The Way Forward – A New Disability Policy Framework For Australia
Appendix C: Executive Summary of the PwC Report on a National Disability Insurance Scheme
The case for change
Care and support and related services in Australia for people with disabilities are currently provided predominantly by a combination of an insurance system which provides fully-funded lifetime care benefits for eligible claimants, and a social welfare system comprising a wide range of Commonwealth and State/Territory-based programs.
Both systems are in urgent need of reform.
In the case of the insurance system, which predominantly covers a range of injuries, the most significant of which are traumatic spinal cord injury and brain injury, there are wide differences in coverage and entitlement across jurisdictions and across cause of injury. Moreover, because much of this insurance is paid in lump sum form, beneficiaries typically double dip into the wider disability welfare system when their available reserves are extinguished.
In the case of the disability welfare system, Australian governments commit a very large quantum of revenue—approximately $20 billion per annum in total, of which about $8 billion is on community care and support. In addition, nearly $3 billion is paid to family and other informal carers. The bulk of the remainder (about $9 billion) is paid in income support for about 700,000 Australians with a work incapacity.
In spite of this significant budget, there is a large and expanding unmet need for care and support, and also a large volume of unpaid care and support provided by family and other informal carers—an estimated 2.5 million people providing nearly 650,000 full-time equivalent carer positions (implying a replacement value of $35 billion to $40 billion per annum).
Further, beyond the recognised disability welfare system, people with disability consume a disproportionate amount of services of other types:
- of Australia’s $100 billion annual health expenditure, an increasing amount (projected to reach 80 per cent by 2020) is spent on people with a chronic or complex disease—people most likely to also have a disability; and
- people with a mental health condition and/or a previous acquired brain injury represent a high proportion of Australia’s 25,000 prison population (which costs approximately $2 billion per annum) and also Australia’s homeless population (which costs at least $150 million per annum).
The ageing population is applying significant pressure to this balance of care and support provision, a pressure which will continue for many years. The main foci of this pressure are found in the following areas:
- a primary focus because of the strong correlation between age and disability—over the next 40 years there will be a steady increase in the number of people with severe and profound disability (projected to rise from 1.4 million to 2.9 million) and an increase in the proportion of the population with severe and profound disability (from 6.7 per cent to 10.2 per cent);
- a secondary focus because of the ageing of the informal carer population; hence their inability to continue in their caring roles. This dynamic is magnified because of the gearing impact of informal care—for example, because non-paid care provides far more support than formal paid care, a 10 per cent reduction in the provision of informal service provision translates to a far higher percentage increase in the need for funded services to achieve the same overall level of support;
- an escalation in the likelihood of diminishing informal care because of reducing core family size and increased female workforce participation (these are currently the predominant sources of informal care);
- further pressure on informal carers due to the poor financial and mental and physical health-status outcomes associated with this role; and
- an expectation that the ‘baby boom’ generation will be far more assertive of their right to a life with dignity, including a reasonable and planned structure of formal care provision, compared to the provisions of the current model, which is one driven by informal care until there is a need for crisis intervention and management.
It is therefore inevitable that major escalation of the formal cost of the disability system will emerge over the coming decades, probably at a level of between 5 per cent and 10 per cent per annum in real terms, depending on the speed of deterioration in the informal sector and the expectations of the baby boom generation of people with disability. There is a strong social, political and economic argument that the required funding increases to meet this cost should occur in a planned and structured manner, one which may mitigate or defer at least part of this increasing need by achieving better outcomes through need management (including prevention) and service efficiency.
An insurance solution
As discussed in the Australia 2020 Summit, there is a view that the most appropriate way to satisfy the requirements of planning, efficiency and positive outcome realisation is through a social insurance type approach.
An increasing number of European economies (where the ageing population has bitten earlier and more severely) have been moving to this approach over the past decade or two, predominantly to formalise the revenue requirements of the welfare system.
In Australia and New Zealand, however, the best indicators of potential success of this approach are available through the funded (partially or fully) accident compensation schemes (workers’ and motor accident compensation in particular).
The majority of these schemes have been and continue to be reformed over the past twenty years. Characteristics of the reform with respect to care and support of people with major injuries typically include:
- elimination or severe restriction in the availability of litigation as a pathway to compensation—and replacement with readier admission of eligibility on a “no fault” or “provisional liability” basis;
- replacement of inappropriate mechanisms of assessing monetary entitlement with mechanisms based on functional need, attached to a personal plan and expectation of mutual obligation and personal outcomes; and
- far more sophisticated governance models, which increasingly consider both financial and service utilisation (prudential governance) but also rehabilitation, health, return to work and other social outcomes of beneficiaries.
It is proposed that a model that is developed from elements of schemes such as these could be applied to the system of care and support for people with disability, and could be implemented in a coordinated way as follows:
- work towards developing a National Disability Insurance Scheme (NDIS) over a period of feasibility testing, which would include concept development, detailed analysis, stakeholder communication and structure and governance development; and
- as part of this initiative, seek collaboration between the Commonwealth, States and Territories to work towards a comprehensive and national approach to providing care and support for people who sustain catastrophic traumatic injury. Such an approach would encourage modification of existing statutes of worker compensation, motor accident compensation, civil (public) liability (extended to general injury) and medical indemnity (extended to treatment injury).
The feasibility, costing, funding options and governance of a NDIS are the primary focus of this report. This analysis extends previous work begun in 2005 with a report to the Insurance Ministers’ Council1 and re-engagement by the current Commonwealth Government.
International comparisons
In considering the potential of the insurance model, we have referred to three relevant examples of social insurance schemes in other countries (Germany, Singapore and New Zealand) and where possible discussed them in the context of the Australian setting.
These three schemes provide examples and precedents for the model proposed in this paper.
The German scheme provides an example of a clear recognition of the cost burden of an ageing population, and an attempt to fund and manage this burden within an insurance type context.
The Singaporean scheme provides one approach to dealing with a comprehensive funded model underpinning social security, retirement savings and health care.
A particularly relevant feature of the NZ ACC scheme is the fact that over recent years, the scheme has faced severe pressure from cost and liability escalation in their serious injury cohort. This has necessitated the reviewing of the serious injury governance and service delivery model to one which is far more focussed on outcomes and evidence-based.
Structure and governance
A crucial aspect of a successful and efficient welfare system is a robust structure and governance model.
There are multiple problems with the current disability system, including:
- lack of central planning, historically-based funding models, and little opportunity for acknowledgement of community need;
- as a result, significant and unsustainable unmet and under-met need;
- lack of a clear definition on entitlements and eligibility for services, including links to other government services;
- many agencies involved (across both Commonwealth and State);
- little useful information to allow a planned and coordinated approach;
- even if information were available, no mechanism for reporting it or making the system accountable; and
- accordingly, poor monitoring of service providers with respect to both service delivery and outcomes.
It is argued that a properly funded NDIS model can assist across this range of problems by:
- applying an initial discipline of needs analysis at an aggregate level to estimate the funding required to equitably provide services to those most in need;
- introducing a regulatory process for achieving an agreed approach to assessing eligibility and entitlement within a model which recognises individual potential and planning for people with a disability;
- establishing clear protocols for links with associated government services;
- establishing clear guidelines and expectations of service providers, including requirements of reporting and accountability;
- establishing a comprehensive longitudinal unit-record database which allows monitoring of expenditure, service provision and outcomes of scheme beneficiaries;
- operating under a formal and independent governance model comprising a prudential board and an advisory council of stakeholders;
- sponsoring applied research to achieve innovation and best practice in service provision; and
- sponsoring required industry initiatives to ensure sustainability in the system (for example, at present in the need for a workforce strategy).
Coverage and Cost of an Insurance Solution
Coverage
At present the Australian disability system operates within a planning framework which could be significantly enhanced through greater investment in a concentrated plan for data management and reporting. Any attempt at detailed analysis of need or supply of disability services requires a range of triangulations of incomplete datasets, none of which were specifically designed for this purpose.
After consideration of the emerging data and an iterative discussion process with the Disability Investment Group (DIG), it has emerged that the target group for a NDIS should be people who need help always or frequently as a result of their disability, as determined by a set of consistent eligibility criteria to be developed. For the purposes of estimating this population in the current report, this population has been based on those with a severe or profound core activity limitation (as defined by ABS), with age at onset up to age 65. A NDIS should cover care and support and related services on a needs basis for this population, for life, with the exception of people who would become eligible for residential aged care by reason of functional deterioration due to ageing.
The 2009 prevalence (including one year of new incidence) of this population is about 600,000, with condition groupings as follows:
- congenital anomalies and intellectual disability (82,000);
- nervous system disorders (41,000);
- injury (15,000);
- mental illness (206,000);
- sensory conditions (12,000); and
- physical conditions (223,000).
Further discussion will be required concerning the extent to which all of these conditions (particularly some of the physical conditions where the care required is very illness-related) are appropriately funded by a disability insurance system rather than the formal health system, or alternatively may be entitled to offsets from that system. The use of detailed Burden of Disease data in this report allows relatively straightforward testing of options.
Considered by severity of support need, the distribution includes:
- constant support need (40,000);
- frequent support needs (104,000);
- regular support needs (32,000);
- Grade B lower support need (86,000); and
- Grade C lower support need (316,000).
Over the long-term projection period considered in this report, the total prevalence of the covered population significantly increases, due mainly to the emerging incidence of people whose disability manifests after the inception of the scheme.
Gross cost
A range of assumptions around service models and triangulations of data sources was used in developing the estimated gross costing of the scheme.
The assumed service model for a NDIS assumes a recognition of, and support for, current unmet and under-met need, and probable unsustainable burden on carers. At the same time, it acknowledges the need to achieve a balance between formal paid care and an infrastructure of informal care and community-based care (including workplace) options. Based on this service model, and assuming a target group aged less than 65 at onset of disability.2
- The ultimate annual cost of care and support was estimated at $9.5 billion. These annual costs include all people aged less than 65 with pre-existing disability.
- The annual cost of equipment, aids and appliances was estimated at $129 million.
- The annual cost of transport was estimated at $90 million.
- The annual cost of home modifications was estimated at $159 million.
- The following items of care and support were assumed to be met by other
funding sources, and hence were not included in the costing of a NDIS.
However, to the extent that demands on these services may be mitigated
by a NDIS, it is argued that total government costs associated with a
NDIS may be less than is directly apparent.
- The annual cost of income support was assumed to be currently met by the Disability Support Pension (for people with disability) and by the Carers’ Payment and Carers’ Allowance (for carers of people with disability).
- The annual cost of homelessness (specifically the cost of housing) was also considered to be met through other government funding (primarily the SAAP scheme).
- The annual cost of hospital, medical, dental and pharmaceuticals used by people with a disability was assumed to be met by the health system (Medicare and other public and private funding arrangements).
- The annual cost of residential aged care was assumed to be met by the programs designed for this purpose.
- An administration fee of 10 per cent was included in the cost of a NDIS, giving a total ultimate gross annual pay-as-you-go cost of $10.8 billion.
For catastrophic injury, the service model assumed continues the current indemnity-based and fully-funded approaches of Australian accident compensation schemes. Based on this model, the estimated gross annual fully-funded cost of lifetime care and support as a result of injury is $1.4 billion on a prospective basis (that is, new injuries only). Existing and potential offsets are estimated at $850 million.
Net cost and recommended funding option
Direct offsets to the NDIS gross annual payments are available through the National Disability Agreement (formerly CSTDA) and HACC programs, accident compensation schemes, community mental health programs, and a variety of aids and appliances and transport subsidy schemes. The estimated total annual direct offsets in current nominal values amount to $5.6 billion.
Further indirect and future offsets have not been included in the nominal costing of the scheme, but there is a very strong argument that a NDIS would prove net-cost beneficial over a reasonably short time horizon (perhaps 10 years after introduction).
A range of funding options was considered for a NDIS. Compared to the existing pay-as-you-go system of welfare programs, it was seen as desirable to introduce some of the discipline and longer-term stability of the funded compensation systems. At the same time, it was seen as important to include people with pre-existing disability (that is, not just new incidences of disability). On costing, the resulting Scheme (of new incidences of disability and pre-existing disability) on a fully-funded basis was seen to be both beyond an affordable level of acceptability at the present time (as discussed with the DIG), and also probably not necessary to achieve the objectives of the Scheme.
Accordingly, the preferred funding option is one which assumes:
- a coordinated service model providing care and support including respite, accommodation support, aids and equipment, transport assistance, and a range of community and day programs;
- a cost model commitment based on the notion of “reasonable need” for services, as derived above;
- 30 per cent funding of new incidence from scheme commencement and future years for under 65 year olds who sustain a new disability, and ongoing annual pay-as-you-go funding of under 65 year olds with an existing disability from scheme commencement. 100 per cent fully-funding new incidence is costly in cash flow terms; hence, the 30 per cent funding of new incidence was considered an appropriate level of pre-funding as several years of cash flows are set aside upfront to allow for adequate life planning; and
- benefits for these eligible people to be available for life.
This option is considered to provide the following advantages and benefits:
- it recognises the current unmet and under-met need for care and support and unsustainable burden on carers, while at the same time keeping the system viable and engaging in a partnership between funded support, informal support, and community based activity and infrastructure;
- it achieves equity between people with existing severe or profound disability, and those who acquire them in the future;
- it recognises the limits of a disability system in seeking to offer a suite of programs and support for people whose disability emerges before age 65, with the aged care system retaining responsibility for those who acquire a disability after age 65; and
- it captures the benefits of the prudential insurance model of accountability, funding stability and transparency, while at the same time being affordable and achieving the other benefits.
Including administration expenses, this approach would require annual gross funding beginning at $12.5 billion if begun in 2009 (existing prevalence funded annually and new incidence partially (30 per cent) funded).
Further indirect offsets will emerge in the following areas from an effective NDIS:
- anticipation of the inevitable escalation in disability and care and support costs, so that the true net cost of a NDIS is projected to be about $2 billion per annum;
- future savings of $2 billion per annum in income support payments;
- significant (50 per cent over time) easing in the massive increasing burden in aged care;
- major contribution to the community management of chronic and complex diseases, supporting the increasing cost of the health system; and
- providing better options and reducing costs (illustratively by $200 million per annum) for prisons and psychiatric hospitals.
Therefore in considering a funding model for implementation of the Scheme, the following considerations are relevant.
- Current disability system expenditure represents about 1 per cent of taxable income, and already has a major workforce shortage. Pumping a more than 100 per cent increase into the system would achieve little short term in creating a workforce, but would almost certainly be inflationary in the cost of support. Even with the injection of funding recommended below, a strong workforce strategy will be required.
- The nature of disability services, and particularly the expectation (or lack thereof) of available services will take some time to re-engineer into a cooperative management system focussing on outcomes, with an active eligibility function. In other words, take-up and implementation of the new system will be slow and the ultimate level of take-up is very uncertain.
- Moreover, it is likely that a significant proportion of the conditions included in the NDIS costing will be found to be more appropriately managed under a health/medical paradigm, which will further reduce the ultimate cost. Views on the exact implications of this sensitivity differ widely, and hence some simple testing of options is presented in this report.
- Even in the absence of direct transfer of cost responsibility from a NDIS to other responsible agencies, the implementation of a NDIS is expected to generate significant efficiency benefits for a range of government programs.
- Consequently, the actual utilisation and ultimate cost of a NDIS is somewhat speculative, and will certainly be different from the “need” projections in this report. Only time will tell how the dynamics of the system will emerge, but evidence from innovative systems in both accident compensation (for example, Lifetime Care and Support) and the health system (for example, the Enhanced Primary Care packages) demonstrate slow initial take-up.
Considering these arguments, the current level of unmet need, and the assessment in this report that the current system will need to increase annually by 5 per cent to 10 per cent in real terms simply to maintain its current “crisis management”, it is suggested that annual disability funding be increased within a NDIS model by 30 per cent initially in real terms (in two tranches of 15 per cent), then incrementally by up to 10 per cent per annum in real terms while the NDIS is developed, workforce is recruited, and system dynamics emerge. Reassessment should take place annually to report on the emerging dynamics, trends, assets and liabilities of the system.
Table 1 provides an illustrative implementation projection based on this recommendation. It would require an initial additional funding requirement for a NDIS of $0.97 billion in the projected start year of 2011 (to $7.44 billion in total), and $2.04 billion in 2012, with gross funding increasing by up to 10 per cent per annum in real terms until the projected ultimate gross target is attained – say in 2020 at $14.59 billion. This ultimate target requires an additional $4.56 billion per annum over projected disability funding growth to 2020 including $2.28 billion in pre-funding for insurance reserves.
| Current programs ($b) |
NDIS | NDIS Net cost components (e) |
Growth funding needed ($b) | |||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Year | Total (a) |
Under 65 (b) |
Target group (c) |
Net annual cost (d) |
Net annual cost (d) |
Enhanced services (e) |
New incidence funding (e) |
Current (f) |
NDIS (f) |
Extra growth (f) |
| 2008 | 7.95 | 5.59 | $b | $b | % taxable income | |||||
| 2009 | 8.35 | 5.87 | ||||||||
| 2010 | 8.76 | 6.16 | ||||||||
| 2011 | 9.20 | 6.47 | 7.44 | 0.97 | 0.17% | 0.97 | 0.31 | 1.28 | 0.97 | |
| 2012 | 9.66 | 6.79 | 8.83 | 2.04 | 0.35% | 2.04 | 0.32 | 1.39 | 1.07 | |
| 2013 | 10.15 | 7.13 | 9.55 | 2.42 | 0.41% | 2.14 | 0.28 | 0.34 | 0.72 | 0.38 |
| 2014 | 10.65 | 7.49 | 10.27 | 2.78 | 0.47% | 2.25 | 0.54 | 0.36 | 0.72 | 0.36 |
| 2015 | 11.19 | 7.87 | 10.99 | 3.13 | 0.53% | 2.36 | 0.77 | 0.37 | 0.72 | 0.35 |
| 2016 | 11.75 | 8.26 | 11.71 | 3.45 | 0.58% | 2.42 | 1.04 | 0.39 | 0.72 | 0.33 |
| 2017 | 12.33 | 8.67 | 12.43 | 3.76 | 0.63% | 2.37 | 1.39 | 0.41 | 0.72 | 0.31 |
| 2018 | 12.95 | 9.11 | 13.15 | 4.05 | 0.68% | 2.23 | 1.82 | 0.43 | 0.72 | 0.29 |
| 2019 | 13.60 | 9.56 | 13.87 | 4.31 | 0.72% | 2.16 | 2.16 | 0.46 | 0.72 | 0.26 |
| 2020 | 14.28 | 10.04 | 14.59 | 4.56 | 0.75% | 2.28 | 2.28 | 0.48 | 0.72 | 0.24 |
The ultimate net additional annual cost of a NDIS in terms of enhanced service cost would therefore be approximately $2 billion to $2.5 billion (about 0.4 per cent of taxable income, or 0.2 per cent of GDP), with an additional $2 billion to $2.5 billion being set aside as reserves.
There is a strong argument that this net cost will be more than offset over time by the indirect cost savings presented above.
Implementation
The range of issues to be considered in fulfilling the possibilities of this report is extremely wide, and it is beyond the scope of the present report to fully develop an implementation plan. However, it is proposed that implementation needs to be addressed within the five main “issue areas” of:
- Commitment – Stakeholder Consultation and Management
- Clearly the threshold implementation requirement for a major change such as a NDIS is a commitment from government at all levels that the proposal represents a strong piece of economic and social policy reform—indeed a necessary piece of reform. This commitment was indicated in a preliminary stage at the Australia 2020 Summit, and it is hoped that the present report is able to inform the future debate in a more concrete fashion.
- Once central government is committed to the process a major engagement process will be required to involve and both educate and learn from a wide range of stakeholders—to educate and communicate the concept and potential of the vision, and to learn about the many operational and real life situations which will need to be accommodated.
- Governance – Building the Infrastructure
Outside of the political and stakeholder management issue, there will be an important process of envisaging and implementing what the new system would look like—policy, bureaucracy, fund-holding, IT and administration, accountability, reporting and best practice research.
Some structural options are proposed in the report, that concern a central conceptual vision with a core of positive outcomes for people with disability.
Within the wider governance debate, subsidiary issues will require resolution around the three operational streams of insurance, scheme coverage and entry points, and service delivery.
- Insurance – Insurance Management
Due to the nature of available data, there is considerable uncertainty in this report. Leading up to scheme start-up, the numbers will need to be tested and revisited from all angles and involving collaboration with government and the emerging governance and infrastructure model. Ideally, an evaluation would start to capitalise on what data already exists to begin the process of longitudinal management of information.
Similarly, the whole process of levy implementation, notification and collection will require a major collaborative engagement with other government agencies, as will the processes of funding, investments, disbursements and payment options and their links with a centralised IT system.
Finally, the processes around prudential and outcome governance within an insurance framework will need to be designed and built into a risk management and reporting system.
- Coverage and Eligibility – Assessment/Review
Parallel with developing a vision of a system and its funding and reporting flows, the implementation plan must build a process of identifying, assessing and accepting where appropriate entrants to the system. It must also be able to conduct an assessment of reasonable needs and build a support and case management plan on an individual basis, and implement service delivery.
To a large extent, similar pieces of work have commenced in individual jurisdictions, but in a disjointed and inconsistent manner. It will be a major implementation requirement—but also a challenge—to reach agreement on a way forward.
- Service (Care and Support) Delivery – Care and Support Management
Finally, at the core of the development of the care and support delivery framework will be the extremely problematical implementation requirement of how to build a workforce and/or alternative capacity to accommodate the burgeoning support needs.
This supply issue, and how the field staff and service providers interact with the insurance and administrative infrastructure, will be critical in achieving the desired outcomes of the proposal.
With respect to the activation of this implementation plan, our understanding is that the DIG may recommend a detailed and immediate feasibility study around a NDIS.
Figure 1 presents a schematic view of what such a study might consider, bringing out the ideas and themes expressed in this section.
Figure 1 NDIS Feasibility Study
Governance Structure & Prudential Management
Governance options (consider a range of options and their advantages, including international and Australian examples)
Cost modelling (develop a detailed demand and utilisation model, extending the work of DIG and conducting a need/gap analysis)
Revenue modelling (consider a range of options for revenue, including projections linked to economic/demographic forecasts)
Data requirements (develop data requirements across the spectrum of streams and feeding back to utilisation, outcomes and governance)
Investment management (investigate investment management options, including links to the Future Fund/Superannuation models)
Insurance concepts (explore advantages of the insurance model of risk sharing, liability management & prudential oversight/feedback)
Stakeholder Engagement & Consultation
Develop a strategy for stakeholder engagement (aimed at concept explanation, pros & cons, engagement and participation)
Commonwealth (Central agencies [PM&C, Treasury], Human Service agencies [FaHCSIA, Health, DEEWR], and other related agencies)
States and Territories (equivalent agencies to the Commonwealth, plus accident compensation, civil liability and health care liability bodies)
Service providers (peak bodies and agencies engaged in service delivery of all types, including academic partners and researchers)
Carers (peak bodies and carers representing the needs and interests of providers of unpaid care to people with a disability)
People with a disability (peak advocacy bodies and individuals, whose needs and potential are at the centre of the support framework)
Assessment & Review Requirements
Need type definitions (establish the types and quantum of care and/or support requiring coverage and support by the scheme)
Expert panel engagement (assemble the recognised experts on linking need and demand to measurable constructs and instruments)
Functional assessment (explore suitable classifications and instruments for establishing (a) eligibility and (b) level of need for care and support)
Need and assessment management (explore operational issues related to assessment timing and frequency and utilisation monitoring/feedback)
Appeals and review mechanisms (explore issues around the nature of review and appeals, including the structures in similar schemes)
Sensitivity testing (link different eligibility and entitlement options, with service caps and options, to cost and liability modelling)
Care & Support Management
Network development options (consider the required service provision network and infrastructure vs existing State structure)
Care & support requirements (consider the types and range of services required, considering the need and demand expectations)
Service provider engagement (consider how service providers can be engaged and/or developed, and requirements of them)
Individual planning & monitoring (consider how individual client potential might be realised through personal planning, application and outcome monitoring)
Case management (investigate insurance-type models of case management, care coordination and individual plan monitoring)
Workforce development (determine workforce needs to deliver expected demand, and investigate options to generate this workforce)
- PricewaterhouseCoopers, 2005. Long Term Care: Actuarial Analysis on Long Term Care for the Catastrophically Injured
- More comprehensive costings, including if all ages at onset are covered including aged care, are included in the full report.
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