7.2 The National Disability Insurance Scheme

The National Disability Insurance Scheme (NDIS) is a new Commonwealth programme intended to provide ‘reasonable and necessary’ long-term care and support, but not income support, to people with a permanent physical or mental impairment.

It has broad community and bi-partisan political support and is intended to replace and expand on existing disability services, which the Productivity Commission described as being ‘....underfunded, unfair, fragmented, and inefficient’.

The NDIS is intended to correct for these deficiencies and provide Australians with disability funding to deliver support tailored to their needs including specialist equipment and respite care.

A separate smaller but related scheme, the National Injury Insurance Scheme, is also to be established, in conjunction with the States, to provide lifetime care for people suffering a catastrophic injury, for example through motor vehicle, workplace or general accidents.

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. The scheme is expected to be fully rolled out by 1 July 2019.

When fully implemented in 2019-20 the NDIS is expected to benefit approximately 450,000 Australians with disability and will have a total annual cost of $22.1 billion. As most of the costs of the scheme are participant driven, any unanticipated increase in participant numbers or package costs will have a substantial impact on total expenditure.

Chart 7.5: Projected Commonwealth and States' spending on the National Disability Insurance Scheme

This chart shows the projected Commonwealth and State spending on the National Disability Insurance Scheme, and the potential impact of a 10 and 20 per cent increase in costs.

Source: Department of Finance and the National Commission of Audit.

Indications from the early operations of the scheme suggest that the average package cost is around $46,000 per participant per year, compared with an estimated average cost of $35,000 per participant per year that was factored into the initial design and costing of the scheme.

The NDIS represents a major new area of Commonwealth spending responsibility, which is yet to be fully implemented. It is a worthy scheme with widespread community support. There are, however, significant financial risks associated with the introduction of the scheme. The Commonwealth is bearing the majority of the risk of any cost overruns. In negotiations with States the Commonwealth agreed to meet all extra costs during its launch and transition and at least 75 per cent of cost overruns of the mature scheme.

The Commission considers that the NDIS should continue to be supported but it should be implemented in a way which is fiscally responsible and minimises risks of higher than expected spending. This can be achieved by exercising budget control to ensure the long-term sustainability of the NDIS.

A number of features of the scheme may unnecessarily inhibit the flexibility of the NDIS Board and National Disability Insurance Agency to deliver on outcomes, including the requirement for the States to agree changes to certain scheme rules and the provision of in-kind payments.

The scheduled roll-out of the NDIS is highly ambitious. This increases the risk of inadequate delivery of disability services to participants and also poses significant financial risks to the scheme as a whole. The current schedule anticipates that the system will be able to satisfactorily cope with an increase in the number of people covered by the scheme from 30,000 in 2015-16 to 450,000 in 2018-19.

Risks associated with this compressed roll-out schedule include: workforce shortages and increased labour costs; service delivery quality control and capacity constraints; and IT development and infrastructure delays. This already challenging scenario is further complicated by uncertainties associated with expected client numbers and package costs.

The Commission considers that there would be merit in pursuing a slower roll-out schedule to help minimise the risks associated with the introduction of the scheme. An extended phasing in of the scheme would need to be re-negotiated with the States. The current bilateral arrangements with each participating State are closely aligned with NDIS funding arrangements.

Aside from managing financial risks, a roll-out over an extended period would allow lessons learned from the early results (for example around expected average package costs) to be incorporated into the scheme’s design.

The governance arrangements for the NDIS have significant complexity and involve multiple layers of responsibility, including the NDIS Board, the National Disability Insurance Agency, the Advisory Council, the Commonwealth Minister, the COAG Disability Reform Council and the Joint Select Committee of the Commonwealth Parliament.

Each of these bodies has its own requirements for reports, briefings and information from the National Disability Insurance Agency. This imposes an ongoing demand on the agency and is an issue which needs to be addressed.

Neither the Commonwealth Government as the major funder, nor the State governments as contributory funders, have control of this major initiative, but they collectively have political responsibility for the success of the scheme.

When the NDIS is fully rolled out, annual expenditure is forecast to exceed $25 billion. The Commission considers that the accountability for this level of funding is too great a responsibility for an independent board. It considers that the governance arrangements for the NDIS need to be strengthened.

This can be achieved by making the National Disability Insurance Agency a prescribed statutory agency under the Financial Management and Accountability Act 1997. It would be a standalone agency with a Chief Executive Officer reporting directly to the Commonwealth Minister.

Under this arrangement, the existing Board and Advisory Council could be consolidated to become a single advisory committee.

The Commission’s suggested changes to the governance arrangements would have no impact on eligibility for the scheme or the proposed financial contributions of the Commonwealth and the States. The COAG Ministerial Council would be retained, recognising the significant financial contribution being made by the States to the NDIS.

The proposed changes would however, bring a clearer focus on the responsibilities of the Minister and the National Disability Insurance Agency, 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.

Disability service systems in different States vary significantly in their capacity, their structure (particularly in regard to the level of involvement and maturity of not-for-profit providers) and their relationship with clients (with some States well advanced towards the individualised choice and control model that is intended to be the hallmark of the NDIS). The National Disability Insurance Agency will need to take these differences into account when implementing the scheme across Australia.

One of the advantages of having a range of service delivery options is the ability to identify best practice which could be applied in other jurisdictions.

The Commission notes that the National Disability Insurance Agency is currently recruiting staff in a range of different areas. During this phase, the Agency should seek to contract out functions, where possible, to the informal sector and other organisations already working in disability services. Such an approach would also allow it to leverage the experience of existing State disability services, where these are currently being provided in an efficient and effective manner.

Aside from the potential to realise cost savings through such a contracting arrangement, it is a good way of better integrating the informal care sector into the NDIS arrangements. The Commission is aware that such approaches have already been used in NDIS launch sites.

The outsourcing of the National Disability Insurance Agency assessment function may create risks relating to the financial sustainability of the NDIS or conflicts of interest for organisations which undertake assessment and also provide services to NDIS participants. Further analysis of this issue should be undertaken by the National Disability Insurance Agency to determine if these risks can be properly mitigated and managed in an outsourced arrangement, bearing in mind that experience with other government contracting arrangements has shown that they can be mitigated by good contract design and management.

The Commission notes that the National Injury Insurance Scheme is currently being implemented as agreed between the Commonwealth and States. This will provide no-fault insurance coverage for all victims of catastrophic injury resulting from motor vehicle, workplace, medical and other accidents. The National Injury Insurance Scheme will be funded by additional premiums on top of relevant insurance policies.

Moreover, the National Injury Insurance Scheme seeks to standardise arrangements across all States. Its implementation is a critical part of the NDIS scheme design, as it helps to constrain the costs of the NDIS (otherwise, victims of these accidents would be covered by the NDIS).

There is a risk that any slippage or non-compliance with the agreement to implement the National Injury Insurance Scheme will shift costs to the NDIS. The Commission suggests that the Commonwealth continue to work with the States to deliver the National Injury Insurance Scheme in full and consistent with the agreed timetable.

Recommendation 16: The National Disability Insurance Scheme

The National Disability Insurance Scheme is a worthy scheme with widespread community support. The Commission recommends the Commonwealth continue to support the introduction of the National Disability Insurance Scheme, but that the scheme be implemented in a way which is fiscally sustainable by:

  1. pursuing a slower phasing in of the scheme recognising that this will require the re negotiation of bilateral agreements with the States;
  2. amending governance arrangements to make the National Disability Insurance Agency a prescribed agency under the Financial Management and Accountability Act 1997, with the Chief Executive Officer directly accountable to the Minister;
  3. exercising budget control to ensure long-term financial viability;
  4. implementing contracting arrangements with the informal (not-for-profit) sector or other disability services bodies, including those operating in existing State schemes, to ensure contestability in the delivery of services to people with disabilities; and
  5. simplifying reporting arrangements to ensure transparency in the cost and efficiency of the delivery of disability services between the States.