In this post, Gemma Carey (@gemcarey), Helen Dickinson (@drhdickinson), Michael Fletcher and Daniel Reeders (@engagedpractx) examine the role of National Disability Insurance Scheme (NDIS) actuaries, describing their purpose in the scheme, the limitations in the ways they are used and the implications. A full account of their research can be found here.
Most of us are familiar with actuarial approaches, though we may not be aware of them. If you have house insurance, insure your car or have a job (where you are covered by work cover) the premiums you pay are based on actuarial modelling.
Actuaries and actuarial modelling are central to the operation of the National Disability Insurance Scheme (NDIS). Internationally, the way that actuaries are used within the NDIS is very unusual although it is something that has not been written about extensively. If you have heard about actuaries and the NDIS it is probably because the outsourcing of this function made the news, largely due to $2.3 million that is being paid out on this over 5 years.
In this piece we unpack this role, describing the function of actuaries in the scheme and the limitations in the ways in which we are using them.
Where do actuaries fit in the scheme?
Actuarial analyses are central to insurance principles, allowing the calculation of the expected future funding liability and targeting of investment in areas that create the largest reduction in future costs. Within the NDIS the actuarial approach “aims to ensure that long-run scheme revenues (premium income) remain aligned with scheme costs (reflecting service utilization and unit costs)”. Within this approach, early intervention and targeted investment in certain support services is understood as a way of improving outcomes for an individual, while reducing overall lifetime expenditure across a number of different parts of government.
The NDIS Act outlines that the Scheme Actuary is responsible for overseeing and ensuring the financial sustainability of the scheme. Official duties of the Actuary, are to assess: (i) the financial sustainability of the NDIS; (ii) risks to that sustainability; and (iii) on the basis of information held by the NDIA, any trends in provision of supports to people with disability, including (a) the causes of those risks and trends; and (b) estimates of future expenditure of the NDIS. However, the Act does not authorize public monitoring and evaluation of how well the scheme is meeting its goals of ensuring choice, control, and better outcomes for individuals.
Supports to be provided under the scheme are based on the principle of providing ‘necessary and reasonable care’. This implies that estimating future costs requires not only adequate data on life expectancy, but also the life-long impacts of factors such as the medical progression of disabilities, the impact of new technologies on what might be regarded as ‘reasonable’, and changes in family circumstances affecting the availability of informal care. There are inherent difficulties in operationalising ideas such as ‘reasonable and necessary care’, which are inherently fuzzy. Moreover, the NDIS Act authorizes expenditures only indirectly, as a necessary implication of a provision which requires that expenditures ‘represent value for money.’ This introduces a role for the Scheme Actuary into almost all aspects of the system, since pricing of services and planning personalized budgets all impact upon value for money.
How is evaluation of the scheme done?
Neither the Act nor the initial design outline provisions for meaningful and ongoing monitoring and evaluation of impact, whether against the policy objectives or the participants’ self-identified goals. As a result, ‘value for money’ can only be judged in terms of efficiency – units of service delivered rather than outcomes achieved.
Despite how pivotal actuarial analysis is to the success of the NDIS, there continues to be a great deal of uncertainty about how actuaries operate within the scheme and how accurate modelling can be. As noted by the actuaries, “Analysis conducted by the Australian Government Actuary has confirmed that there are uncertainties around all cost elements of the NDIS, e.g. populations, severity distributions, and average costs”.
To fulfil the mandate set out in the NDIS Act, scheme actuaries require complex and longitudinal data, particularly to ensure continuous monitoring. Serious questions remain over how these data are obtained and its quality, with a current lack of transparency around the monitoring framework being designed by the actuaries and implemented by the NDIA, an agency whose capacity has come under considerable scrutiny. The Productivity Commission report (the blueprint for the scheme) argued that actuarial modelling would also play an important role in evaluating specific services and interventions funded under the NDIS. How this has translated into practice is unknown, as a result of limited transparency with both the actuaries and the NDIA.
The scheme is overly-focused on costs
Normally, actuarial cost modelling of services works through estimating costs based on independent information about prices and expenditures. However, in the NDIS, actuaries set the prices of services and supports, and, to some degree, also make decisions regarding what services are to be provided to whom through the NDIA and planners. For example, the actuaries have advised planners to not be afraid to make large upfront investments in equipment. As noted in the rules for the scheme actuary, the role is to “monitor, assess, and report on consistency of resource allocation across regions, planners, disability type, and other groupings as appropriate”. This could potentially see them involved in planning in a much more hands-on way in the future
The actuarial modelling of NDIS performance focuses solely on costs. As the Productivity Commission notes: “Financial (or actuarial) models measure any discrepancies between expected and actual costs and outcomes, and the adequacy of revenues to meet projected costs over the long-term”. The models explain why such discrepancies may have occurred, and analyse their implications for the financial sustainability of the scheme and its objectives for achieving outcomes for people with disability (either in aggregate or in specific categories). By itself, this modelling is limited in its ability to measure personal wellbeing or social and economic outcomes. It also cannot assess whether participants’ goals are being met, or whether participants experience their choice and control as purely formal (i.e. I get to choose who provides the service) or substantive (i.e. I get to choose how the service is provided). For a more robust evaluation of wellbeing, outcomes, and goals – which is after all the fundamental objective of the NDIS – alternative methods are needed and as the NDIS Costs Report points out, is a more difficult task than measuring costs against cost expectations
To date, there is limited information on benefits to individuals and families, which means that it is not possible to conduct a proper cost-benefit analysis. The NDIA has developed and piloted what it calls the NDIS Short Form Outcomes Framework, which comprises 8 participant domains (including choice and control, daily activities, relationships, home environment, health and wellbeing and life-long learning) and five family carer domains (e.g. whether families have the support they need, whether they know their rights, if they can gain access to desired services). The short form questionnaire does not attempt to assess whether participants feel the services delivered contribute to achieving their stated personal goals, largely because personal goals are so diverse and the instruments being used are not able to measure this.
In other words, while packages in the NDIS are personalized, the measures for success of the scheme are not. The NDIS needs a proper monitoring and evaluation framework that goes beyond assessing costs if we are to understand its real impact on lives.