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| Meeting: | Sustainability Committee - 11 July 2024 |
|---|---|
| Agenda Item: | 4. Draft June 2024 Scheme projections |
| Paper Type: | For Discussion |
| SLT Sponsor: | David Gifford, Scheme Actuary |
| Link to Corporate Plan: | Key Activity 1: Improve participant experience and outcomes with a financially sustainable scheme. |
| Previous Engagement: | Earlier iterations presented for discussion with SLT at Scheme Projections Forum of 4 June, 18 June and 2 July 2024. Feedback from earlier discussions is reflected in the set of results presented in this paper. |
1. Purpose
1.1. For the Sustainability Committee members to provide comments and feedback on the draft June 2024 Scheme projections, based on Scheme data to 31 May 2024.
2. Recommendation
2.1. It is recommended the Sustainability Committee discuss the draft June 2024 Scheme projections, as the latest view of Scheme financial sustainability and basis to inform the 2023-24 Annual Financial Sustainability Report (AFSR).
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5. Updated June 2024 Projection Results (before proposed reforms)
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6. Update to Proposed Reforms since December 2023 projections
6.1. Table 2 shows the estimated savings for respective initiatives, collectively the package of Proposed Reforms, totalling $19.3 billion over the four-year forward estimate period which have been reflected in the draft June 2024 projections.
6.2. There is significant uncertainty about the impacts of the Proposed Reforms beyond the forward estimate period, and the extent to which further reforms in addition to those considered here will be required to meet the NDIS Financial Sustainability Framework growth targets in the medium to long term. Therefore, for these draft projection results,
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Agenda item 4 Attachment B
Key assumptions and material risks associated with proposed reforms
1. Key assumptions
1.1. Non-price growth in payments per participant before the impact of Reforms for Outcomes (RfO) and other provisions (including legislation) will moderate from approximately 8% in 2023-24 to 7% in 2024-25, 6% in 2025-26 and to 2% in 2027-28.
1.2. A weighted average price inflation rate of 2.8% in 2024-25 (which includes removal of the 1% temporary loading in the disability support price), 3.9% in 2025-26, 3.6% in 2026-27 and 3.6% in 2027-28.
1.3. RfO initiatives are implemented effectively, in accordance with the assumptions determined from detailed discussions and bottom-up analysis undertaken by ADA since the December 2023 projections. This is an updated view from the RfO savings included in the 2023-24 Budget which were based on the assumptions underlying the original NPP costing. Since then, ADA has developed refined models to quantify the benefits produced by RfO initiatives, which reflect details around the current activities and outcomes, and the expected future implementation, of the program.
1.4. The first tranche of legislation changes including provisions to enable controls on overspending of plans as well as the Budget Models will be effective from 1 September 2024, a delay of 2 months from the expected date of 1 July 2024 underlying the December 2023 projections and the 2024-25 Budget.
1.5. The impact of Budget Models is in line with the December 2023 projections, and therefore also in line with the government’s commitment in the 2024-25 Budget, adjusted for the delay in timing of the first tranche of legislation changes. This assumes Budget Model parameters can be set to deliver an overall impact on Scheme expenditure with a high degree of certainty.
1.6. The new Budget Model provisions are assumed to take effect from 1 September 2025, with approximately 31% of “full effect” in 2025-26 scaling up to “full effect” by the end of 2027-28 (a 6.0% reduction in Scheme expenditure relative to the projection before allowance for Budget Models).
1.7. Legislation to enable spending in accordance with the plan and NDIS support provisions are assumed to take full effect from 1 September 2024 (a 3.4% reduction in Scheme expenditure in 2024-25 increasing to 4.9% in 2027-28).
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1.8. To achieve the saving referred to in 1.7, it is assumed that agency initiated reviews will occur for participants at significant risk of overspending.
1.9. Effective communications will be undertaken to support successful implementation of these provisions.
1.10. New entrants numbers will moderate from 82,195 in 2024-25 to 73,004 in 2027-28 (a reduction of 17%). This assumes effective implementation of Reform for Outcomes initiatives, as well as moderation in the rate of new entrants with developmental delay and autism with the planned removal of automatic entry lists and the strengthening of evidence requirements for access to the Scheme.
1.11. It is assumed that from 1 July 2025, 50% of the highest functioning children aged under 9 who would otherwise enter the Scheme will instead be better supported with Foundational Supports outside the Scheme. This means that a proportion of children with developmental delay and Level 1/Level 2 autism would not enter the Scheme from 1 July 2025, reducing the number of new entrants compared with those projected before proposed reforms. The design of Foundational Supports has not yet been agreed by the Commonwealth and States/ Territories and so this assumption reflects a plausible scenario of how Scheme participants may be impacted but may be different from the final design.
2. Material risks
2.1. If key aspects of Scheme experience do not moderate in line with baseline (before reforms) assumptions then Scheme expenditure estimates are likely to be above those shown, possibly materially.
2.2. If RfO initiatives are not implemented in accordance with the revised assumptions determined from the process described in 1.3, then Scheme expenditure estimates are likely to be above those shown, possibly materially.
2.3. Specifically, non-price plan inflation in the 12 months to 31 May 2024 is approximately 7.4% (after also allowing for participants transitioning to SIL and additional growth in plan budgets arising in the first year of a participant being in the Scheme). Including the effect of RfO initiatives, this is expected within the estimates to moderate to 6.2% in 2024-25 and further to 2.2% in 2025-26. If this does not occur then Scheme expenditure estimates are likely to be above those shown, possibly materially. To illustrate, every additional 1% of non-price plan growth for 2024-25 will add approximately $2.3bn to Scheme expenditure over the forward estimates, before allowance for any legislative reforms.
2.4. It is likely that if non-price plan inflation for 2024-25 exceeds 6.2% then assumptions about future non-price payment inflation will be increased. To illustrate, an additional 2% per year over each of the remaining years of the forward estimates (2025-26 to 2027-28)
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