9.2 The National Disability Insurance Scheme

Background

The National Disability Scheme (NDIS) is a new jointly funded programme which largely replaces and enhances existing disability support services provided by the Commonwealth and the States. Eligible participants will have a disability support plan developed for them by a new national agency, the National Disability Insurance Agency (NDIA), which is intended to meet their current and future support needs.

Packages under the NDIS arrangements are based on a concept of what is ‘reasonable and necessary’ for an individual client. Participant’s needs are assessed and tailored service packages developed and funded for them. The scheme is demand driven.

A separate smaller (but related) scheme, the National Injury Insurance Scheme (NIIS), will also be established, in conjunction with the States and Territories, to provide lifetime care for catastrophic injury, for example motor vehicle, workplace or general accidents. This is funded via increased contributions on relevant insurance policies. Arrangements for the NIIS are being progressively implemented.

The NDIS commenced on 1 July 2013. The initial roll-out is limited to a small number of locations in New South Wales, Victoria, South Australia and Tasmania. Trial sites in the Northern Territory and the Australian Capital Territory will commence in July 2014. The scheme is expected to be fully rolled out across Australia by 1 July 2019.

Part of the catalyst for the introduction of the NDIS was a 2011 Productivity Commission (PC) Report on Disability Care and Support, commissioned by the Commonwealth to look at the costs, cost effectiveness, benefits and feasibility of replacing the prevailing arrangements with a properly funded and managed long-term disability scheme. The PC concluded that a new national disability scheme was feasible and would produce very large benefits for Australians and that a realistic and clear implementation pathway was available.

Rationale for government intervention

Private individuals cannot be reasonably expected to be able to insure themselves against the risk of disability. Congenital disabilities are often impossible to predict prior to birth. Similarly, people with disability also often lack the capacity to earn income to meet their care needs.

The costs of lifetime care and support can be so high that the risks and costs need to be pooled and managed collectively. The NDIS is intended to replace and expand on existing disability services, which the PC described as being ‘...underfunded, unfair, fragmented, and inefficient’ (Productivity Commission, 2011).

Current structure of the programme

National Disability Insurance Scheme

The NDIS will provide long-term care and support, but not income to recipients. The income needs of Australians with disability will be met through other means, including the Commonwealth’s income support system.

The scheme will be funded, in part, by increasing the Medicare Levy from 1.5 to 2 per cent. This money will be placed in a separate fund for 10 years and will only be able to be drawn on to fund the additional costs of delivering the NDIS.

The NDIS will be managed by a new Commonwealth body, the NDIA, which will be regionally distributed, with its Head Office located in Geelong.

The NDIA will assess the level of impairment of applicants and work with NDIS participants to develop individual packages that meet participants’ needs and support their life goals. The NDIA will also manage packages for those participants who choose not to self manage.

National Injury Insurance Scheme

The NIIS is intended to complement the NDIS by providing lifetime care and support for people who have sustained a new catastrophic injury as a result of certain accidents such as motor vehicle accidents.

The NIIS is being developed in conjunction with State and Territory governments and will seek to build on existing State and Territory accident compensation arrangements.

Support under the NIIS is intended to be provided on a no-fault basis. It is intended to replace the various disparate State and Territory compensation schemes and provide a consistent universal immediate response to help people who sustain this sort of injury.

Trends

As shown in Chart 9.2.1, when fully implemented in 2019-20 the cost of the NDIS is projected to be $22.1 billion per year, with further growth after maturity expected to reach $25 billion by 2022-23. These projections include the National Disability Specific Purpose Payment and other existing sources of Commonwealth disability funding, including Commonwealth own purpose expenses.

 

Chart 9.2.1: Total expected NDIS expenditure by Commonwealth/State share

This chart shows the projected Commonwealth and State spending on the National Disability Insurance Scheme (NDIS). It shows that the cost of the NDIS is expected to increase to around $26 billion by 2022-23.

Source: National Commission of Audit.

 

The Commonwealth is expected to contribute around 54 per cent of costs and States 46 per cent (Chart 9.2.2). This contribution is made up of funding from various sources including new funding, a 0.5 percentage point increase to the Medicare Levy and existing funding (Australian Government, 2013).

As at the 2012-13 Budget, the expected Commonwealth contribution in 2019-20 was $11.9 billion, with $8.6 billion of new expenditure and the remaining $3.3 billion to be redirected from existing Commonwealth programmes (e.g. National Disability Specific Purpose Payment) (Australian Government, 2013).

 

Chart 9.2.2: Sources of NDIS funding, 2019-20

This chart shows how the NDIS will be funded, including new and existing Commonwealth and State funding, as well as funding provided by the new Medicare Levy.  With new and existing State funding expected to comprise 42% of NDIS funding, new and existing Commonwealth funding 35% and Medicare Levy revenue 22%.

Source: Australian Government 2012; Australian Government 2013.

Drivers

The Commonwealth’s contribution to the NDIS is expected to escalate rapidly in the forward estimates as the number of clients covered increases with the expansion of the scheme. There is some uncertainty over the actual number of clients, since the NDIS is effectively a demand driven programme. Initial estimates were based on the PC Report, but there is the potential for actual numbers to be higher. In particular, it is possible that eligibility within the broad mental health disability area may be much higher than forecast.

Around half the people currently eligible for the Disability Support Pension are likely to be in the NDIS. This suggests that there are likely to be many people who attempt to test their eligibility for the NDIS.

Care and support costs account for over 90 per cent of the total costs of the NDIS. Any difference between the actual and estimated average package costs will have significant financial impacts. Care and support costs are expected to be highly volatile in the early stages.

Data from the first quarter of the NDIS shows that average package costs are well above the original forecast ($46,000 compared to $35,000) (Fifield, 2013). However, given the early stages of implementation it is difficult to read too much into these early estimates. It may be the case that package costs have so far been tailored to people with greater disability and therefore higher needs.

Issues

The NDIS is a new scheme with associated uncertainty associated around costs and participant numbers. Most of the financial risk associated with this uncertainty will be borne by the Commonwealth. Under agreements with the States and Territories, the Commonwealth will meet 100 per cent of cost overruns during the launch and transition stages and at least 75 per cent, and up to 100 per cent, in the full scheme.

The initial roll-out of the NDIS includes both a launch and a transition phase. During this latter component, scheme numbers are forecast to increase from just over 30,000 in 2015-16 to over 450,000 in 2018-19 (Chart 9.2.3). This represents a significant scaling up of operations, which poses a number of risks, including for the capacity of the new agency. It also increases the likelihood of any workforce pressures being amplified, thus potentially leading to wage pressures within the scheme. These pressures are likely to be exacerbated by increased demand for staff with similar skills in other areas such as aged care.

 

Chart 9.2.3: Expected NDIS participant numbers

This chart shows the expected increase in NDIS participant numbers over the period  2013-14 to 2022-23. It demonstrates that participant numbers are expected to increase significantly between 2015-16 and 2018-19.

Source: Department of Finance.

Uncertainty regarding extent of demand

Around 90 per cent of NDIS costs are expected to result from the provision of care and support packages. This means that a small 10 per cent increase in customer numbers and/or package costs can translate into large increases in overall expenditure.

Analysis conducted by the Australian Government Actuary has confirmed that there are uncertainties around all cost elements of the NDIS, e.g. populations, severity distributions and average costs (Australian Government Actuary, 2012).

Preliminary performance data is currently showing that the number of people registering interest in participating in the scheme is 50 per cent more than the expected number of participants for the period 1 July to 30 September 2013. Plan costs are also currently exceeding modelled average costs by around 30 per cent (Fifield, 2013). Since this data on costs is only based on the first quarter of operations, it is too early to draw any definitive conclusions.

Participation of those aged 65 and over in the NDIS

People who are participants in NDIS before turning 65 are able to remain in NDIS after they turn 65 rather than revert to the broader aged care system. In line with the Commonwealth’s overall responsibility for the care and support for over 65 year olds, the Commonwealth has agreed to fully fund their ongoing participation in the NDIS. With an ageing population, the number of over 65 participants in the NDIS is expected to grow strongly over coming years.

The cost of supporting someone aged over 65 in the NDIS is expected to be higher than the average cost of someone aged over 65 in the broader aged care system, where participants are required to partially contribute to the cost of their care.

Given the differences in contributory costs between the NDIS and the aged care system, people who develop a permanent disability after 65 may increasingly seek to access the scheme. Many will suffer the same form of disability as over 65 year olds already in the scheme. The only difference would be that those in the scheme acquired their disability before they turned 65 while those who are not covered acquired it after 65. Similarly, as the Age Pension eligibility age increases to 67 there may be pressure to lift the cut-off age for access to the NDIS.

Medicare Levy funding arrangements

The cost of the NDIS is being met in part by an increase in the Medicare Levy from 1.5 per cent to 2 per cent. This increase takes effect from 1 July 2014. There will always be a risk that collections from the levy are less than forecast, which will require the funding shortfall to be made up from other funding sources.

Potential areas for reform

More graduated scheme phase-in

The roll-out schedule for the NDIS is ambitious. Client numbers are planned to increase more than ten-fold in less than three years. This will increase the risk of poor or insufficient delivery of disability services to participants and also pose significant financial risks to the scheme as a whole.

Risks associated with the compressed roll-out schedule include: workforce shortages and increased labour costs, service delivery quality control and capacity constraints, IT development and infrastructure delays. This challenging client scenario is also exacerbated by uncertainties associated with estimates of client numbers.

There would be merit in extending the roll out schedule to help minimise the risks associated with the introduction of the scheme. One option could be to extend the peak ramp up period over the period 2015-16 to 2018-19, by another three years. Full roll-out would therefore occur by 2022-23.

An extended phase-in of the scheme would require re-negotiation of bilateral agreements with the States. These negotiations would also need to address the impact on existing State disability services for those affected by a slower roll-out.

Aside from managing financial risks, a roll-out over an extended period would allow integration of early results (including average package costs) and other early learnings into scheme design.

It would also be useful to avoid estimated client numbers in each year being seen as targets for the NDIA to achieve. Actual numbers of new clients should be driven by the efficient and effective delivery of services.

Modify NDIS governance arrangements

The governance arrangements for the NDIS are very complex, involving multiple layers of responsibility including the:

  • Commonwealth Assistant Minister for Social Services (and the Department of Social Services);
  • COAG Standing Council on Disability Reform;
  • NDIS Board;
  • NDIS Advisory Council; and
  • NDIA (headed by a CEO with statutory responsibilities).

The roles of all these actors are spelt out in the National Disability Insurance Scheme Act 2013 (NDIS Act). A diagrammatic representation of the complex governance arrangements is shown below.

 

Chart 9.2.4: Structure of the NDIS

This chart shows the current governance arrangements for the NDIS. The arrangements are complex, involving multiple bodies and points of accountability.

Source: National Disability Insurance Agency, 2013.

 

In addition, the Commonwealth Parliament has established a Joint Standing Committee on the NDIS.

Under the NDIS Act, the Minister may, by legislative instrument, give directions to the NDIA about the performance of its functions. However, the Minister must not give a direction unless the Commonwealth and each host jurisdiction agree to the giving of the direction.

The role of the States is further enshrined in the NDIS Act, where certain rules (subordinate legislation) that the NDIA is obliged to follow, require the agreement of each jurisdiction before they can be amended.

An unusual feature of the NDIS governance is the presence of a Board and Advisory Council, with both having statutory roles. The NDIS Advisory Council consists of 13 people, all of whom must have specific requirements under the NDIS legislation (e.g. have a disability, or be a carer). The function of the Advisory Council is to provide the NDIS Board with independent advice of which the Board ‘must have regard to’ when performing its duties as the governing body of the National Disability Insurance Agency.

The diffuse governance arrangements, combined with the fact that the NDIS is essentially a demand driven programme, create potential risks around the financial impact of the scheme. While the concept of financial sustainability is included in the NDIS Act, there is no definition about how sustainability is met.

To strengthen accountability and create clearer lines of responsibility, the governance arrangements should be simplified.

This would involve making the NDIA a prescribed statutory agency under the Financial Management and Accountability Act 1997, with a Chief Executive the key point of responsibility in the NDIS, reporting directly to the Minister. Under this arrangement, the existing Board’s and Advisory Council’s responsibilities would be redundant. However, both bodies could be merged to become an advisory committee. There would not need to be a legislative provision for this new committee.

Changes to the governance arrangements have no impact on eligibility for the scheme or the proposed financial contributions of the Commonwealth and the States. They would, however, bring a clearer focus on the responsibilities of the Minister and the NDIA (and in particular) on ensuring the financial sustainability of the scheme. This is particularly important from the Commonwealth’s perspective given it has agreed to meet 100 per cent of cost overruns during the launch and transition phases.

Contract the informal (not-for-profit) sector and other bodies to provide services

The NDIA is building in-house capability to deliver its functions, including the assessment of eligibility for entry to the NDIS. In practice, there is no reason why a number of NDIA functions cannot be undertaken by providers who are doing similar things within existing State disability frameworks. The Commission is aware that the NDIA has already moved in this direction in relation to Local Area Coordinators.

Aside from the potential to realise cost savings through such a contracting arrangement, it is a good way of getting buy-in from the informal sector to the NDIS arrangements.

There is the potential for concern that by outsourcing the assessment function, the financial sustainability of the NDIS will be compromised or that there will be conflicts of interest for organisations which provide both assessment and services. Experience with other government contracting arrangements shows that these issues can be mitigated by good contract design and management. Nonetheless, a proper assessment of costs and benefits should be undertaken before proceeding with contracting out the assessment function.

A decision to implement these contracting arrangements at the beginning of the NDIS rollout avoids the redundancy and other costs associated with pursuing such a model once the NDIS is in a mature state.

Implement the National Injury Insurance Scheme as planned

The PC report on disability, which provided the basis for the NDIS, also included recommendations relating to the creation of a NIIS. This will provide no-fault insurance coverage for all victims of catastrophic injury resulting from motor vehicle, workplace, medical and other accidents. The NIIS will be funded by additional premiums on top of relevant insurance policies.

The NIIS seeks to standardise arrangements across all States and Territories. Its implementation was a critical part of the NDIS arrangements, since it helps to constrain the costs of the NDIS (otherwise, victims of these accidents would be in the NDIS, fully funded by governments).

There is a phased implementation of changes to insurance arrangements across the States. There is a risk that there will be slippage or non-compliance which would shift costs to the NDIS. It is therefore important that the Commonwealth maintains pressure on the States to deliver these changes in full and as per the agreed timetable.

References 

Australian Government 2012, Stronger, Smarter, Fairer, Disability Care Australia Budget Papers 2013-14, Australian Government, Canberra.

Australian Government 2013, National Disability Insurance Scheme Act 2013, Australian Government, Canberra.

Australian Government Actuary 2012, NDIS Costings - Review by the Australian Government Actuary, Australian Government, Canberra.

Fifield, M 2013, Address to the National Press Club by the Assistant Minister for Social Services, 20 November, Canberra.

National Disability Insurance Agency (NDIA) 2013, National Disability Insurance Scheme – Governance, viewed November 2013, <http://www.ndis.gov.au>.

Productivity Commission 2011, Disability Care and Support, Inquiry Report, Canberra.