The Plan

The Economic, Social and Inter-generational Arguments for an NDIS

The cost of caring for people with disabilities now represents a very large unfunded liability. It must be met directly by families, friends or the community through government expenditures.

In the next 15 to 20 years, the size of this unfunded liability will grow significantly due to increasing incidence of disability at birth 1 (older mothers, IVF and increased survival rates amongst very low birth-weight babies), increasing numbers of people with acquired brain injuries, people with disabilities living longer and others acquiring disabilities as they grow older. Based on population projections, Australia’s population will increase by around three million people over the next 15 years and almost two in every five of these people will have or acquire a disability.2

At the same time, the number of informal carers per head of population is expected to decline sharply, as older carers pass away or become too infirm to look after their adult children. Amongst young families the capacity to provide care for a disabled child is declining, because for more and more families both parents need to work to pay the mortgage and meet other necessary expenses. (According to the National Centre for Social and Economic Modelling the number of principal carers for every 100 older persons needing informal care will fall from 57 in 2001 to 35 in 2031.3 Access Economics estimates that the replacement value of informal care, Australia-wide, is $30.5 billion annually.4)

The projected increase in the proportion of the population with disabilities and declining informal support through unpaid carers will lead to very large increases in the costs of disability, which will add significantly to government outlays.

We need to plan ahead before the current unmet and under-met needs become overwhelming. The situation is similar to the problem identified in the 1980s, when it was recognised that an ageing population dependent on old age pensions would place an extreme burden on taxpayers. This led to the development of compulsory superannuation.

The current approach to supporting people with disabilities is also based on an outdated welfare model which is not efficient. It is focused on minimising costs in the short term rather than minimising costs and maximising opportunities over a lifetime. It is also poorly integrated with other support structures and the responsibilities of the Commonwealth and the states are unclear.

As a result, people with disabilities and their carers are not only amongst the most disadvantaged in Australia, they experience low rates of labour force participation and high rates of unemployment:

  • In 2003 labour force participation rates for males and females with disabilities were 59.3% and 47.0% respectively, compared with 89.0% and 72.3% for males and females without disabilities, respectively, ranking Australia 13th out of 19 OECD countries.5
  • The unemployment rate for people with disabilities seeking work was 8.6% in 2003 compared with 5.0% for people without disabilities. The 2006 Census suggests that the gap between the unemployment rate for people with disabilities and the national average had widened to more than twice the national average.6
  • Disability Support Pension (DSP) recipients are amongst the poorest groups in Australia and in 2007 the recipients had spent an average of 8.7 years out of the past 10 years on the DSP 7.

Amongst families providing care and support to loved ones with non-compensable injuries the Australian Institute of Family Studies 8 estimates that:

  • Sixty per cent of carers reported that they cared for a person with a disability for more than 100 hours per week.
  • Thirty per cent of families with a carer receiving either Carer Payment or Carer Allowance had experienced difficulty in paying electricity, gas or telephone bills on time, compared with 14.6% for the general population.
  • Almost twice as many carers were in poor physical health than the general population.
  • Fifty one per cent of female carers and 31 per cent of males reported that they had been depressed for six months or more since they started caring.

Amongst carers who provide informal care full time and are in receipt of Carer Payment only 11% work part-time. Then, in more than 50% of cases when they are no longer eligible for Carer Payment, they shift across to other forms of government income support, because either long term disengagement from the workforce or the onset of physical disabilities or mental illness due to their caring roles have made them unfit for work.9 This is a huge cost to society.

In the Background Paper prepared for the Pension Review it was noted that people on Disability Support Pensions are even poorer than single old age pensioners, because they face much higher costs. The Pension Review further noted that the best way to meet these costs is not through the income support system and in the final report, Dr Jeff Harmer, Secretary to the Department of Families, Housing, Community Services and Indigenous Affairs, noted that ‘new approaches to funding services and support for people with disability is important to the long-term stability of the system. In particular, the idea of a National Disability Insurance Scheme is worthy of further consideration’.

The costs of this scheme are currently being analysed by the Disability Investment Group, which was established by the Parliamentary Secretary for Disabilities, Bill Shorten, and which will report to Government shortly. At this stage the estimated costs are not publicly available but it is noteworthy that Brendan O’Reilly has said that the cost ‘would be less than people think”, while also calling for the scheme ‘to be in place within 4 years’.

The timing of the introduction of an NDIS would need to balance the long term inter-generational effects of an ageing population against the likely shorter term effects of the Global Financial Crisis. Significantly, while adding to government expenditures, an NDIS would create major employment and business opportunities, as well as meeting the needs of people with disabilities, their families and carers. It would also reduce costs in the medium and long term by eliminating many of the inequities and inefficiencies in the current welfare-based system:

  • First, by shifting to a needs based no-fault system the current major inequities between the few who have access to multi-million dollar payouts and the majority who receive very little support, and between the treatment of identical injuries depending on how they are acquired, would be eliminated.
  • Second, in insurance models liability management is critical to cost containment and so every effort would be made to ensure that services are delivered as effectively as possible.
  • Third, the opportunities for people with disabilities to work would be maximised, with an emphasis on education and training, as in workers’ compensation schemes today. This would be facilitated through active case management to achieve as normal a life as possible and to minimise the risks of over-dependence on publicly funded support.
  • Fourth, the insurance approach would create an automatic alignment between the interests of people with disabilities, families, carers, the community and governments built on maximising opportunities and minimising costs over the life course. For example, a life-time approach to care would ensure that early intervention, therapy, equipment and home modifications are available as soon as they are needed following diagnosis or injury, leading to better and lower cost long-term outcomes.
  • Fifth, families of people with disabilities would have confidence that the needs of their family member would be met, reducing unnecessary stress and risks of family breakdown, which are currently adding significantly to costs.
  • Sixth, carers would be supported and sustained in their roles rather than burnt out and left exhausted, because informal care is both high quality and helps to contain long term costs, while carers would also be encouraged to work and so remain engaged in the labour force.
  • Finally, properly structured an NDIS would lead to significant family and private investment in disability services, as is the case in education and health, ultimately reducing the costs to governments.

The theoretical underpinnings to an NDIS are also strong, as it is built on the models used for workers’ and accident compensation, including most importantly the analyses by Meredith, Beveridge and Woodhouse. 12 Amongst economists, Kenneth Arrow, who later received the Nobel Prize for Economics, analysed individual and community welfare in the face of uncertainty proving that there is a net social gain from taking out insurance for medical costs and the costs of disability.13 In his work Arrow also included a category ‘failure to recover’, i.e. people with disabilities.

The practical underpinnings are also strong, as there are already no-fault insurance schemes to meet the needs of people injured in the workplace in NSW, Victoria, South Australia, Northern Territory and the Commonwealth and in car accidents in NSW, Victoria and Tasmania. There are also international examples of disability insurance schemes, such as the Accident Compensation Commission in New Zealand.

Addressing the National Press Club on 1 April 2009, the federal Parliamentary Secretary for Disabilities, Bill Shorten, described the NDIS proposal as ‘a simple yet visionary and exciting idea… [that] would turn our current system of disability services on its head… [and remove] the last practical barrier to civil rights in this country’.

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References