Dr Rosalind Hewett, Social Policy, and Elliott King, Economic Policy
Key issue
The cost of the National Disability Insurance Scheme (NDIS) has far exceeded initial projections. Although the NDIS is an uncapped program, the legislation underpinning the scheme requires those administering it to have regard to the scheme’s financial sustainability. With the current and forecast cost of the NDIS surpassing initial expectations, questions remain about how the NDIS will be funded into the future.
How the NDIS will be funded was an election issue, with most political parties and many independents discussing it
during their campaigns. The experience of the NDIS to date has seen
a larger than estimated intake of people and escalating costs. This is of
concern for the NDIS’s viability as the scheme’s costs are a major expense for
the Australian Government.
This
article examines the cost of the NDIS to date, the projected cost, and
proposals to help fund it. It focuses on the costs of ‘reasonable and necessary
supports’, as they are the largest NDIS related expenditure. It does not
examine the costs involved in administering the regulator, the NDIS Quality and
Safeguards Commission, or the administering agency, the National Disability
Insurance Agency (NDIA).
What is the NDIS?
The
NDIS is an uncapped, demand-driven scheme intended
to support the independence and social and economic participation of people
with disability. The scheme takes an insurance approach that focuses on reducing long-term costs by providing
supports which build participants capacity; this may mean higher costs in the
short-term to reduce costs over the participant’s lifetime. This contrasts with
the previous systems which utilised annual block-funded programs where
providers received funding to provide a fixed service to their clients.
The
scheme was established in 2013 and became available to eligible
Australians in all states and territories on 1 July 2020. The scheme is
implemented through bilateral agreements between the Commonwealth and the
states and territories. All jurisdictions have transitioned onto the NDIS except
Western Australia which is due to complete its full transition to the NDIS by July 2023.
The
National
Disability Insurance Scheme Act 2013 requires that
any person or body that
performs functions and exercise powers under this Act have regard to the need
to ensure the financial sustainability of the NDIS when giving
effect to the objects and principles of the Act (see subsections 3(3) and
4(17)). Financial sustainability is not clearly defined, but, according to the
NDIA’s Insurance principles and financial
sustainability manual, the NDIS could be considered sustainable
provided both participants and financial contributors perceive the scheme as affordable, that costs are under control and supports
are value for money, and that participants believe they are securing high
quality supports to allow them reasonable access to life opportunities (p.
17–18).
The Australian Institute of Health and Welfare (AIHW) estimates that 1 in 6 people in
Australia, about 4.4 million people, have a
disability. To be eligible for support under the NDIS, a person must:
As at 31 March 2022, the NDIS had 531,309 active participants (p. 127),
or about 12.1% of the AIHW’s estimated population of people with a disability.
This is about 120,000 more than estimated at full scheme in the Productivity Commission’s (PC) 2011 report Disability care and support (p. 2), and 46,000 more than the PC’s 2017 inquiry (p. 87) (410,000 and 475,000, respectively).
How is the NDIS currently funded?
Participant supports
(also referred to as services for participants) are co-funded through a pooled
approach by the Australian Government and state and territory
governments.
Commonwealth
contributions to the NDIS are taken from the Consolidated
Revenue Fund. To help
meet the costs of the NDIS, the Medicare levy was increased from 1.5% to 2% of
taxable income from 1 July 2014. The amount raised through the levy
increase is directed to the DisabilityCare
Australia Fund to reimburse governments for NDIS expenditure.
State and territory
contributions are capped and set out in bilateral agreements, which are all scheduled to
end by December 2023 (see Table 1).
Table 1 Projected state and territory
contributions to the NDIS*
| State/
territory |
Commencement
of bilateral agreement |
2018–19 |
2019–20 |
2020–21 |
2021–22 |
2022–23 |
| NSW |
2018 |
$3.2
billion |
$3.3
billion |
$3.5
billion |
$3.6
billion |
$3.7
billion |
| Vic |
2019 |
N/A |
$2.6 billion |
$2.7 billion |
$2.8 billion |
$2.9 billion |
| ACT |
2019 |
N/A |
$168.8 million |
$175.5
million |
$182.6
million |
$189.9
million |
| Qld |
2020 (some clauses
from 2019) |
N/A |
N/A |
$2.1 billion |
$2.2 billion |
$2.3 billion |
| SA |
2018 |
$747.9
million |
$777.7
million |
$808.7
million |
$840.9
million |
$874.4
million |
| Tas |
2019 |
N/A |
$244.3 million |
$254.0 million |
$264.1 million |
$274.6 million |
| NT |
2019 |
N/A |
$103.6
million |
$107.7
million |
$112.0
million |
$116.5
million |
| WA** |
2017 |
N/A |
N/A |
N/A |
N/A |
N/A |
* The amounts set out in Table 1 are taken
from the most recent agreements and are not the total amounts contributed by
the states and territories over the life of the scheme. Previous bilateral
agreements can be found on the NDIA’s
website.
** Western Australia’s contributions are subject to a complex set of conditions
based on actual participant numbers and are divided into NDIA costs and
participant costs. Western Australia is not due to reach full-scheme status
until 2023.
Source: Bilateral Agreements
between the Commonwealth of Australia and the states and territories on the
National Disability Insurance Scheme, as follows: New South Wales, 2018; Victoria, 2019; Australian Capital Territory, 2019; Queensland, 2019: 1, 14; South Australia, 2018; Tasmania, 2018; Northern Territory, 2019.
How much does the NDIS
cost?
The 2022–23
Portfolio Budget Statement (PBS) for Social Services estimated that
expenditure on the NDIS for the 2021–22 financial year (including Australian Government and state and territory government contributions) was $29.3 billion (p.
124), making it the third largest program expense for that year (Budget
paper no. 1, p. 144) if including agency costs (or fourth without). Table 2
presents the split of Commonwealth funding, and state and territory
contributions over the forward estimates.
Table 2 Budget estimates for
reasonable and necessary supports, 2021–22 to 2025–26
| Contributor ($billion) |
2021–22 |
2022–23 |
2023–24 |
2024–25 |
2025–26 |
| Commonwealth |
18.3 |
22.3 |
25.9 |
28.8 |
31.5 |
| States and territories |
11.1 |
11.2 |
12.1 |
12.6 |
13.1 |
| Total |
29.3 |
33.9 |
38.0 |
41.4 |
44.6 |
| Commonwealth (% of total) |
62% |
66% |
68% |
70% |
71% |
States and territories
(% of total) |
38% |
34% |
32% |
30% |
29% |
Note: ‘states and territories’ is the sum
of ‘contributions from state and territory governments’ and ‘revenue
from other independent sources' which relates to services provided in-kind to
participants on behalf of state and territory governments. ‘Commonwealth’ is
the sum of ‘payment from related entities’ and ‘expenses not requiring
appropriation in the Budget year’.
Source: Australian Government, Portfolio
Budget Statements 2022–23: Budget Related Paper No.1.12: Social Services
Portfolio, 124.
The estimates presented in
the PBS assume full package utilisation by participants. This means that actual
payments tend to be materially lower than estimated costs as utilisation rates
never reach 100%. Table 3 presents data from the latest NDIA quarterly report showing actual
payments and committed supports up to the third quarter of 2021–22.
Table 3 NDIS committed
supports, payments and plan utilisation to 31 March 2022
| ($million) |
2013–14 |
2014–15 |
2015–16 |
2016–17 |
2017–18 |
2018–19 |
2019–20 |
2020–21 |
2021–22 to date |
| Total committed |
134.0 |
497.2 |
940.4 |
3,244.1 |
7,775.3 |
14,575.5 |
24,420.9 |
32,329.0 |
26,434.7 |
| Total paid |
85.8 |
370.9 |
704.2 |
2,187.1 |
5,440.9 |
10,402.8 |
17,308.8 |
23,474.9 |
18,853.6 |
| Utilisation to date |
64% |
75% |
75% |
67% |
70% |
71% |
71% |
73% |
71% |
Note: the amount paid will differ from the amount committed or estimated
by the NDIA. This is largely due to the cost of the NDIS in a given year being
dependent upon participants utilising their care plans to their fullest extent.
Utilisation can be influenced by a variety of factors.
Source: National Disability Insurance
Agency (NDIA), NDIS Quarterly Report to disability ministers, 31 March 2022, (Canberra: NDIA, 2022): 205.
Although the NDIA’s quarterly reports do not
present a breakdown of each jurisdiction’s contribution per year, the PC’s Report
on Government Services (RoGS) began including a breakdown in 2021,
using 2019–20 data. According to the 2022
RoGS, in 2020–21 the Australian Government contributed $12.9 billion to services
for NDIS participants, compared with $7.2 billion in 2019–20. This was in
addition to contributions by state and territory governments (see Figure 1).
Figure 1 Commonwealth, state and
territory government contributions to the NDIS (2020–21 dollars)
Note:
data is subject to several limitations, as outlined in notes attached to the
original source.
Source: Productivity Commission (PC), Report on Government Services 2022: Services for people
with disability (Canberra: PC, 2022),
Table 15A.1.
Long-term projections
Long-term projections of the NDIS are fraught with
difficulty due to the lack of certainty around new entrants into the scheme and
estimating non-mortality exits- currently around 30% to 40% of the assumed rate
(Taylor Fry, Review of NDIA actuarial forecast model and drivers of scheme costs:
p. 26)- and limited longitudinal data on which to base cost assumptions. The
early summary forms of the Annual
Financial Sustainability Reports (AFSRs), as published in the NDIA’s
annual reports, and PC reviews drew on data from the 2009
Survey of Disability, Ageing and Carers (SDAC) and data derived from the
NDIS trial sites to project what a (theoretical) fully operational NDIS would
cost. These earlier projections could not account for subsequent policy changes
(for example, the inclusion of children with developmental delay) or
unanticipated inflation shocks (for example, higher than expected remuneration
orders), nor the lack of robust statistics about the size of the eligible
population.
This has led to some questions
being raised about the reliability of projections out to 2024–25 and
2029–30 as it appears that there are competing projections (p. 62). Table 4, drawn
from the NDIA's
2020–21 annual report, compares NDIS projections based on different
sources.
Table 4 Comparison of NDIS
projections to 2029–30 (accrual basis)
| $million |
2021–22 |
2022–23 |
2023–24 |
2024–25 |
2029–30 |
| PC 2017* |
23,708 |
25,238 |
26,839 |
28,500 |
38,130 |
| AFSR Dec 2020 update |
28,139 |
32,900 |
36,906 |
40,659 |
60,324 |
| AFSR 2020–21 |
29,223 |
33,886 |
37,973 |
41,373 |
59,284 |
| PBS 2021–22 |
26,487 |
28,257 |
29,425 |
31,884 |
Not available |
Note: This table collates information from
separate tables in the NDIA’s 2020–21 Annual report and includes the Interim
Update’s projections to provide a comparison of estimates across different
publications. The ‘Dec 2020 update’ is the interim update to the AFSR which
updates the 2019–20 AFSR with data gathered in the period between 30 June 2020
and 31 December 2020.
*The 2017 PC costings reported here have
been adjusted by the NDIA to allow for items not covered by the PC’s model.
This adjustment includes an explicit allowance for 4 items which account for an
additional $1.5 billion per annum.
Source: National Disability Insurance
Agency (NDIA), Annual Report 2020–21, (Canberra: NDIA, 2021):
106–110.
The differences in each projection are due to
different assumptions and the data availability at the time. The Taylor Fry Review
of NDIA actuarial forecast model and drivers of scheme costs explored
these issues and found that the assumptions underpinning the NDIA’s model were
reasonable, though potentially underestimated the expected cost of the full
scheme (pp. 46–50). Figure 2, reproduced from the Taylor Fry review, plots the
different projections from the 2018–19 to 2020–21 AFSRs, the PC’s projections
(both the original estimates and the adjusted figures), and actual payments as
at 30 June 2021. Reasons for this cost escalation are discussed below.
Figure 2 Change in projected
payments from different forecast models
Source: Taylor Fry, Review of NDIA actuarial forecast model and drivers of Scheme costs,
report prepared for the Disability Ministers Forum, (Canberra: DSS, 2021): 46.
In addition to the PC’s and NDIA’s projections are
the long-term projections in the 2021 Intergenerational
Report (IGR) produced by the Treasury. The IGR projected that NDIS
costs would likely plateau around 2029–30 at 1.4% of gross domestic product
(GDP), remaining at about that level out to 2060–61 (see Figure 3). As Figure 3
shows, the Australian Government’s share of NDIS expenditure increases over
this period. It should be noted the IGR does not consider changes to the states
and territories’ contributions and takes the current rates (which will be
renegotiated in 2023) as given.
The IGR’s projection of 1.4% of GDP by 2029–30 is
less than the 2020–21
AFSR’s projection of 1.95% of GDP in that year (p. 54). The reason for the difference
between the AFSR’s and the IGR’s projections is not entirely clear as
the IGR does not explain whether the model used by Treasury is the same as
employed by the NDIA.
Figure 3 Intergenerational report projections of NDIS expenditure as a proportion of GDP
Note:
Total government spending includes spending by the Australian Government
and state governments. The Australian Government contribution does not include
payments made under the DisabilityCare Australia Fund or NDIA agency costs.
Source: Australian Government, 2021
Intergenerational Report: Australia over the Next 40 years, (Canberra:
The Treasury, 2021), 108.
A helpful comparison of how much the NDIS is
expected to cost the Australian Government as a proportion of GDP compared with
other government programs is presented in Figure 4.
Figure 4 Government spending on
the NDIS compared with other programs as a proportion of GDP
Source: Australian Government, 2021
Intergenerational Report: Australia over the Next 40 Years, (Canberra:
The Treasury, 2021), 93.
Why are projections for the NDIS going up?
The Scheme Actuary, in the 2020–21
AFSR, gave several reasons for why the cost of the NDIS has exceeded
earlier projections. These include:
- more participants joining the scheme than expected (pp. 5–6)
- the cost of participants’ plans being on average higher than
previously forecast (pp. 9–10)
- fewer participants who receive early intervention support exiting
the scheme than anticipated (p. 8). This is despite early intervention being
intended to reduce the functional impact of a participant’s disability over
their lifetime and reduce their need for ongoing NDIS support.
Other reasons may include:
- there being fewer services for people with disability provided by
other levels of government than anticipated, a situation described by one
of the architects of the scheme as the ‘NDIS cliff’, in which the NDIS
provides considerable supports and state and territory disability services
provide very few services (p. 7)
- increased awareness of the NDIS and the services it offers for
populations who previously did not engage with disability systems, as well as
increased awareness and diagnoses of some disabilities (for example, increased
diagnoses of autism spectrum disorder).
However, advances in medical research and clinical
care have seen increases in the life expectancy and improvements in the quality
of life of many people living with different conditions. As a result, the level
of support participants need over their lifetime may be reduced. Examples of
advances include:
Examining the benefits of
the NDIS
The roll-out of the NDIS has placed greater control
and choice in the hands of people with disability. The NDIS now supports a
larger cohort of people than
would have been supported under previous systems (pp.131–34).
But it is less clear whether the NDIS has generated
the system-wide benefits originally envisioned. In
proposing an NDIS in 2011, the Productivity Commission argued that the benefits of the NDIS ‘would significantly
outweigh the cost… The NDIS would only have to produce an annual gain of $3800
per participant to meet a cost-benefit test’ (p. 2). Benefits that the
Productivity Commission envisaged included (p. 941):
- wellbeing gains to
people with disabilities and their informal carers
- efficiency gains in the
disability sector
- savings to other
government services
- increased workforce
participation for both people with disability and their informal carers.
The original proposal for a NDIS assumed that the
scheme would eventually become close to budget neutral by 2050 (p. 788). This
was predicated on offsets from other government programs, the introduction of a
National Injury Insurance Scheme (which was to be implemented concurrently with
the NDIS), efficiencies in the market for disability supports, and greater
levels of employment for people with disability and their informal carers. There
is yet to be an evaluation of whether the NDIS is yielding these wider benefits.
An impediment to
evaluations, as the Productivity Commission pointed out in its 2017 inquiry into NDIS costs, is the
long-term nature of most of the anticipated benefits (the 2017 review being
conducted only 3 years after the first trial sites began). The Joint
Standing Committee on the NDIS has also not conducted a wide-ranging
evaluation to date, although it recently recommended that the Australian Government and disability ministers commission
independent research into the benefits of the NDIS to the Australian economy. The
Committee also recommended that the NDIA, the Scheme Actuary, and the NDIA Board
review their methods and approaches of managing the financial sustainability of
the scheme to ensure that ‘appropriate emphasis is placed on measuring the
benefits of the scheme and promoting those benefits to the broader Australian
community’ (p. 74).
In response to questions
on notice from the committee, the NDIA has stated that an independent review of NDIS costs, which will include an examination of participant
outcomes, is scheduled to be undertaken by the end of 2023. As such, the recent
focus on the benefits of the NDIS, and how these relate to the costs of the
scheme, will likely continue into the 47th Parliament.
Proposals to fund the NDIS into the future
As governments grapple with an NDIS forecast to
cost far more than originally anticipated, it may be time to re-examine
previous proposals put forward on how to source funding for the NDIS. These
include:
- increasing the Medicare
levy to 2.5%
- establishing an NDIS
savings fund to meet the future demands of the scheme, using underspends
and savings from social welfare payment expenditure
- establishing a pool of reserves as is typical of other insurance
schemes. These schemes typically invest reserves in financial markets (see the
Productivity Commission’s 2017
report on NDIS costs, pp. 460, 464–467)
- increasing the contribution of the states
and territories proportionally.
Whether these options are revisited as part of the scheduled
independent review of scheme costs in 2023 remains to be seen (p. 31).
However, it should be noted that Labor has stated
its intent to ‘review NDIS design, operation and sustainability’ and ‘use
the existing budget in the forward estimates to fund … the NDIS’.
Further reading
Elliott King, ‘National Disability Insurance Scheme Funding’, Budget Review 2021–22, Research paper, 2020–21, (Canberra: Parliamentary Library, 2021).
Rosalind Hewett, National Disability Insurance Scheme: a Quick Guide, Research paper series, 2021–22, (Canberra: Parliamentary Library, 2022).
Joint Standing Committee on the National Disability Insurance Scheme, Final Report: Current Scheme Implementation and Forecasting for the NDIS, (Canberra: Joint Standing Committee on the National Disability Insurance Scheme, 2022).
Back to Parliamentary Library Briefing Book
For copyright reasons some linked items are only available to members of Parliament.
© Commonwealth of Australia
Creative Commons
With the exception of the Commonwealth Coat of Arms, and to the extent that copyright subsists in a third party, this publication, its logo and front page design are licensed under a Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Australia licence.