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3.2 Summary of the Financial Sustainability Report 2019–20

Sarah Johnson BCom FIAA, September 2020

Introduction

An annual financial sustainability report is required under section 180B of the NDIS Act and provides an assessment of the financial sustainability of the NDIS. This year’s report considers the Scheme at 30 June 2020 after its seventh year of operation (four years of transition following a three-year trial period).

The Scheme at 30 June 2020

The Scheme has experienced rapid growth over its seven years of operation. Regions across Australia have phased into the Scheme at different dates according to the bilateral agreements signed between the Commonwealth government and the States/Territories. As at 1 July 2020, all Australian residents with disability who meet the eligibility requirements can now access the Scheme, a significant milestone for the NDIA.

There were 391,999 active participants with an approved plan in the Scheme at 30 June 2020, a net increase of 37 per cent in the Scheme population since 30 June 2019. It was expected that participant intake would slow over the 2019–20 financial year as transition-in arrangements had largely been completed; however, this has not occurred and there are few signs that the Scheme’s rapid growth is abating. There has been a concerted effort over the 2019–20 year to reduce backlogs for access requests in progress and participants awaiting first plans, especially for children. However, even allowing for these reductions in backlogs, there have continued to be more children approaching the Scheme than expected.

A total of $24.2 billion of support was committed in participant plans for the 2019–20 support year, compared to $14.6 billion in the 2018–19 support year (66 per cent higher). The Scheme made $17.2 billion in payments1 to meet participant support needs in 2019–20, which is 77 per cent higher than the $9.7 billion in payments made in 2018–19. Average annualised payments over the two years to 30 June 2020 for both participants in Supported Independent Living (SIL) and not in SIL have increased by almost 40 per cent in total, or nearly 5 per cent per quarter on average.

Utilisation of plans has been steadily increasing since the start of the Scheme’s transition period, from 68 per cent for the 2016–17 support year to 73 per cent projected for the 2019–20 support year. This has been expected because one of the main drivers of lower utilisation is the high proportion of participants entering into the Scheme for the first time, because first plans typically have materially lower utilisation rates than subsequent plans.

Participant reported outcomes continue to improve, particularly the longer a participant is in the Scheme. Community and social participation rates have increased, as well as employment rates for younger participants and for families/carers.

COVID-19 pandemic

The 2019–20 financial year was also marked by the COVID-19 pandemic. For the NDIA, the identification and prioritisation of critical supports was key in the continued delivery of services to participants during this time.

A temporary 10 per cent COVID loading was applied to certain critical core and capacity building supports until 30 June 20202, changes were made to cancellation policies, and advance payments of approximately $650 million were made to providers. The COVID-19 pandemic, and associated NDIA working from home arrangements, has not affected the ability of Agency staff to process access requests and first plans, or undertake plan reviews.

While the ‘first wave’ of the pandemic saw a shift between support types within the Scheme, the underlying payments for support remained at pre-pandemic levels, indicating that participants continued to receive supports. There were reductions in payments for community and social participation supports and employment supports compared with pre-pandemic payments experience, due to the lockdown and physical distancing measures which restricted face-to-face services. This was offset by increases in support for activities of daily living to support participants at home, as well as an increase in payments for consumables, such as low-cost assistive technology and personal protective equipment.

Scheme projections

Projections of the number of Scheme participants, payments for supports and the operating costs of the Scheme have been made using the actual Scheme experience to date as the basis for assumptions about the future. An exception to this is that a forward looking approach has been used to determine future inflation assumptions, while noting that the adopted inflation assumptions have been set at levels significantly lower than historic levels of inflation meaning that the NDIA will need to enact mitigation strategies to respond to these historic sources of inflation. An allowance has also been made for the expected short term impacts of the COVID-19 pandemic, although the impact remains uncertain. These projections can be considered as the best estimate, based on the evidence available to date, of the cost trajectory for the Scheme.

The Scheme is projected to reach about 532,000 participants by 30 June 20233, of which almost 508,000 are expected to be aged 0 to 64. This is equivalent to a prevalence rate of 2.3 per cent of the projected Australian general population aged 0 to 64, slightly higher than last year’s estimate and the original estimate by the 2011 Productivity Commission (2.1 per cent). The increase in prevalence from the previous report reflects the continued high levels of participant intake seen in the past year, particularly for children in the more mature regions.

Scheme costs for all participants are projected to be about 1.3 per cent of Gross Domestic Product (GDP) for 2020–21, 1.4 per cent in 2022–23, and 1.7 per cent for 2029–30. This includes participants who remain in the Scheme past 65 years, noting that the Commonwealth has committed to funding these participants.4 This has increased since the previous report, in part due to cost pressures driving higher numbers of expected participants and higher average future payments, as well as the impact of the COVID-19 pandemic on the economy, which has seen projected GDP fall.

NDIS insurance approach

The drivers of Scheme costs include the number of participants, the amount of support allocated to each plan, how that allocated amount will change over time, the utilisation of individual supports, and the rate at which participants exit the Scheme. It is the responsibility of the NDIA to identify and monitor pressures, and manage them appropriately, using an insurance-based approach to evaluate emerging experience against expectations.

The insurance approach also means taking a lifetime view to supporting people with disability. This includes investing in participants in the short term to provide better outcomes over their lifetime, as well as to reduce the long term costs of disability support. The achievement of participant outcomes is vital to the financial sustainability of the Scheme.

Current sustainability pressures

A range of cost pressures have continued to emerge over 2019–20. These include:

  • Participant cost pressures

There have been high levels of inflation within the Scheme since its inception. In the early years of the Scheme, this inflation reflected the dynamic and rapidly changing environment of a newly established scheme. However, these high levels of inflation have persisted over time, despite the increasing maturity of the Scheme.

This is particularly evident for participants in SIL. Noting that the support costs for participants in SIL are a material component of Scheme cost. Drivers of SIL inflation have included price increases and increases in the quantum of supports provided, for example higher rosters of care.
The growth in average annualised payments for non-SIL participants has also been high, and in line with that observed for SIL participants over the past two years. This is due to price increases and increases in the volume of support provided to participants. The management of these cost pressures, while ensuring participant outcomes, is important for continued Scheme sustainability.

  • Scheme coverage scope creep

The Scheme is facing a number of pressures around Scheme entry and funding decisions. Many of these are related to operational issues which limit the ability of the Scheme to interact effectively with existing supports across mainstream interfaces, as well as community and informal supports. These pressures require continued management responses so that the Scheme does not become a “funder of last resort”, especially where other arrangements may be better suited to provide the required supports.

  • Operational challenges

The speed of the NDIS rollout has posed a number of challenges. Efforts have focused on the timely transition of people with disability into the Scheme and improving access to reasonable and necessary disability supports for these participants. In particular, over the past year, the NDIA has focused on clearing internal backlogs in several areas such as access decisions, first plans, assistive technology, internal reviews, and manual payments. In addition there has also been evidence of inconsistency in decision making for access and funding decisions, as well as limited reassessment of ongoing eligibility during this time.

Management response

Proactive management responses to the pressures identified above include:

  • Consistency of decision making: The NDIA is working on improving the consistency and equity in decision making of both access and planning decisions across all participants. There is a focus on better aligning a participant’s support package to their circumstances through independent assessments. This will mean the right assessment questions and tools are being used to inform objective access and planning decisions that are more consistent and fair. This is consistent with 2011 Productivity Commission Report5 as well as the 2019 Review of the NDIS Act6 which recommends amendments to the NDIS Act to achieve these outcomes. Other initiatives being undertaken to improve consistency of decision-making include:
    • There is significant frontline training under way to improve the capability of the NDIA planners and partners to develop plans and make review decisions that balance the Agency’s aspiration for a positive participant experience with responsibility for long term scheme sustainability.
    • More disciplined approaches to frontline management will ensure that ‘reasonable and necessary’ decisions and participant outcomes are nationally consistent, to a higher standard of quality which promote participant equity, eliminate avoidable plan reviews and prevent unnecessary plan budget inflation.
    • Participant ‘Check In’ service delivery options will ensure that participants have access to the depth of review and medium of interaction approach that most suits them, and which will enable more ‘light touch’ plan amendments and plan renewals and extensions to meet participants’ needs.
  • SIL policy reform: The SIL quoting and negotiation process used previously has been replaced with set price limits for SIL supports. Providers are now required to develop a roster of care using the NDIA’s current price limits for activities of daily living and submit this to the NDIA for consideration. There will be increased rigour around determining the suitability of rosters of care for participants at first plan and for subsequent plan reviews. Importantly the new process will ensure input from participants, so participants have more control over their plan budget. Finally, work is underway to determine appropriate price limits specifically for SIL supports, which will be released in late 2020.
  • The NDIA is looking at innovative housing solutions which include more contemporary options for people who require a high level of support. A number of alternative accommodation options have emerged, known as Individual Living Options (ILOs). These ILOs have the potential to create a more tailored solution to care and support needs for the subset of Scheme participants with higher needs. Further, ILOs help to increase choice and control for participants, improve outcomes and are often more cost effective than traditional SIL arrangements.

The immediate and effective implementation of these management responses is required to both improve participant outcomes and ensure the Scheme is financially sustainable into the future.

Footnotes

  1. These relate to when the cash payment was made, rather than when the support was provided. This also includes supports provided on an in kind basis by the State/Territory and Commonwealth governments.
  2. By the end of June 2020, about $70 million was paid in respect of the COVID loading.
  3. This is the point in time when participant intake primarily represents participants with new incidence of disability, as opposed to participants transferring into the Scheme with existing disabilities.
  4. Participants aged over 65 years exit the Scheme either through mortality or by entering residential aged care (which is no longer funded by the NDIS). As the Scheme continues to mature, the number of participants aged over 65 years who remain in the Scheme increases, which contributes to the increasing cost over time.
  5. https://www.pc.gov.au/inquiries/completed/disability-support
  6. The review was undertaken by Mr David Tune AO PSM. See https://www.dss.gov.au/disability-and-carers-programs-services-for-people-with-disability-national-disability-insurance-scheme/2019-review-of-the-ndis-act-and-the-new-ndis-participant-service-guarantee.