Ensuring the financial sustainability of the NDIS

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Sarah Johnson, Scheme Actuary for the NDIS and the 2016 Actuary of the Year, explains what defines financial sustainability in the NDIS insurance model and the role of actuaries in maintaining it.

It was great to see so many in the audience (66 at the Actuaries Institute HQ and 80 joining us via webinar) on Wednesday 22 March, to hear about the Insurance Principles of the NDIS.

The NDIS is focused on lifetime value for scheme participants, and seeks to maximise opportunities for independence, and social & economic participation with the most cost-effective allocation of resources.

However, to achieve its ambitious social mission, and to continue to be offered to participants, the NDIS must remain financially sustainable.

Financial sustainability for the NDIS is defined as the scheme being successful across a range of measures, including:

  • economic and social participation of participants
  • independence of participants
  • participants accessing enough money to buy goods and services that allow them reasonable access to life opportunities

Financial sustainability also requires contributors to confirm that the scheme is:

  • affordable
  • under control
  • represents value for money and that, therefore, they remain willing to contribute

The Trial Scheme, which ran from 1 July 2013 to 30 June 2016, saw 30,281 participants with an approved plan and $2.4 billion committed in plans.

The revenue received during the trial (from both the Commonwealth and State/Territory governments) and the amount of support used by participants, resulted in a small surplus (approximately 1.5%) over the three years.

There are various cost pressures on the scheme including:

  • Higher than expected numbers of children entering the scheme
  • Increasing package costs over and above the impacts of inflation and ageing (“super-imposed” inflation)
  • Potential participants continuing to approach the scheme
  • Lower than expected participants exiting the scheme
  • A mismatch between benchmark package costs and actual package costs.

In response to this, management have implemented two specific initiatives; the Early Childhood Early Intervention (ECEI) approach and the reference package and first plan approach.

  • The ECEI approach is being progressively rolled out. The ECEI approach provides a gateway to the NDIS for children 0-6 years, which aims to ensure only children meeting the eligibly criteria for the NDIS enter as a participant. The gateway also provides support for children to access mainstream and community services when they do not meet the criteria, but need some support to access these services.
  • The reference package and first plan process is a method for better aligning the level of function and need with support packages for participants when they first enter the scheme.

The NDIS is projected to cost around 1% of GDP in the long term, for under 65 year olds.

The role of Actuaries

The aggregate annual funding requirement for the NDIS is estimated by the Scheme Actuary’s analysis of reasonable and necessary support need.

The aggregate funding requirement comprises equitable resource allocation at an individual and subgroup level, and is continually tested against emerging experience.

CPD Actuaries Institute Members can claim two CPD points for every hour of reading articles on Actuaries Digital.

About the author

Sarah Johnson

Sarah Johnson is the scheme actuary of the NDIS. She has been appointed for a period of three years from November 2013. Prior to being appointed the Scheme Actuary of the NDIS, she was a Director at PricewaterhouseCoopers. Sarah has worked within the disability sector and broader health and human services sector for the last ten years. She assisted the Disability Investment Group in costing an NDIS in the Way Forward report, and worked with the Productivity Commission on the Disability Care and Support Inquiry. She has also undertaken a lot of actuarial work in accident compensation, housing, child protection, health and aged care.

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