Coalition support for levy just a step along the road to an NDIS

The remaining A$3.5 billion needed to fully fund the NDIS will still need to be found from other sources. Image from shutterstock.com

The announcement that opposition leader Tony Abbott will support a 0.5% increase to the Medicare Levy to fund the National Disability Insurance Scheme (NDIS) takes the politics out of about half the additional funding needed for the scheme – for a while, at least.

Prime Minister Julia Gillard will introduce legislation to pass the levy through parliament before the federal election.

But the NDIS isn’t on the straight and narrow just yet. The remaining A$3.5 billion will still need to be found from other sources.

And Abbott has promised that a Coalition government would scrap the Medicare levy when the budget returns to a strong surplus.

Why an NDIS?

To live a reasonable life, people with a serious disability such as quadriplegia, cerebral palsy or down’s syndrome must incur costs which others don’t have to bear. Special equipment, home modifications, transport and personal care are expensive, but without them it’s difficult to take part in personal, social and community activities and employment.

Right now, if you have a serious disability, access to appropriate, adequate and reasonable quality services and support is something of a raffle. It depends on what kind of disability you have, how you got it, how old you are and where you live. Often parents, community and friends meet the shortfall of services at great personal cost.

Home modifications are costly. Image from shutterstock.com

The NDIS is designed to provide appropriate, fair, sustainable and efficient services and support to the approximately 400,000 Australians with a permanent, serious disability.

The national system will determine who is eligible for services, mainly based on the assessment of serious permanent disability for people below the age of 65.

Individual plans to provide reasonable and necessary support services will be developed and approved for those who are eligible. And funding packages for the approved services included in the individual plans will be provided.

Show me the money

The real challenge is, and always has been, how to fund the NDIS.

Estimates vary, but the all up cost of the NDIS is currently about A$13.5 billion per annum. The states and the Commonwealth provide around A$6.2 billion at the moment, leaving a shortfall of around A$7 billion.

The proposed increase in the Medicare levy raises about A$3.2 billion, to be quarantined in a special fund dedicated to support the NDIS. The rest will need to be found from savings and redirection within the Commonwealth budget.

However, the longer term costs of the NDIS are uncertain. If the NDIS is an efficient, timely, entitlement-scheme based on need, costs will vary over time depending on the number of people assessed as eligible and the cost of reasonable and necessary services to support them.

In principle, entitlement-based, social insurance schemes are uncapped and adjust the required revenue to meet reasonable costs. Social insurance schemes such as the various Australian transport accident and workers compensation schemes are either fully funded or meet their costs as they go through their collection of premiums from motorists and employers.

The Commonwealth currently runs the Commonwealth Medical Benefits Scheme (CMBS) and the Pharmaceutical Benefits Scheme (PBS) as uncapped, entitlement-based social insurance schemes. The Medicare levy makes only a partial contribution to them; it simply makes a contribution to consolidated revenue. It is effectively a branded, income tax measure rather than a properly hypothecated tax or insurance premium.

Nevertheless, the Commonwealth has a reasonable history of successfully managing uncapped, entitlement-based schemes such as the CMBS and the PBS from consolidated revenue over the past 30 years.

The success of the NDIS depends on the right financial decisions. Image from shutterstock.com

Although the additional Medicare levy proceeds are intended to go into a dedicated fund, in practice NDIS funding will still be managed through general revenue. The added complication for the Commonwealth in the case of the NDIS will be designing agreements with the states to ensure they maintain their funding in real terms over time as costs increase.

The alternative is for the NDIS to become a scheme where the costs are constrained within a budget cap set by the Commonwealth and the states regardless of the number of people who are assessed as eligible or the level of reasonable and necessary service required.

Regardless of the very significant increase in funding currently proposed, over time this would lead to service rationing and people with significant disabilities being put on waiting lists.

The NDIS Act sets out an optimistic blueprint for people with a disability. General agreement on a partial revenue source to fund the scheme is a step along the way. But the question of how to fund the remainder of the system will determine the extent to which it operates as a fully fledged entitlement scheme which properly meets the needs of people with a serious and permanent disability, or one which is based on caps and rationing.