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The Way Forward – A New Disability Policy Framework For Australia

Part 3: Establishing a New National Disability Insurance Scheme

Recommendation 1

DIG recommends that the Commonwealth Government, in consultation with States and Territories, immediately commissions a comprehensive feasibility study into a National Disability Insurance Scheme.

The scheme would:

  • be designed to meet existing, unmet and future needs of people with severe or profound disability for life, where disability is acquired before age 65;
  • replace and enhance existing arrangements for funding and providing disability services;
  • be based on a social insurance model and fund a basic level of personal care and support for life;
  • be administered by a new statutory authority with a robust prudential governance structure;
  • be funded from general revenue or a Medicare-like levy, in recognition of the shared public risk of disability; and
  • have a staged implementation over 7 to 10 years to allow the development of new infrastructure and workforce.

The feasibility study should also consider:

  • how State and Territory accident insurance schemes should interact with the proposed national scheme and move to providing nationally-consistent, no-fault insurance for traumatically injured Australians; and
  • the potential to enhance additional private provision for people with disability through further consideration of measures such as:
    • reformed Special Disability Trusts;
    • models of private and social investment in housing for people with disability such as the Hope Australia Urban Village and Forester’s Community Finance;
    • removal of taxes on essential goods and services required by people with disability, their families and carers; and
    • introduction of a Disability Support Tax Rebate to recognise the work-related costs of people with disability and carers.

The DIG also recommends that any work commissioned on the feasibility of Medicare Select should align with work on the feasibility study of a NDIS.

Proposed Terms of Reference for a feasibility study are at Appendix B.

Key DIG findings

Australian governments commit approximately $20 billion per annum in total to the disability welfare system, of which about $8 billion is on payments to community care and support providers. 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 through the DSP.15

Eligibility, assessment and access to disability services vary across States, Territories and regions, and across individual services. Capacity constraints can mean long waiting lists and variable costs for families. As well, valuable resources are wasted on managing demand and rationing services, rather than on meeting the needs of people with disability and their families.

From an individual’s or family’s perspective services can be highly uncertain, fragmented and disconnected. Many families say that ‘it is like finding a way through a maze’.16

A comprehensive system to support people with disability has to provide individualised lifetime care and support. The DIG recommends a new social insurance approach. A NDIS would differ from a welfare safety net approach in the way it meets the needs of claimants across the life course, prices and generates the funds for the scheme, and in its management and governance.

Addressing current policy shortcomings

Historically in Australia, governments have allocated a share of consolidated revenue for people with disability as a partial response to expressed demand. Access to the disability services under the National Disability Agreement17 or the Home and Community Care program is not an entitlement. Because funds are capped and allocated through particular programs in particular areas, services are rationed. Government funding supports a range of community-based services on the basis that people with disability will find them and that the services will be able to go some way to meeting their needs.

However, despite significant growth in funding by all levels of government in recent years, there remains considerable unmet need for services which is largely met by families and informal carers—that is, until a crisis such as the death or illness of a carer.

Alternatively people with disability simply go without services, aids and equipment or other assistance that would improve the quality and productivity of their lives. In many cases the lack of essential services and equipment leads to increased disability, increased dependence and increased long-term costs.

One of the messages that emerged from the DIG consultations was that families perceived that the shortfall in funding meant that State and Territory Governments focus on providing disability services for people with complex needs and challenging behaviours, and that individuals with less severe, though often still serious disability, have to wait longer for support.

While some States and Territories have trialled individualised care and service packages, the current disability services system does not have the client at its centre and, at best, services are based on the point-in-time needs of their clients.

Current services are generally not well placed to invest in early interventions that could improve personal outcomes and lower future liabilities. There is little opportunity for planning over the life course with individuals and their families to help prepare for key transitions and risks before they happen. At a systemic level, there is simply not the robust data or monitoring capacity across the current fragmented system to enable effective integrated planning and continuous re-evaluation of outcomes.

National Disability Agreement

The Australian governments have recognised some of these shortcomings. In July 2008, Community and Disability Services Ministers acknowledged that ‘people with disability, their families and carers are often faced with a fragmented service system lacking in early intervention and often driven by crisis’.18

The current approach to improving disability services has been to increase funding under the National Disability Agreement and to gain commitment from States and Territories to improve the existing system.

The Commonwealth is providing approximately $5 billion in funding over five years to the States and Territories to provide for more services and to achieve reform of the disability service system over the life of the new Agreement. Under the new Agreement announced at the Council of Australian Governments in November 2008, States and Territories have committed to build ‘end to end disability services systems within each state’.19 The key elements of the reform of the disability service system are:

The DIG’s view is that these are important initiatives moving in the right direction but on their own will not deliver the individual and life focus that is required to enable people with disability and their families to maximise their potential.

Level of unmet need

Because of limited reliable data, it is very difficult to determine the level of current unmet need for services for people with disability. A 2005 Australian Institute of Health and Welfare analysis20 of Commonwealth State Territory Disability Agreement funded services, showed a high level of unmet need. Noting that its estimate of community access to services was conservative, the analysis found:

Since then, unmet demand for specialist disability services has risen, with recent trends indicating a 7.5 per cent growth each year in real terms. Government spending on disability services has not kept pace with this.

In work undertaken for the NSW Government in 2004, PricewaterhouseCoopers (PwC) analysed potential unmet need by considering the proportion of care needed over time if current service levels remain the same. PwC grouped people with severe and profound disability into relative support needs and estimated the difference between hours needed and hours provided.

PwC estimated that unmet need for people requiring constant support would grow from 1 per cent of what they require in 2004 to 49 per cent by 2031. For those requiring regular support, unmet need will grow from 25 per cent in 2004 to a projected 48 per cent in 2031; and for those requiring lower support, unmet need will grow from 77 per cent in 2004 to a projected 90 per cent by 2031.

Without sufficient formal care and support, people with disability will continue to rely heavily on their families, and the current system will continue to even more tightly ration resources specifically to those in or on the verge of crisis. This will lead to increasing ‘burn out’ of carers and families with higher ultimate costs for governments. Many carers are too exhausted to work in paid employment or will themselves become disabled.

Incentives to invest

The proposed NDIS would create a compelling incentive to invest in individual capacity. For the first time, the scheme would establish a direct relationship between improved capacity and moderating future costs.

Timely interventions and treatments, appropriate aids and equipment, and training and development that improve functioning become sensible investments rather than welfare handouts. The scheme would lead to more positive results for a person’s wellbeing as well as being fiscally responsible.

A NDIS could also be structured to create incentives for families to invest or co-invest in services and support and thereby further contribute to lower long-term costs to government.

Basis for the proposed model

PwC worked with the DIG to consider the costs, benefits and governance of a National Disability Insurance Scheme. The Executive Summary of the PwC Report is at Appendix C.

This work assisted the DIG to develop the model that is now recommended to the Australian Government as a starting point of what should be a more detailed feasibility study. Clearly there is a wide range of issues and variables to be considered in the design of such a scheme. For the purposes of this exercise the DIG assumed a number of parameters to test the implications of a new insurance approach.

There will be different views about the elements of the proposed model and therefore these should be considered in more detail in the proposed next phase—the feasibility study. However, the DIG believes that the social insurance approach reflected in its recommended model offers a practical and sustainable option for dramatically reforming the system of care and support for people with disability in Australia. Adopting this approach would signal a commitment to meeting the essential needs of people with disability.

The Australian Government Actuary (AGA) was asked to assess the reasonableness of the approach taken by PwC to cost the scheme. In summary, the AGA concluded that he was satisfied that PwC’s costings are consistent with their underlying population estimates and projections, the observed aggregate severity distributions and the assumed dollar cost distributions. The AGA noted the sensitivity of the population estimates to the assumptions around eligibility and exit rates from the scheme and consequently, the actual population could differ significantly from the PwC estimates. This would flow through to the costs of the NDIS. Nonetheless he concluded that the approach taken by PwC was reasonable in the circumstances.

The proposed NDIS would provide clients with an individualised and lifetime approach to care and support. The scheme would treat people equally on the basis of need, not on the basis of the cause of the disability, the State and Territory in which they live, or what services happen to be available. The scheme would work in a way similar to the no-fault injury insurance schemes that currently operate in some States and Territories.

Scheme coverage

The scheme would cover people with a severe or profound disability (that is, people who always or sometimes need help with a core activity or task) with onset before 65 years of age. It would cover care and support and related services on a needs basis for this population, for life.

The 2009 prevalence (including one year of new incidence) of this population is about 600,000, with condition groupings as follows:

Further work is needed to consider 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 through a disability insurance system rather than through the health system. The physical group is largely made up of people with care needs stemming from cancer, musculoskeletal diseases, diabetes and stroke. The DIG has included these conditions in the proposed model, however, if this group was excluded the scope and cost of the scheme would be significantly reduced.

Similarly the age cut-off for entry into the scheme could be considered in this context. On balance, the DIG takes the view that people who acquire disability over the age of 65 years are better treated in the aged care and health systems.

Considered by severity of support need, the distribution of the population includes:


New National Disability Insurance Scheme

Coverage

  • People with severe and profound disability, acquired before the age of 65 years, would be eligible for life.
  • The scheme would cover the existing eligible population at start-up as well as new incidence.
  • An entry assessment tool would be developed based on functional requirement rather than cause of impairment or medical diagnosis, replacing the multitude of existing assessment instruments.
  • Coordinated services would provide care and support including respite, accommodation support, aids, equipment, transport and a range of community and day programs.
  • Income support, housing and employment services would remain separately funded from the scheme, but should be integrated to provide support and opportunities for people with disability as part of a holistic approach.

Income support for people with disability is provided through the DSP. While the DSP has recently been reviewed as part of the Pension Review and, like other income support entitlements, is funded from general revenues, it may be preferable to explicitly include contingencies for future income support for people with disability within the scheme.

This approach would strengthen the incentives to invest in people with disability to fulfil their potential to participate and contribute to the community in the same way as other Australians. The implications of this approach should be considered further in the feasibility study as it could have significant long-term benefits in terms of lower costs as well as better outcomes.

A social insurance approach

A NDIS would replace the current arrangements for funding disability services and would work in a similar way to the no-fault injury insurance schemes that currently operate in some states. The scheme would operate as a social insurance scheme reflecting the shared risk of disability across the population.

Under a social insurance approach, the risk of disability and the costs of meeting lifetime needs are the starting point. The necessary funding is then actuarially estimated after considering the expected claims, expenses and the cost of capital, while also considering the desired outcomes for scheme participants across their lives.

Phased implementation over 7 to 10 years would enable the necessary growth in service infrastructure and workforce. Investment would rise incrementally over time. Funding for the scheme could come from general revenue or a Medicare-like levy.

For the first time an integrated system of funding, purchasing and delivering disability services would be available in Australia. The proposed scheme would help to address unmet and under-met need for care and support and the unsustainable reliance on carers. At the same time, the scheme would ensure a viable system and engage in partnerships between funded support, informal support and community-based activity and infrastructure.

The DIG notes that the recently released final report of the National Health and Hospitals Reform Commission (NHHRC) A Healthier Future for all Australians proposes the establishment of health and hospital plans under a scheme entitled Medicare Select.23 These plans would cover the whole of a person’s care through life. The NHHRC suggests that this would provide strong incentives to focus on prevention and better management of chronic diseases through early intervention, service integration and coordination and also drive innovation. The NHHRC notes the possibility of extending coverage to disability services.

The DIG notes that any work commissioned on the feasibility of Medicare Select should align with work on the feasibility of a NDIS.

The introduction of a core NDIS could also enable a range of innovative private investment opportunities to emerge. With a certain and reliable stream of ongoing essential care and support, individuals and families would be encouraged to make additional private provision for the future in areas such as housing, in the same way as compulsory superannuation has encouraged more private contributions to retirement savings.

Implementation

  • Phasing the implementation and investment in the scheme over 7 to 10 years would enable the necessary growth in service infrastructure and workforce. It would also recognise that many families will want to plan and transition gradually from their current informal care arrangements to more formal support structures.
  • The DIG proposes that the additional cost of the scheme be funded from general revenue or by a Medicare-type levy reflecting the shared risk of disability amongst the population.

Whole-of-life response

Under the scheme, coordinated services would provide care and support including aids, equipment, transport, respite, accommodation support, and a range of community and day programs.

People with disability and their families would have certainty and clarity about options from the point of diagnosis of a disability. Each person would be entitled to an appropriate whole-of-life suite of services that would facilitate independence and maximise potential. As in other families, this is still likely to be a mixture of formal and informal care, as individuals and families make decisions about appropriate arrangements at various stages of life.

Management, governance and risks

To be sustainable an insurance scheme must be well-governed and managed. The DIG proposes that a new statutory authority be established to govern the NDIS.

The scheme would also require disciplined monitoring and evaluation across a number of dimensions of each client’s life plan such as health outcomes, work outcomes and service use.

The proposed model faces two key risks.

Drawing on the experience of accident compensation schemes, these two opposing pressures can be harnessed through good governance to achieve a balance between available benefits and affordable levies.

Parameters

The costs of a NDIS will depend on ultimate decisions about the parameters and operation of the scheme such as coverage, level of service provided and funding arrangements (pay-as-you-go, partial or full funding), and will need to be calculated in the context of a detailed feasibility study.

To provide an indicative gross cost of the DIG model, PwC used a range of assumptions around service models and triangulations of data sources, noting that none were specifically designed for this purpose.

The assumed service model for a NDIS recognises current unmet and under-met need, and so seeks to address the current unsustainable reliance on informal carers, as well as future needs. 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.

The DIG also recognises that any new support for people with disability needs to fit into the broader economic and social security framework. As a result, the cost of housing for people with disability has not been included in the NDIS proposal. Disability is only one of many reasons why some people are poor. Therefore, where people with disability cannot access private sector finance, the NDIS proposal has been structured to fit in with government-sponsored affordable housing schemes.

Compared to the existing pay-as-you-go system of welfare programs, the DIG thought it 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).

Accordingly, the preferred coverage and funding option is one which assumes:

The estimate of care and support was based on existing and emerging models in the disability sector. On this basis, $100,000 per annum is a benchmark figure for shared 24-hour supported accommodation, $50,000 is the approximate cost of a position funded under the attendant care program, and the lower tiers of $25,000 and $10,000 purchase a variety of personal and community support packages.

An amount of $1,000 is allocated to lower level need and children but does not necessarily mean that these people will all receive one hour of support per week. Rather it would enable a significant budget ($300 to $400 million per annum) to be available to develop infrastructure, crisis and episodic support in a range of circumstances.

Costings

In the five years to 2007-08, the total cost to government of the Commonwealth State Territory Disability Agreement and the Home and Community Care program grew by an average of 4.8 per cent per annum in real terms. This growth in outlays is driven by an increase in demand for services, largely as a manifestation of unmet need and the increasing inability of informal carers to cope. Slowly but surely the unmet need is manifesting itself through creeping cost escalation in the existing system. A NDIS provides government with an avenue to take control of and steer this inevitability, while also driving increased efficiency and better outcomes for people with disability and their families.

PwC estimates that the preferred model described above would require additional funding in the first year of operation of $0.97 billion, $2.04 billion in the second year of operation and with proposed annual increases of 10 per cent to the full year additional cost of $4.56 billion over current projected expenditure to 2020. Within a generation, NDIS expenditure would stabilise below the levels expected, if the current system continues to grow at the same rate.24

There is also a range of potentially very significant offsets that would need to be taken into account in a full costing, including:

The offsets to a NDIS are likely to build over time and provide long-term sustainability for Australia’s disability support system. They are explained in more detail in the following pages.

Future offsets against the cost of a National Disability Insurance Scheme

The proposed feasibility study should examine the following likely impacts of a NDIS on government expenditure beyond the disability services system.

Income support savings: the cost of DSP, as at June 2008, was some $8.8 billion per annum, in respect of over 700,000 recipients. There are about 70,000 new DSP recipients every year (across all age groups), and very few recipients leave, other than to move onto the Aged Pension.

Of the 500,000 people of working age with a severe and profound disability, an estimated 365,000 are not in employment, and presumably receive a DSP. A more active management and support model for people with a disability (including community and workplace responsibility and ownership), such as a NDIS, would improve employment outcomes for people with disability.

Currently, only around 2 per cent of people on the DSP each year cease receiving this payment without going onto another form of government income support. This may be contrasted with workers’ compensation schemes that achieve much better rates of return to work. If the ‘recovery rates’ amongst people on the DSP could be increased to 4 per cent per annum, the projected number of people on DSP would be reduced by 140,000 in 10 years, which would be equivalent to a $1.6 billion annual saving. These recovery rates have been shown to be achievable for even the most difficult long-term claims in worker compensation.

In addition to DSP, some $2.7 billion per annum is paid in Carer Payment and Carer Allowances to people who support someone with disability. To the extent that employment outcomes are achieved for people with a disability, one could expect a proportionate saving for their carer responsibilities and improvement in their own employment prospects.

Moreover, in both of these cases, increased workforce participation would provide positive government revenue in taxation income.

Health care: it is estimated that by 2020, 80 per cent of Australia’s healthcare costs will be consumed by people with chronic and complex health conditions requiring ongoing, long-term care. These are the same people who would be clients of a NDIS. Moreover, the bulk of this expenditure is on care rather than health.25

The DIG’s model includes a number of physical conditions that may be seen to be more appropriately treated in the health system. PwC’s estimate of the costs of supporting people with these conditions when the scheme is fully operational is:

Therefore excluding these conditions or at least recognising that some of the costs are already being covered by the health system, would lead to a significant reduction (up to $2.34 billion, or 20 per cent) in the estimated gross additional cost of a NDIS.

The scheme would make a substantial contribution to mitigating the economic and social burden of disease by providing appropriate care and support for people with severe and profound disability arising from chronic and complex diseases, and promoting a more active and healthier lifestyle.

Aged care: approximately 50 per cent of Australia’s estimated 1.2 million people with a severe and profound disability are aged less than 65. Therefore, it is reasonable to assume that, in future generations, at least 50 per cent of people with a severe and profound disability aged over 65 will have incurred their disability before age 65, and will therefore become eligible for NDIS.

On this basis, a NDIS will ultimately be covering half the costs of aged care. DIG notes that some $7 billion is currently spent on community and residential aged care, or about 0.8 per cent of GDP (in 2006-07). The government’s 2007 Intergenerational Report projects this cost to move to 2.0 per cent of GDP by 2046-47. It is quite possible that 50 per cent of this burden could be funded by a NDIS at that time.

Homelessness and criminal justice: according to the Australian Bureau of Statistics there were about 105,000 homeless people on the 2006 Census night. People who have a mental illness, an intellectual or developmental disability, or a previous acquired brain injury were disproportionately represented in this group and many go through a vicious cycle of homelessness, supported accommodation, child protection system, drug and alcohol services, hospitalisation and imprisonment. People with disability and mental illness are over-represented in all these areas.

About 30,000 people consume some 45,000 episodes of supported accommodation per year in Australia and about 25,000 people currently reside in Australia’s prison system. It costs about $70,000 to $100,000 per annum to house someone in prison – giving an estimated total prison cost of $2 billion to $2.5 billion per annum.

A well constructed program of intervention can achieve dramatic savings in both the social and economic costs of this system. For example, the Housing and Accommodation Support Initiative (HASI) in NSW achieved the following outcomes among its participants (110 people with mental illness and high levels of psychiatric disability):26

The estimated recurrent cost of the HASI program was about $57,000 per participant. This is comparable to the higher support levels proposed under a NDIS, but less expensive than the costs of incarceration or an average of 89 days in a psychiatric hospital. As an illustration, a 10 per cent reduction in the cost of imprisonment and hospital-based mental health would represent about $200 million savings per annum.

It would therefore be reasonable to expect that a NDIS, with its planned and structured support for people with disability, will lead to significant savings in the hospital, judicial, homelessness and other social support systems.

Consistent insurance schemes

A NDIS should complement nationally consistent state/territory-based insurance schemes covering motor accident, workers’ compensation, public liability (general injuries) and treatment injury.

A number of state/territory-based insurance schemes currently cover a range of injuries (most significantly traumatic spinal cord injury and brain injury) with wide differences in coverage and entitlement across jurisdictions and across cause of injury. About half the people traumatically injured at work, in traffic accidents, through medical incidents or in other specified ways (including sporting injury and assault), receive lifetime care and financial support through compensation schemes or through the litigation system. This is not available to people born with disability or acquired in other ways.

Most of this injury insurance is paid in lump sums, and beneficiaries may also need to access the wider disability welfare system when their available reserves run out.

To ensure a comprehensive and equitable national approach, the various insurance schemes that provide lifetime care and support for traumatically injured Australians should extend to become no-fault and nationally consistent.

The Commonwealth and State and Territory Governments should work together in the context of the feasibility study to ensure that state-based accident insurance schemes are consistent with the proposed national scheme.

Providing Benefits for People with Disability under the New National Disability Insurance Scheme—a Summary

The benefits of the proposed NDIS include:

  • all people with disability would be entitled to an appropriate whole-of-life suite of services and support;
  • people with disability and their families would have certainty and clarity about options from the point of determination of a disability;
  • case management would be available to facilitate independence, maximise potential and work with individuals and families to plan transitions over their lifetimes;
  • early intervention would be a top priority;
  • training, development and access to work would build self-esteem and reduce long-term costs;
  • families would be able to make choices about the combination of work and informal care for family members at various life stages, as in other families;
  • an integrated system of funding, purchasing and delivering disability services would be available to Australians for the first time;
  • the proposed scheme addresses the current unmet and under-met need for care and support, and the unsustainable reliance on carers; and
  • the introduction of such a scheme would enable a range of innovative private investment opportunities to emerge.
  1. DSP Fact Sheet June 2008, provided by FaHCSIA.
  2. Association for Children with a Disability NSW 2008, Through the Maze.
  3. Formerly known as the Commonwealth State Territory Disability Agreement.
  4. Community and Disability Services Ministers’ Conference Communiqué, 23 July 2008.
  5. Council of Australian Governments Communiqué, 29 November 2008.
  6. AIHW 2007, Current and future demand for specialist disability services, AIHW, Canberra.
  7. PwC 2008, p.5.
  8. PwC 2008, p.6.
  9. National Health and Hospital Commission Final Report, A Healthier Future for All Australians, June 2009, pp. 156-159.
  10. PwC 2008, p.108.
  11. PwC 2008, p.111.
  12. Social Policy Research Centre. Stage One Evaluation Report. HASI Initiative. September 2007 in PwC 2009.

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