Employers may be asked to pay part of the costs if their employees have to go on sickness or disability welfare benefits under an insurance-based reform of the welfare system flagged in a new report today.

A working group on reducing welfare dependence chaired by economist Paula Rebstock, in its first report, says employers need to be more actively involved in managing their workers' health issues - keeping them well, and getting them back to work quickly after an illness.

It cites a system in the Netherlands where employers have to pay for most of the costs of their former workers on sickness and disability benefits.

Ms Rebstock said sharing the costs with employers would be "part and parcel" with a possible move towards funding welfare benefits through a social insurance system as in most developed countries.

Her group's report is cautious about shifting welfare on to an insurance basis, one of the issues it is required to address in its terms of reference.

But Ms Rebstock said the group felt an insurance approach would give everyone involved in the system - employers, Government and beneficiaries - an incentive to get people back to work as soon as possible.

"If we don't go down that path, we have to find some way to replicate the effects of an insurance-based system," she said. "The most important one is that an insurance approach makes you think about the full cost of someone being on a benefit over the lifetime of that benefit receipt.

"If you do that, you think very differently about the social and economic costs of long-term benefit support, and that leads you to understand where it might look worthwhile to invest."

The report says New Zealand's welfare system is financially unsustainable and outdated. It says a focus on finding paid work should be "the default approach for the vast majority of people on a benefit", and calls for "an active and immediate approach to support people back into work".

The report notes that some big employers already have an incentive to get their workers back to work after an accident through the Accident Compensation Corporation (ACC) "accredited employer" scheme, which allows companies to manage their own accident costs. It says the Dutch system, adopted in 2003, "mirrors ACC-style experience-rated premiums".

"This system change was a key explanatory factor for the recent sharp fall in the rates of inflow into disability benefits in the Netherlands," it says.

Social Development Minister Paula Bennett said the Government had not done any work on involving employers in the welfare system but she would look at it if the Rebstock group recommended it.

Business NZ chief executive Phil O'Reilly said pressuring workers to exercise or eat well "goes well beyond what I think is reasonable for an employer and employee to do in their relationship".

Council of Trade Unions president Helen Kelly said unions would oppose any shift to an insurance system that would give employers any control over health services for workers. She said the ACC accredited employer scheme led to employers claiming accidents did not happen at work, cutting rehabilitation services and forcing workers back to work too soon.

The Rebstock committee is seeking submissions on its first report by September 17 and plans two further reports in October and December.