Pressures on the cost of providing care for lifetime care schemes
Increasing demand for services
Over recent years, the care and support workforce has grown three times faster than total employment across the Australian economy. This has been driven by a material increase in the demand for disability and aged carer services.
One of the key drivers of this increase in demand is highlighted in the 2023 Intergenerational Report (IGR), which notes:
Numbers of participants in the NDIS scheme are significantly higher than expected with 49% more participants in the Scheme as at 30 June 2023 than expected in the original Productivity commission estimate in 2018-19
An increase in the breadth and volume of support received by NDIS participants over time, which is reflected in the average support package costs increasing by 6% p.a. between 2019-20 and 2022-23
Demand pressures have been further exacerbated by our ageing population, evidenced by the number of people accessing aged care increasing by 55% since 2015 , and the decrease in migration due to COVID-19.
These pressures are also highlighted in the recent NDIA Annual Pricing Review which noted:
The Healthcare and Social Assistance (HCSA) industry is the largest employing industry in the economy and has grown at 4.1% p.a. over the last ten years (compared to 1.7% p.a. for all other industries)
Over the four years prior to the pandemic, wages in the HCSA industry were the fastest growing of all industries
Despite this growth in employment and wages, the number of vacant positions in NDIS related occupations is at record highs and underemployment at record lows, indicating continuing struggles to increase workforce supply in order to meet demand
The real increase in carer wages and the impact of these increases on the cost of providing disability care is illustrated below. Figure 1 compares the increase in Wage Price Index (WPI) to the increase in carer wages  and NDIS attendant care rates , relative to 1 July 2015. As the NDIS is the largest consumer of disability care services, they are a quasi-price setter in this space, with other consumers of care generally paying rates similar to the NDIS. Therefore as the NDIS increase their rates, this increases inflationary pressure on other consumers of care, such as the state based NIIS and workers compensation schemes.
Figure 1 – NDIS Attendant Care Rates vs disability care wages
Since 2015, carer wages have increased by 46% and NDIS disability care prices have increased by 53%, highlighting the strong relationship between carer wages and the cost of providing care. These increases compare to a 24% increase in CPI and a 20% increase in WPI over the same period.
These increases have applied significant pressure on the cost of providing disability care services for the NDIS and the National Injury Insurance Schemes (NIIS). This pressure is noted in the NDIS Annual Financial Sustainability Report which shows an increase in average annualised payments of 9.2% p.a. over the three years to 2021-22 .
Prospective Inflation Considerations
Prospectively, demand for disability and aged care services is expected to continue to increase, placing further pressure on the care workforce, and potentially the cost of providing care. The National Skills Commission projects that by 2049-50 the total demand for care workers (aged care and disability supports) will roughly double. It also projects that the growth in demand for care workers will exceed growth in workforce supply, so that a workforce gap will emerge in the short-term and grow to about 210,000 full-time equivalent (FTE) positions by 2049-50 .
Currently, about 2.9% of the workforce (on an FTE basis) are engaged in the delivery of care services. Demand for care workers in 2049-50 is expected to account for about 3.9% of the workforce. However, about 40% of the total demand for care workers is not expected to be met in 2049-50 under current policy settings. A subsequent update to this analysis cited further tightening of the labour market, resulting in increases to the expected workforce gap .
Similarly the Intergenerational Report, expects government spending on the NDIS and aged care to increase materially, from 2.0% of Gross Domestic Product (GDP) in 2022/23 to 4.9% of GDP in 2062/63 .
An increased focus on aged care, as evidenced by the aged care Royal Commission and subsequent Aged Care Act , is likely to increase pressure on aged carer wages, and have flow on impacts in the disability care sector. In particular, from 1 October 2023, residential care facilities will be required to deliver at least 200 minutes of care, per resident per day. This may result in an increase in the demand for aged carers for these facilities, potentially reducing disability carers available. In addition, as of 1 July 2023, the Fair Work Commission has increased the minimum wages for aged carers by 15%. While after this increase aged carer wages will continue to sit below disability carers, this increase speaks to areas of potential future inflationary pressure in these sectors.
An avenue for increasing supply of workers to the care industry is to offer wages which are commensurate with other industries requiring a comparable level of training commitment (notwithstanding that the skills acquired are obviously different). This could include workers from the manufacturing, accommodation & food, wholesale trade and retail trade sectors. The higher wages will serve to attract workers currently employed in other industries as well as those prospectively considering entering the workforce. While there are other factors that drive ability to attract workers into the disability care industry, wages are a strong determinant, particularly when the cost of living is escalating.
Figure 2 compares the average weekly ordinary time earnings (AWOTE) for disability carers and AWOTE for similarly skilled industries, since 2015. The figure also shows the ratio between these wages (AWOTE Ratio).
Figure 2 – Care and Similarly Skilled Sectors AWOTE Ratio
Over the last eight years, large increases in carer wages have resulted in the AWOTE ratio increasing from 72% to 84%. Over this period, carer wages have increased by 46%, while wages in similarly skilled industries have increased by only 25%, similar to WPI. Over this time period the number people employed in the disability care sector increased by 90%  in an effort to meet demand.
It is unclear what level the AWOTE ratio will need to reach in order to meet the currently unmet demand (as evidenced by the historically high job vacancies) and expected increases in future demand as the NDIS continues to grow and the population continues to age. To help understand the likely trajectory of carer wages and therefore the cost of delivering care services, Finity has partnered with the Centre of Policy Studies (COPS) at Victoria University to build a Computable General Equilibrium (CGE) model of the Australian Economy with a focus on care occupations. The purpose of this model is to estimate wage growth by occupation, while also considering other drivers of cost, such as improvements in productivity and technological advancements. The results of this modelling will be presented at the Injury Disability Scheme Seminar in November 2023.
Levies and Road Safety
In order to maintain financially sustainable lifetime care schemes, scheme administrators must charge a levy (or premium) that is at least equivalent to the expected cost of claims over the long-term, receive and accept claim numbers in line with long-run expectations and keep claims costs, over the lifetime of these participants, in line with initial expectations.
Levies charged should therefore represent the expected number of participants multiplied by their expected average lifetime costs of treatment, care and support, allowing for future inflation and expected investment returns.
In order to maintain the social licence of these schemes, premiums must remain affordable. This is the competing tension that makes it hard to achieve the above; a different competitive tension to that which applies in the private insurance market.
What are the key drivers of levy increase between years?
Several key drivers of future cost exist, including:
1. Claims cost inflation manifests in several ways:
Wage and CPI inflation for treatment, care and support costs funded by schemes. As already discussed, significant future wage inflation pressures exist for lifetime care schemes through expected higher than national average wage inflation for disability support workers. Scheme administrators have little to no influence over the trajectory of wage inflation for disability support workers, and therefore this key area of a scheme’s future cost growth.
Cost inflation can also manifest as increasing utilisation of services, as a result of changing needs of participants, changing expectations for what constitutes necessary and reasonable supports, or the changing nature of funded supports. In addition, the evolving landscape of supported accommodation may result in disability support workers' time not being used optimally.
Some treatment specific cost inflation may be expected to reduce a participant’s overall lifetime treatment, care and support costs; for example, the evolution of rehabilitation services to incorporate new treatment types e.g. behaviour support programs or advancements in spinal cord injury therapy.
Specific treatments can sometimes drive up expected costs. For instance, advancements in prosthetic technologies have brought about a shift from mechanical limbs to higher-priced myoelectric prosthetic limbs.
2. Participant volumes
The number of scheme participants will directly impact the levy cost; a strong business case for investment by governments and other stakeholders in targeted road safety initiatives to help bring numbers down.
Car manufacturers continue to produce safer vehicles with more physical safety features and smarter collision avoidance systems. However, the existing and aging vehicle fleet does not possess these features and will be on our roads for many more years. Moreover, how we drive and the roads on which vehicles are driven will continue to impact road safety outcomes.
Historically, improvements in road safety and resulting serious injury reductions had been partially offsetting the impacts of claims cost inflation for these lifetime care schemes. Between FY2010 and FY2019 we observed a national reduction in fatality frequency (fatalities per registered vehicles) of around 4% p.a.. This measure is a good proxy for serious injuries that are eligible for lifetime care schemes. This trend in fatality frequency seems to have stopped post COVID with no reduction between 2022 and 2023. Without a reduction in participant numbers, schemes do not have the benefit of this year on year cost saving to offset treatment and care cost pressure on future levies.
For each catastrophic injury saved, we estimate a rule of thumb impact on the larger lifetime care schemes’ levies of between 1%-2%. A reducing frequency trend starts to add up quickly and make a material dent in claims cost inflation pressures.
For the above contributions to inflation it is useful to distinguish between cost increases that are outside of the control of schemes, costs that enhance participants' lives and those that might be considered 'avoidable leakage'.
Scheme response to inflationary pressure
Scheme administrators are required to fund supports for an individual’s reasonable and necessary care. The schemes are doing what they can to understand the cost – benefit equation in areas that enhance participants’ lives and also to detect and stamp out ‘leakage’. However, outside help may also be required to manage costs to a reasonable level.
One area of high potential is targeted road safety investment which could make a material impact on lifetime care scheme’s cost growth.
What does targeted road safety investment look like?
Road safety improvements happen as a result of a significant investment of capital (many hundreds of millions of dollars!). What if we could target this capital investment to ensure that the ‘savings’ (measured as the cost of injuries saved) is at least equivalent to the capital investment?
We can go some way towards this, by building a number of linked statistical models to represent (1) the cost of injuries, based on known road injury outcomes (2) the type of road accidents most likely to cause those injuries and (3) the accident circumstances described in multiple dimensions including geographic areas where those accidents occur.
The ‘problem’ is that road crashes that result in serious injuries occur in very few places relative to the size of the road network . However, new AI techniques make it possible to assess similarity between roads where accidents have occurred and all other road segments to proactively target future risk.
A blend of claims cost and accident circumstance data and chained statistical, machine learning and AI models can be deployed to more accurately target road safety investment that have a greater likelihood of reducing road trauma and the number of people who rely on lifetime care schemes. Not just looking where risk has emerged but predicting where it might in future.
Finity’s combined geospatial and Gen AI expertise combine ideally to advance this area of research.
 Care Workforce Labour Market Study: Report Summary 2021
 Intergenerational Report 2023: Australia’s future to 2063
 GEN Aged Care Data
 NDIS Annual Pricing Review 2022-23
 Social and community services employee level 2 – pay point 3.
We note that the NDIS price guides are the maximum rates that can be charged.
 Assistance With Self-Care Activities - Standard - Weekday Daytime
 NDIS Annual Financial Sustainability Report 2021-22
 National Skills Commission. (2021). Care Workforce Labour Market Study.
 National Skills Commission. The Care Workforce Labour Market Study – August 2022 Update
 Intergenerational Report 2023
 Aged Care and Other Legislation Amendment (Royal Commission Response) Act 2022
 Australian Government Labour Market Insights
 1.8 million km lanes of roads in Australia: Information Sheet 92, Growth in the Australian Road System (bitre.gov.au)