality care,” Clarke said.

Health received a significant funding boost during the state’s response to COVID-19. But concerns about the sector’s financial sustainability re-emerged in 2023 as federal and state governments grappling with debt have sought to return spending to more normal levels while addressing increased demand and a backlog in patients who stayed away during the pandemic.

In April, 45 community health providers were contacted by the government about plans to cut millions of dollars in funding ahead of the state budget. The Productivity Commission estimated in the 2020-21 financial year that there were 556,000 presentations to Victorian emergency departments that could have been avoided if people had access to primary or community healthcare.

Department of Health secretary Euan Wallace in July revealed a new “health finance board” had been set up to find cost savings across the sector. A secret overhaul of the health system, revealed by The Age, is also considering forced mergers of local services.

Clarke said the workers’ compensation system did not reward providers for good performance.

She said the state government should safeguard the health sector from any further increase in WorkCover premiums.

“Hospitals have been working hard to implement systems and strategies so that their staff who do suffer an injury are quickly returned to meaningful and appropriate employment,” she said.

“However, without immediate action, Victoria’s health services may have to bear the unsustainable cost of another rise in premiums.”

A Victorian government spokeswoman said the July increase to premiums was the first rise in 20 years and the reforms introduced to the parliament would – if passed – keep down costs.

“We know the unprecedented pressure and labour shortages caused by the COVID-19 pandemic impacted the mental health and wellbeing of those working in crucial frontline roles in our hospitals – despite these challenges, our workforce have continued to deliver outstanding care and we are grateful for their dedication and hard work.”

Victorian Trades Hall Council secretary Luke Hilakari this month urged MPs at a parliamentary inquiry to pull the proposed laws and amend them over concerns about the negative impact of limiting access to mental health claims.

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