Monster that ate the National Disability Insurance Scheme

The grand dream to help thousands of Australians has been hit by a host of bungles.

15/04/2016 Sue Draper and husband Dennis Chung with their disabled son Alex (11) and eldest son Sebi (14). They are desperately hoping the NDIS gets rolled out as promised. At their home in Erindale, Adelaide Kelly Barnes/The Australian

In the months before Christmas 2014, Bruce Bonyhady — the chairman of the $22 billion flagship National Disability Insurance Scheme — was scared.

The country was in the grip of a budget emergency, as decreed by the new government, and the bosses in charge of the NDIS were stunned by the dawning realisation that the thing they were meant to deliver was bigger and uglier than they had prepared for.

This reporter and Bonyhady met to discuss the progress of the scheme and it was put to him that the cost of people turning 65 and being allowed to stay with the NDIS forever was going to add billions a year to the price tag, a figure from the scheme’s internal actuary, Sarah Johnson.

Bonyhady was silent before pleading: “Please don’t write that. We’re not ready to deal with that yet.”

The resulting story on the front page of this newspaper — based on an open interview with Johnson that revealed an additional cost of $6bn a year by 2040 — marked the end of what little control the agency had over its own functions.

All future requests for information became the domain of the federal minister’s office. The agency was in lockdown. A siege mentality, incubated since the earliest days of the scheme, was instituted in full.

What follows is an account of the “clusterf..k” that ruled the early years of the NDIS, the egos in the public service who threatened it, the ministers who tried to save it from itself and the agency bosses who stood blinking in the headlights.

From today’s vantage point, the medley of early mistakes have matured into a scheme that is riddled with access issues, slow planning turnarounds and questions about future design that will have huge effects on its financial sustainability. The pace at which the NDIS must grow is about to jump astronomically: the agency says it will need to make 12,000 decisions a month for the next two years.

It was never meant to be this way, of course. Advocates know that when it comes to social policy, big, groundbreaking reform is difficult if not impossible. Once in a generation the stars may align and, if they do, there is the briefest window in which to act.

For the disability sector that moment was 2011. Spurred on by the Productivity Commission’s thumping 545-page report in the same year that recommended most of the present NDIS design, the Gillard government rushed to legislate a scheme that was sold as a panacea for 460,000 Australians with the most severe and profound disabilities.

The NDIS would replace a federated Frankenstein’s monster of state-funded disability support that was fragmented, inefficient and kept people with disabilities as prisoners of their service providers, the providers who received the bloc funding to provide intermittent services. In 2012 Julia Gillard said there were 100,000 people with disabilities who received little to no support at all. Certainly not enough to live or be productive members of society.

A dream of advocates for years, the NDIS found its time in part because of the support of Bill Shorten, who was then a junior parliamentary secretary with the politically unpalatable responsibility of disabilities. But in his travels around the country speaking to people with disabilities Shorten was struck by two things: the depth of anger in the community and, he was once heard to say, his shock at how many votes were up for grabs in the sector.

He swooped. The idea was sweeping, another Labor program to be proud of, Whitlamesque in its scope and impossible to argue against as a concept. What politician would dare?

Twenty-two billion dollars would be spent every year on these participants. The money would be given not based on the label of their disability but on what they needed to live and function in society. If they could show it was “reasonable and necessary” they would be given whatever amount of money was required to help them buy new wheelchairs, one-on-one time with support workers to get them out of bed and into the shower, incontinence supplies, remodelling of the home for access issues. And it would be given to them. Not means-tested, not capped. Theirs, to spend with whomever they chose.

Labor’s grand plan needed to be executed quickly. The heady days of the resources boom were over and economic headwinds were strengthening. Money was running out. Treasurer Wayne Swan had never — and would never — deliver a budget surplus. Gillard was mortally wounded as prime minister and an election was due in 2013.

The economic climate demanded sturdy financial foundations for the scheme but the political climate required haste. When Gillard announced the first launch sites of the NDIS in April 2012, she boasted that the scheme was being rolled out “a full year ahead of schedule”. That schedule was recommended by the Productivity Commission.

“An NDIS will give all Australians with a significant disability the peace of mind to know that their care and support needs will be addressed, no matter where they live or how they acquired their disability,” Gillard said at the time.

And so the necessary mechanisms were set in place that would allow the NDIS to snatch defeat from the jaws of victory. Like electricity and water, complexity and speed are common enemies. And here, on the biggest social project since Medicare, they intersected with vigour. Petty public service politics served only to deepen the problems that soon would beset the scheme.

Inquirer has spoken to five people who worked on NDIS policy inside and out of government, some of whom are still employed in similar positions, elected officials and others to inform this inside look at how the scheme was born.

A picture of the discord begins, as it so often does, with two men who did not get along. Nick Hartland, group manager NDIS in the Department of Social Services, is charitably described as a prickly character with a sharp policy brain and a knack for mismanaging internal relationships. He was in charge of the policy.

In parallel, James Christian was in charge of the team that was going to move a series of commonwealth programs (such as the federal autism early intervention program) to the NDIS.

The two did not talk. More accurately, the two actively tried to avoid the other.

“It was open warfare, a complete clusterf..k,” one person familiar with the operation tells Inquirer. “You had two streams within DSS that were critical in both the policy implementation and the program transition just not talking to each other.”

In the orbit of the DSS was the fledgling National Disability Insurance Agency, the statutory body with its own board, staff and charter. If Hartland and Christian did not trust each other, neither of them trusted the NDIS agency, which was jealously eyed by public servants as the main game in town.

“This internecine struggle and squabble was happening at a time when there was very real work that needed to be done and it had huge ramifications,” he says.

One line area in the DSS told key external stakeholders they would hear from the NDIA but they neglected to inform the NDIA. The stakeholders were left waiting for months.

This was a standard set piece.

“We’re talking about empires and who was prepared to cede ground to who. It sounds like really minor stuff, but in the hierarchical society that is the public service this is everything,” the source says.

The professionals in the DSS wondered about the NDIA. A curtain had been pulled down and its staff were working away quietly and in isolation.

“There was this sense that the NDIA were going to do this amazing social experiment without worrying about the money,” one person says.

“No one, no one, no one ever said this was a bad idea. The question was how the implementation was going to roll out with a bureaucracy that was so rived.”

When the Coalition came to power in 2013, just months after the NDIS launched in four states, it began reckoning with the books. Gillard, initially fearful Tony Abbott would whip up a “great big new tax” campaign if she raised a levy to help pay for the scheme, rejected offers of “unconditional support” from state and territory leaders in 2012 to do just that.

A chorus of support grew, in time, and the hike in the Medicare levy eventually won bipartisan backing and was legislated by Gillard in May the next year, months after the opportunity presented itself. But it would never pay for the full $22bn scheme.

The commonwealth fretted about a $5bn shortfall in the first years of full rollout, partly the result of winding back or refusing to commit to some savings measures laid out by then minister Jenny Macklin in the 2013-14 budget.

Mitch Fifield, then the assistant minister for social services, took responsibility for the scheme and, behind the scenes, his office took a dislike to NDIS chairman Bonyhady almost as quickly.

Bonyhady, appointed by Labor, had all the right credentials on paper. He held senior positions in the funds management and insurance industry and his two adult sons both had disabilities.

A view formed, however, that Bonyhady was a ditherer and lacked the will to keep costs within the $22bn envelope. Some in the Coalition saw Bonyhady, NDIS chief executive David Bowen and board member John Walsh as a sort of expansionist triumvirate. Whether intentionally or otherwise, this power core would see the NDIS buckle under its own weight.

Walsh particularly has a voluminous history of advocating for a bigger, bolder insurance scheme than the one being delivered. And he was influential in the NDIS. Walsh, who suffered a spinal cord injury while playing football, is an insurance actuary, a person with disability and a former partner at PricewaterhouseCoopers, which received millions of dollars in department and NDIA consultancy work while he was a partner.

He was also associate commissioner at the Productivity Commission when it delivered the 2011 NDIS blueprint.

Walsh’s former employee at PwC is Johnson, the current NDIS actuary, and together the pair authored an article in the Australian Economic Review journal that outlined the “Woodhouse model” as being the basis for the NDIS. The Woodhouse report led to the New Zealand Accident Compensation Commission, which began in 1974. That scheme, which takes an insurance approach on covering all personal injuries on a no-fault basis, almost collapsed in the 1980s and experienced a $4.9bn loss in 2008 because of an outsized number of claims.

Before Kevin Rudd’s 2020 summit, Bonyhady had already been working on designs for the NDIS. He is widely regarded as the scheme’s architect but it was Walsh on whom he called to help with the numbers.

Walsh was appointed to the federal government’s Disability Investment Group in 2008 and the Productivity Commission in 2009. In that time the then department engaged PwC, Walsh’s firm, in a $330,000 contract to consult on a “proposal to extend the National Disability Insurance Scheme to include other categories”.

This contract led to the PwC report that was prepared for the Disability Investment Group, of which Walsh was a member, and on which Walsh was listed as the primary author.

PwC also completed an $80,000 departmental contract to investigate “jurisdictional interest” in a national scheme for the catastrophically injured, similar to New Zealand’s ACC.

In late 2011 PwC published its paper on disability support that recommended the adoption of the Productivity Commission’s landmark report. Walsh is listed as the main contact, although it makes no mention of his role at the Productivity Commission at the time.

At almost the same time, in October 2011, PwC began a contract with the Department of Families, Housing, Community Services and Indigenous Affairs to provide technical and governance advice for the NDIS. PwC received $1.8 million for the contract that ended in June 2013 to advise on the scheme he had recommended to the government.

The following year, Walsh’s PwC completed an NDIS risk review for the same department for $90,000.

In June 2013, just before to his retirement from PwC, Walsh was appointed a director of the NDIS, serving under Bonyhady as chairman.

This is the nexus that spooked the Coalition government that, in turn, led to its mission to spill the board positions of the agency. Board positions will be expanded and staggered. Bonyhady maintains Walsh was clearly the best man for the job.

“John Walsh is one of Australia’s leading and most respected disability and insurance experts,” he says.

“He is respected around the world and is a person of the highest integrity.”

Inquirer is not suggesting any wrongdoing on behalf of Walsh. Bonyhady says the alternative to the NDIS is governments needing to spend an additional “$30bn to $40bn” every year within two decades on disability. “National expenditure on disability services is projected to increase by 0.5 per cent as a result of the NDIS — but in return the economy is projected to grow by 1 per cent,” he says.

“We now have 10 times the data available to the Productivity Commission and what this more reliable and up-to-date evidence shows is that $22bn continues to be the best estimate of the cost of the NDIS when it is fully rolled out nationally in 2019-20.”

The problems for the NDIS began almost as soon as it started in four launch states. A capability review commissioned by the board in December 2013 compared the entire NDIS to a plane that was still being built as it was taking off.

Reporting by this newspaper has exposed a litany of design flaws and implementation bungles. To name a few: the South Australian government duped Gillard into signing a deal that underestimated the number of children in the trial by about half (5000); the cost of ageing in the scheme was never modelled properly and eventually will add $6bn a year to its cost; the agency has no concrete plan to deal with the explosion in numbers of children requiring early intervention supports (and released a six-page vague document after years of trying).

In Adelaide’s east, Alex Chung, 11, has been one of the lucky ones who got access to the scheme during the state’s bungled trial.

Alex, born with neurofibromatosis type one and who is also autistic, has been receiving occupational and speech therapy with funded care so his parents, Sue Draper and Dennis Chung, can have the occasional rest.

“It has been such a daunting process but we are really grateful it is happening,” Draper says.

“Alex’s condition does cross over into the health system, that is a real tricky one. It all depends on how you define what a disability is and where do you draw the line and what people that have those very severe and disabling conditions. They have to keep justifying their disability; we’re having to go through this process to justify his need.”

Beyond the scheme itself is the expectation that the states and territories have signed up to: that they can get out of the disability ser­vices game altogether once the NDIS is here in full. But it will cover only 460,000 of the most severe and profoundly disabled citizens. The rest? No one knows.

“Literally 95 per cent of the effort on the funding negotiations was about verifying the PC’s estimate of how much the NDIS would cost and then on how the commonwealth and states would split this cost,” one person intimately involved with the design and delivery of the NDIS tells Inquirer.

“We (the commonwealth) didn’t even think about all the things that were related to the NDIS, these were out of scope. No guarantee on a level of mainstream services governments must provide NDIS participants, no commitment that the states were going to continue to support all the people who aren’t eligible, etc.

“My view is that it wouldn’t have been possible to get an NDIS up in the timeframe if we had to negotiate this part, and it is unrealistic fiscally because it would have forced governments not only to commit to a $22bn NDIS but to lock in literally billions of additional dollars. If the commonwealth argued that states must preserve disability funding within schools, then the states would have argued that the commonwealth preserve DSP (disability support pension) funding levels and eligibility, which it would never have done.”

Just 10 weeks before the scheme began, COAG “partially resolved” the split of responsibilities. The agreement includes details that state the NDIS will pay for all disability transport for children to and from school, self-care for children with disabilities in schools and more. The Productivity Commission included these in its modelling but the numbers are rubbery.

“The PC can’t tell you how much they allocated for personal care at school. Nobody knows how much these items will cost the NDIS, so it’s very difficult for the commonwealth to understand the implications of the states pushing addition responsibilities into scope for the NDIS,” one source says. “Not knowing the scale of these funding shifts makes the commonwealth even more worried about cost-shifting in the NDIS.

“Now it seems that in the absence of any agreement to keep the supports for non-eligible people, some states are also walking away from these other funding responsibilities. States can do this will full immunity because it was never part of the deal.”

Bipartisanship for the NDIS has been a blessing and a curse. Criticism has been framed as an attack on the idea and, despite years of coverage, the NDIA, ministers or opposition have never conceded there are financial risks in its future.

Those risks, in turn, are threats to the promise of a better future for the hundreds of thousands of people with disabilities who thought their time had come.

Agency responses have used semantics: the NDIS is being delivered on time and on budget. This is true.

Documents obtained under Freedom of Information laws lay bare the NDIA’s angst about controlling cost blowouts to the scheme in the future.

The bosses want legislative change to give the chief executive more power to demand evidence of the value of therapy and says the Productivity Commission never modelled the number of people with chronic health problems who, under the vague laws, could gain access to the scheme.

“Of course it has been hard work for everyone involved. This is the biggest social reform since Medicare; it was never going to be easy. But the almost universal view of people I talk to is that it has been absolutely worth it,” opposition disability reform spokeswoman Jenny Macklin says. “I know it will get more challenging as we ramp up, not less. But that’s no excuse to talk down the scheme’s future or put on the handbrake.

“If we had stopped every time someone had urged us to, we’d still be talking about the NDIS instead of actually delivering it.”

Every reform has its time. The real test for the NDIS, however, is only just beginning.