We need to talk about the NDIS

For example, Michael Read, writing in the Australian Financial Review, said:

“Spending on the National Disability Insurance Scheme could hit $102 billion and eclipse the age pension as the most expensive federal government social program if the Albanese government does not rein in the scheme’s costs.”

This has led disability rights advocates such as Elly Desmarchelier to vigorously defend the Scheme. Writing in The Guardian, she said:

“Post [the October] budget, the national conversation on the NDIS has been dominated by able-bodied commentators declaring the scheme’s cost “a blowout”, “spiralling” and “unsustainable”.

“The media hysteria at the average 14% a year increase in the cost of the scheme over the next 10 years often ignores the review currently under way into the NDIS, and it usually fails to acknowledge that the NDIS is also affected by the same upward cost pressures as every other part of the economy – inflation, supply issues, worker shortages and increasing housing and energy prices. 

“The political media commentariat appears to believe the NDIS is completely immune to these international economic trends and the “cost blowout” is simply the result of the Government being too generous, spending too much, on too many disabled people.

“But that’s exactly what’s being lost in this debate. People. After the budget, we’ve heard a lot about cost, not a lot about people. People are at the heart of the NDIS. And the heart and foundations of the scheme are strong.”

So, what should we believe?

Is there a cost blowout in the NDIS? Should we be concerned that in financial year 2022-23 the budgeted NDIS cost is now greater than Medicare and aged care, or should we accept that this is what Australia should spend to properly support people living with a disability?

It is worth recalling that the NDIS is based on insurance principles informed by actuarial analysis. The NDIS Act defines the eligibility criteria for the Scheme and legislates reasonable and necessary support to all eligible participants. As a result, there is no cap on funding, as there was with the previous State and Territory disability programs. The resulting financial risk that any valid claim must be paid, regardless of the total cost of the Scheme, needs to be managed in a manner analogous to insurance schemes such as injury compensation schemes. The insurance principles of the Scheme include the concept of the control cycle – that is, analysis of emerging claims data to facilitate ongoing re-estimation of future costs, reconsideration of eligibility and entitlements, and review and improvements to the claims management process.

To ensure the financial risks of the Scheme are managed, the NDIS Act provides for annual actuarial assessments and transparent reporting by the Scheme Actuary on financial sustainability, risks to sustainability, and the causes of those risks and trends. The annual actuarial assessments and reporting, the first of which was for the 2013-14 financial year, mean that there is now almost ten years of evidence-based understanding of the cost pressures on, and risks to the financial sustainability of, the Scheme.

Secondly, it is worth noting that key assumptions when the scheme was initially costed for the Productivity Commission in 2011 were:

• Only people with the greatest support needs would participate – originally estimated to be some 475,000 Australians – and that other disability services would support the remaining 3.8 million Australians living with disability.
• Providing reasonable and necessary support would enable greater numbers of people living with disability and their informal carers to enter the workforce resulting in economic activity would offset costs.
• Increased early childhood early intervention would enable many participants to leave the scheme before they reach adolescence/adulthood.

These assumptions have not been borne out in practice. In December 2022, the Scheme had 573,342 participants, projected to rise to 1,017,522 by 2032. The increase arises from both a higher-than-expected rate of new entrants and a lower-than-expected rate of participants leaving the scheme. A number of factors have led to this outcome, including:

• The number of participants living with autism has increased markedly, and now represents almost one-third of new entrants. It is unclear whether the cause is a real increase in the prevalence of autism, or that the criteria for diagnosis have broadened, or a combination of both.
• The number of participants leaving is lower than expected. This is in part due to the societal disruption of the COVID-19 pandemic, but it is also the case that early childhood early intervention has not been as effective as expected. It is unclear whether the cause is that the initial assumptions were wrong, or that improvements are necessary to the supports provided. In part, this is because outcomes before and after early childhood early intervention have not been measured.

A compounding factor is that the States and Territories have typically ceased to provide services to people with lower support needs, potentially causing them to apply for participation in the NDIS when they might otherwise have accessed other programs.

It has been evident for some years now that the expected future costs of the Scheme significantly exceed those in the original actuarial projections. The latest Annual Financial Sustainability Report projects that total Scheme expenses will be $34.0 billion (1.48% of GDP) in 2022-23 rising to $89.4 billion (2.55% of GDP) in 2031-32, although the 2023-24 budget has a slightly lower growth trajectory.

There has been much recent media commentary on the extent of fraud and non-compliance within the NDIS. Efforts to reduce fraud and non-compliance should certainly be supported. However, they will not of themselves return the NDIS to a position of financial sustainability.

The Government has established a review panel which is due to report in October. The panel will need to address reforms to re-establish the financial sustainability of the NDIS, including potentially to eligibility and entitlements, and claims management. It is important that the review panel adheres to the insurance principles of the Scheme, including the control cycle principle, and ensures that any recommendations about future reforms are based on the actuarial analysis. The review panel should give particular focus to whether the Scheme is supporting the intended population, including exploring additional State-based programs for people living with disability with low support needs.

It will be challenging to balance society’s obligations towards the community of people living with disability with financial sustainability but, the best way to do this is to use the extensive data collected over an almost ten-year period, for good.

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