The National Disability Insurance Scheme: Is it financially sustainable?Indicators to keep an eye on

The National Disability Insurance Scheme (NDIS) is already wreaking significant change on the disability support sector.

The NDIS will fund 460,000 individual support packages for eligible participants, plus “information, linkage and capacity building” for people

who are deemed ineligible. The total annual budget for the NDIS is set at $22 billion, following the full implementation of the scheme in

2019-20.

The question remains though, is $22 billion enough? Is the NDIS financially sustainable in its current shape and form?

This article will outline the four key indicators that will determine the financial sustainability of the NDIS, as well as advice for both

consumers and providers within the scheme.

Indicator One - Pricing of funded supports

Unit Price for Standard Personal / Community Support (Per Hour)

$43

$42

$41

$40

$39

$38

-July 2014 July 2015 July 2016

$38.78

$39.52

$39.36

$41.18

$39.65

$41.18

$39.65 $39.80

$42.79

Actual Price

Estimated Transitional Price

In 2014, the government’s plan was to step down to an efficient unit

price for standard personal/community support by July 2016. The

original estimated efficient price was $39.80/hour (future value after

indexation and Equal Remuneration Order adjustments).

However, the reality is that as of July 2016, the actual price is

$42.79/hour ($43.58/hour for ACT/SA/WA/NT) - 7.5% higher than

anticipated.

Indicator Two - Level of funded supports

Average Annual Package Cost (2015-2016)

$60k

$50k

$40k

$30k

$20k

$10k

$0

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The average annual package cost is an important indicator that

combines the effects of price and service level of supports funded. The

original modeled average cost by the Productivity Commission was

$34,969. The National Disability Insurance Agency’s (NDIA) benchmark

or “target” for 2015-16 was $38,588.

The actual average annual package cost for the four trial sites

combined (Hunter, Barwon, Canberra and Perth Hills - other sites

that have either just commenced transition or have an age-biased

participant population have been excluded) was $43,275, exceeding

the benchmark by 12%, and 24% higher than originally modelled.

Price of funded

supports

Level of funded

supports

Number of

participants

Non-participant

expenses

Total budget required

for NDIS

The following key indicators are important to keep an eye on, if you’re concerned about the financial sustainability of the NDIS.

Indicator Three - Number of participants with individual packages

Number of Participants

10,000

9,000

8,000

7,000

6,000

5,000

4,000

3,000

2,000

1,000

$0

ACT Trial SA Trial (0-14)

Original Estimate (provided by States)

Revised Estimate

The number of participants estimated to receive individual packages

under the NDIS (i.e. becoming “participants”) at full scheme was

460,000. There are early signs that the actual number of participants

eligible for individual funding may be significantly higher, as

demonstrated in the chart above.

Trial site experience so far has revealed that the estimated number

of participants has been raised by 36% in the ACT across all ages

and 68% in South Australia for children up to the age of 14, which is a

significant increase.

Indicator Four - Non-participant expenses

Agency Costs

ILC Grants

SDA

Individ Funding

Agency Costs (incl LAC)

6.08%

ILC Grants0.61%

SDA3.25%

Individual Funding (excl SDA)

90.05%

NDIS Budget Breakdown 2019/2020

There are three categories of non-participant expenses that make

up approximately 10% of the NDIS total budget, on top of individual

funding to participants:

1. Specialist Disability Accommodation (SDA) funding - $700m budget

Although SDA will be included in participants’ NDIS plans, it will only

be paid directly to registered SDA providers of enrolled properties, as

a contribution towards capital costs of land and buildings. SDA only

commenced from July 2016, and will have an annual budget of $700

million when the NDIS is fully rolled out.

2. Information, Linkage, and Capacity Building (ILC) grants - $131m budget

ILC is expected to support 900,000 people with a disability who will

not be eligible for individual funding. The grants component of this

funding stream will have an annual budget of $131 million. The Local

Area Coordination (LAC) component of ILC is included in Agency Costs

(below).

3. Agency Costs including LAC - $1.3 billion budget

At full scheme, the $1.3 billion budgeted for agency costs is expected

to cover all operating costs of the NDIA and the outsourced LAC

function.

The combined effectThe above factors determine the total budget required for the NDIS. If

the average package cost is 12% higher than budgeted, as across the

four trial sites so far, and the number of participants increases by 36%

as seen in the ACT, then the whole scheme would have a 47% or over

$10 billion budget blowout by the time it has fully rolled out.

If this is going to be the case, the government may take one or a

combination of the following actions to address this discrepancy in the

budget:

1. Tighten up prices

Given the price points for personal and community supports are

already very low, supported accommodation and allied health therapy

prices may be scrutinised and tightened, as these two services are

perceived to be lucrative under the current fee schedule.

2. Co-payments

Participants may be asked to make a co-contribution towards their

package costs (like an insurance excess) or pay a gap fee when using

“non-bulk billing” services. Many quality services may be deemed as

“non-bulk billing”.

3. Reduce the level of supports people receive within their packages

This could be done in a number of ways, including

■ universally cutting back hours and budgets by adopting leaner

Reference Packages;

■ gradually reducing certain supports or restricting them to once

off, such as support coordinating and therapy; or,

■ tightening up eligibility criteria for “high and complex needs” and

access to higher levels of supports.

In trial sites, we have seen significant budget reduction in some

individuals’ second or third plans compared with their first plans.

4. Tighten up eligibility for individual packages

The NDIS is not a capped scheme, so there is no ceiling for the total

number of participants. However, access criteria may be adjusted

to make it harder for people with lower levels of needs to access

individual funding.

5. Reduce the budget for non-participant expenses

Insignificant savings may be achieved through outsourcing/reducing

other functions of the NDIA in addition to the LAC.

Advice for people with a disabilityThe budget pressure means it may become harder to access the

scheme, plan budgets may be reduced, and individuals may be asked

to make co-payments.

To protect your own interest, the following actions should be taken:

1. Submit your access request and book planning meetings as soon

as the NDIS starts rolling out in your area or for your age group;

2. Prepare yourself before the planning meeting by reviewing your

support needs, prioritising, substantiating and articulating your

needs, and try to include everything you can as long as they are

“necessary and reasonable”;

3. Use up your package budget within the plan period as you may

not get the same level of funding again next year (unless there is

a valid reason, e.g. no provider/long waits); and,

4. Set reasonable expectations about the level and continuity of

certain supports within your individual funding packages.

Advice for service providersAs a service provider, if you expect the NDIS to be a significant source

of income, then be prepared for (more) changes to how plans are

constructed and funds are allocated, and take the following actions:

1. Review your business model regularly, conduct scenario analysis

and test how and to what extent your organisation would be

affected by changes in NDIS prices, service demand, service mix

and costs;

2. Consider whether and how to grow and diversify. Generally,

growth gives you larger scale to derive efficiency and reduce

costs, whilst diversification means eggs are not kept in one

basket;

3. Be agile. Maintain sufficient cash reserve and a flexible workforce.

If you need additional fixed assets, try leasing rather than outright

purchasing. If you need to upgrade IT systems, try cloud-based

solutions; and

4. Stay tuned to changes and developments of the NDIS. Read

NDIA’s quarterly reports, dashboards and market position

statements, ask peer organisations in trial sites about their

experience, and analyse your clients’ NDIS plans for trends.

How can Nexia Australia help?Nexia Australia’s NDIS specialists can assist current and

future service providers with NDIS transitioning, costing

and pricing, business models and processes as well as

procedures.

Contact NDIS Specialist, Billy Kang, to discuss your

transition needs.

Billy Kang

t 02 6279 5400

m 0413 220 679

billy.kang@dnexia.com.au