Richard Weatherhead examines the implications of recent proposals for a national disability insurance scheme.

 In August this year, the Government released the long-awaited Productivity Commission report, Disability Care and Support. The recommendations in the report, together with those in the report Caring for Older Australians, have been hailed by some as potentially the greatest social reform in Australia since Medicare. They have also received support from all sides of politics – a rare achievement indeed. So, what are the reforms and what will be their impact on the insurance industry and on advice clients?  THE NATIONAL DISABILITY INSURANCE SCHEME The current disability support system is universally acknowledged to be underfunded, unfair, fragmented and inefficient, giving people with disabilities little choice and no certainty of access to appropriate support. Those with disabilities receive benefits based on the cause of the disability and their location (due to State-based schemes) rather than the type and level of support they actually need, both for day-to-day living and to actively participate in society – including, where possible, the workforce.
The proposed National Disability Insurance Scheme (NDIS) would be a national scheme established under a Na­tional Disability Insurance Agency (NDIA), with responsibility for assessing needs, agreeing to individual support plans and authorising funding for services agreed to in those plans.  Importantly, individual support plans could be developed by disability support organisations that would not be part of the NDIS; and packages of support could be assembled from a range of suppliers, with the emphasis on tailoring the package and the providers to the needs of the individual. For example, services such as domestic assistance could be provided by family members. The choice of services would be up to the individual recipient, but subject to efficient prices set by the NDIS. Even then, individuals could choose a higher quality, more expensive service – provided they fund any excess cost themselves. A disability support package might include items such as: • Prosthetics or hearing aids. • Personal care services – help in showering, dressing, personal hygiene, eating, mobility and exercise. • Access to education, skills development, leisure and social interaction, either in the home or in the community. • Respite care for the individual or their carer families.
• Domestic assistance, including meal preparation and shopping. • Transport. • Employment services. • Guide dogs. However, medical services would continue to be provided through Medicare.  People would have two alternatives for the provision of services: • They could choose from the full range of service provid­ers that are most suitable for their needs and could elect to use the services of a disability support organisation, which would act as coordinator of those services. • They could cash out their entitlements under the pack­age and employ service providers and support workers as they choose. However, they would have to create a personal plan and gain approval for that plan from the NDIA. The plan could include hiring neighbours and friends to provide appropriate services – although these would be funded by the NDIS to only 80 per cent of the “efficient price” of those services, as set by the NDIS.  There are clearly some risks in the area of self-directed funding and the report recommends monitoring by local area coordinators within the NDIA.  The report estimates that around 410,000 people would currently be eligible to receive benefits from the NDIS.
Of these, 330,000 have intellectual, physical, sensory or psychiatric disabilities and 80,000 would receive “early intervention” services aimed at improving functioning, or delaying or lessening the decline of functioning.  The overall cost of the scheme is estimated to be $13.5 billion per annum when fully functioning by June 30, 2019, of which $7 billion would come from existing federal, state and territory budgets and $6.5 billion would be additional spending.  The report recommends funding from consolidated revenue. However, this is one area where the Government may not ac­cept the recommendations and it is possible that funding may come from an increase in personal tax rates or a levy similar to the Medicare levy, which could be 1.3 per cent of taxable income.  THE NATIONAL INJURY INSURANCE SCHEME (NIIS) A parallel scheme called the National Injury Insurance Scheme (NIIS) would provide similar support packages for people with disabilities arising from accidents. This would be a no-fault scheme operated at a state level but on a consistent basis between states. It would cover all catastrophic injuries, in­cluding those relating to motor vehicle accidents, medical treat­ment, criminal injury and general accidents occurring within the community or at home. However, it would not cover economic loss (such as income replacement) or pain and suffering; and the common law right to sue for future care and support needs would be removed.
The net cost of the NIIS would be around $830 million per annum. However, this net figure allows for the redirection of part of the current insurance premiums paid under CTP motor insurance, medical indemnity insurance and state and territory based funding of benefits to those with catastrophic injuries arising from criminal injuries and general accidents in the com­munity and in people’s homes. This could possibly be achieved through a levy on council rates.  There would also be a surcharge on train tickets and a levy on passenger-carrying ferries, ships and pleasure vessels. Benefits would be provided on a no-fault basis. This involves a significant expansion of coverage for accidents where, under current insurance arrangements, those suffering cata­strophic injuries often have to prove liability before receiving benefits.  IMPLICATIONS FOR THE INSURANCE INDUSTRY General insurance coverage for at-fault liabilities in relation to catastrophic injuries in motor vehicle accidents and medical accidents will effectively be subsumed into a national risk pool, leaving insurers to meet only the costs of loss of income and pain and suffering in at-fault cases.  For life insurers and superannuation funds the new schemes will be complementary to the existing coverage provided and, in most cases, should not be considered a substitute for total and permanent disability (TPD) cover or income protection.
This is because the national schemes will not pay any benefits to replace lost income but only to provide support services relating to their disabilities.  Most income protection policies have benefits limited to 85 per cent of pre-disability income (including 10 per cent to superannuation) although a few arrangements provide 100 per cent income replacement. This means that, in the event of dis­ability, most pre-disability expenditure needs for the individual and their family are met but no allowance is made for the cost of disability support services in the event of severe disability. Indeed, any disability support pension received is usually offset by the insurer against the income protection benefit.  Similarly, most people do not arrange TPD insurance to the level required to meet the costs of personal support in the event of severe disability, even when they receive appropriate advice regarding the management of those costs. Often, affordability acts as a restraint on the level of TPD insurance obtained.  Most clients do not buy insurance to the level required to meet the cost of additional, ongoing services in the event that they become severely disabled.  The NDIS and NIIS will provide these services and, as such, will complement typical TPD coverage.
Having said that, NIDA will set “efficient prices” for support services provided under the national schemes; and as these become known, advisers will need to discuss with their clients whether to rely on services to the level provided under the na­tional schemes or to recommend additional TPD cover to meet the costs of supplementary or higher levels of disability support services.  Interestingly, the Productivity Commission report recom­mends that NDIS and NIIS benefits not be means tested. This will mean that all Australians suffering severe, long-term disabilities (other than as a result of the natural ageing process) will be eligible to receive benefits, irrespective of their income and savings.  The Productivity Commission report also recommends removal of the current Mobility Allowance and a review of the Disability Support Pension. This is to ensure that it becomes a transitional disability benefit, not a life-long pension, for those with some employment prospects.
The plan is to reduce the disincentives to return to work by relaxing or removing the work test for people already receiving disability benefits and by reducing the benefit taper rates.  Overall, this could mean a reduction in the levels of dis­ability support pension currently being paid (there are currently around 793,000 people on the disability support pension) which, in turn, will reduce the level of offsets applied under income protection policies, thus increasing the benefits paid by insurers.  The introduction of the NDIS and NIIS represents a revolution in the provision of services to those with severe disabilities and has been commended by most sections of the community.  For life insurers, superannuation funds and advisers these schemes will complement existing TPD, trauma and income protection arrangements and will need to be taken into account when discussing with clients the level of insurance required. In particular, for those clients who may incorrectly believe that a national scheme means they might no longer need personal insurance, it will be important to explain to them why both are needed.  Legislation to facilitate implementation of the NDIS and NIIS has not yet been published; and even if the timetable is as recommended by the Productivity Commission, the schemes would not be operational until between July 2014 (pilot scheme) and July 2015 (national launch). So whilst there should be no impact on current financial advice, the industry will need to adjust to the new disability care and support regime as it unfolds.

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