National ministers fear a $1 billion hole in the ACC budget could signal a much wider problem, putting huge pressure on accident compensation levies.
Prime Minister John Key said yesterday the corporation was seeking $297 million more for the current 2008/2009 year and similar figures for the next two years to fund the non-earners account.
The $1 billion account pays for the accident treatment of those not in the workforce and is paid from government coffers.
The near 30 percent increase in cost is mainly due to an unprojected increase in medical costs and NZPA understands that the other accounts funded by levies are facing similar cost increases.
"We are facing major challenges across all the accounts," ACC Minister Nick Smith said.
The non-earners account was the only one that urgently needed cash and he was receiving advice on the state of the other accounts.
"The initial reports are very concerning."
Asked if suggestions of a 25 percent increase in medical costs were being faced by ACC, Dr Smith said he was getting advice from Labour on "substantial cost increases in other accounts".
ACC's annual report for 2007/2008 showed it paid out $1.6 billion in medical and rehabilitation costs, up from $1.4 billion the year before.
A 25 percent increase could be around $400 million a year.
Dr Smith said he was still awaiting briefings on cost pressures in other accounts as these were significant but did not impose immediate risks to ACC, as the non-earners account did.
Dr Smith said that straight after Mr Key announced his Cabinet, officials had asked to see him urgently as the incoming briefing had been "very bland" on what was a "crisis issue".
He was also awaiting further briefings on other pressures.
Before the election Labour said there would have to be a change to the law to stop a massive increase in fees next year due to the way ACC calculates its liabilities and levies needed to fund them.
Dr Smith said there were options for extending the period by which all long-term claims are fully funded.
This would reduce some of the pressure on levies, but would increase the Government's debt position because of the increase in the unfunded liability.
ACC also holds significant investment assets to pay for its costs and like all investments has been hit by the international economic turmoil.
Dr Smith said there was more to come on that.
"We have some nasty surprises on that front too, I am told."
He said his fellow ministers were "very angry" at the size of the problem, especially after they had been haggling over election promises of as little as $10 million.
Former ACC Minister Maryan Street told NZPA that there were significant pressures on ACC's medical bills and these had been well flagged.
Increases in doctors' pay flowed through to ACC and more liberal rules around medical misadventure claims had also led to significant cost pressures.
Ms Street said ACC was a complex portfolio and the minister often had to deal with difficult funding and cost issues.
"These are not issues for a ministerial inquiry."
She accused National of trying to create a sense of crisis in order to soften up the public for privatisation.
Ms Street said cost pressure on ACC would be felt worse by a private insurer, which would have to raise levies or cut services or reduce cover.
Mr Key said yesterday it was frustrating the cost blow-outs in ACC had not been disclosed.
Ms Street said the budget this year had shown cost increases in ACC's financial results.
She also released a timeline that showed she was first warned about the problem in August and was not able to give formal advice to Treasury until late October and even then the figures were estimates.
Mr Key has ordered a ministerial inquiry into why the liabilities were not disclosed.
Ms Street said ministers had followed officials' advice at all stages.
