Towards a Fair Go: Design Challenges for a National Disability Insurance Scheme

August 23, 2011

Social Innovation

by David Hetherington

Executive Summary

This paper examines the barriers to the provision of adequate care and support to people with disabilities in Australia, and proposes a high-level outline for a National Disability Insurance Scheme to be complemented by improved coverage within existing accident insurance programs.

The paper identifies four explanations for the current inadequate levels of care and support: 1) partial failure of private insurance markets; 2) a shortfall in public funding; 3) disparities in state-based disability services; and 4) the absence of universal no-fault insurance for catastrophic injury.

The paper argues that effective coverage for disability care and support requires mandatory social insurance funded through hypothecated taxation revenues. The only exception to this is in the case of motor vehicle and workplace accidents where individual risks can be identified and priced and where, as a consequence, well-designed private markets can operate effectively.

The paper further argues that a false trade-off exists between no-fault and common law arrangements for catastrophic injury. While systems that offer only common law coverage can produce inequitable outcomes, those which offer hybrid schemes combining no-fault and common law coverage are able to combine the best of both approaches. The Victorian Transport Accident Commission (TAC) and the Tasmanian Motor Accidents Insurance Board (MAIB) provide useful illustrations of such schemes. While no-fault coverage is critical, schemes that have relied exclusively on no-fault arrangements, such as New Zealand’s Accident Compensation Corporation (ACC) and South Australia’s Workers Compensation scheme, have proven financially unsustainable.

The National Disability Insurance Scheme (NDIS) presented here would cover all Australians under 65 with permanent severe or profound disability. It would provide them with funding for timely access to care and support, therapy, equipment, home and vehicle alterations and periodic respite. It would be funded through a Disability Levy similar to the Medicare levy, with revenues hypothecated into a dedicated insurance pool. The NDIS would be a hybrid scheme, offering no-fault minimum coverage without diminution of common law rights. The annual net cost of this scheme would be around $6.6 billion.

The only category of disability not covered under the NDIS would be catastrophic motor vehicle or workplace injuries. These would continue to be managed by existing state-based accident insurance schemes. However, the Commonwealth would negotiate through a COAG process the introduction of no-fault coverage into those state and territory schemes which do not currently provide it to “level up” coverage without diminution of existing rights.

Per Capita recognizes that the Productivity Commission has recently released a detailed proposal for an NDIS in the Final Report of its Inquiry into disability care and support. While we agree with much of the Commission’s design approach, there are important points of difference. The most important of these are that:

– we propose a hypothecated Disability Levy to fund an NDIS, rather than the use of general taxation revenues;
– we argue that motor vehicle and workplace injuries should be managed under existing state-based schemes, rather than through a National Injury Insurance Scheme. However, all states and territories should introduce no-fault coverage within these schemes where it is not currently offered;
– we propose that existing common law arrangements should co-exist with an NDIS and be buttressed by no-fault coverage for catastrophic accidents where this does not currently occur;
– we argue that the states and territories should keep their existing tax bases, but commit revenues designated for disability into the NDIS premium pool; and
– we propose that the states would continue to provide disability services to NDIS recipients on demand and sign service level agreements with the Commonwealth under which they would receive incentives or penalties for performance against quality benchmarks.

We conclude the paper with a note of caution. Any form of comprehensive NDIS will be at a significant cost to taxpayers. We estimate that the NDIS proposed here would require a Disability Levy of 1.3%, or $15 per week for eligible taxpayers. It must also be weighed against competing and growing demands on public money, from areas such as aged care, dental health and mental health.

Given the heated debate over recent new tax proposals, the implementation of such a scheme will require considerable political commitment. It is hoped that the cost of an NDIS will be outweighed by the social and economic benefits of assisting people with disabilities back into the community and workforce, but calculating these benefits is beyond the scope of this paper. Detailed analysis of these benefits would add considerably to the political argument in favour of a national disability insurance scheme.

However, if the available level of public funding is not forthcoming, the coverage of an NDIS would need to be scaled back in a way that ensures those with the greatest unmet need are least affected. Any scaling back of NDIS coverage should not prevent the leveling-up of state-based accident insurance schemes as this process is expected to be self-funding.