Campbell, Jane --- "NDIS funding post-settlement: How personal injury settlement impacts future funding" [2022] PrecedentAULA 43; (2022) 171 Precedent 42

In the past, the National Disability Insurance Scheme (NDIS) was perhaps unfamiliar to many of your clients. In recent years, however, awareness and participation have grown.

As personal injury lawyers you may have been dealing with ‘repayments’ to the NDIS at the time of settlement. This has become a reasonably straightforward process, not dissimilar to the process for managing repayments to Centrelink and Medicare.

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Given the importance of NDIS funding for many clients, it is valuable to be able to explain the impact of a compensation payment on their future NDIS funding.

The focus of this article is to help you explain to clients the theory and practice of the NDIS Compensation Reduction Amount (CRA) – including its calculation – in the context of a lump-sum settlement.

OVERVIEW

In simple terms, if your client is to receive a lump-sum compensation payment which includes any compensation for future care, therapy and equipment, then a CRA will be calculated by the National Disability Insurance Agency (NDIA) to reduce future NDIS funding.

The aim of the calculation is to estimate the amount of compensation that was for ‘NDIS-type supports’, in order to avoid a situation where plaintiffs have these supports paid for by the defendant and then again by the federal government/taxpayer.

It is not possible for lawyers to accurately predict the CRA, but this article will enable you to explain why and how the CRA will be imposed. It will help you to understand the calculation, come up with an estimate, explain the limitations of any estimate and review NDIA calculations shared with you by your clients. It will also help you to help your clients secure a lower CRA.

NDIS basics

The framework comprises three layers: the NDIS Act, the NDIS Rules and the NDIS Compensation Operational Guideline (Guideline). The NDIS Rules are legislative instruments made under the NDIS Act.^[1] The Guideline sets out some of the NDIA’s operational information.^[2]

The NDIS provides federal government funding for ‘reasonable and necessary supports’^[3] for Australians with a permanent and significant disability.^[4]

It provides funding on a no-fault basis for supports such as commercial care, therapy, equipment, modifications to home and vehicles and skills training.^[5]

Participants get a plan, which is usually annual (though it can be shorter or longer),^[6] with specific funding for different categories of support.^[7]

Navigating the highly bureaucratic system can be time-consuming, and is best tackled by the computer savvy and those familiar with the relevant jargon (an increasing cohort of people).

Those who can advocate strongly for themselves, or have a family member or someone else to do so for them, generally fare better than those who do not. Outcomes can also vary depending on who your local NDIS contact person is and the constraints of the system.

Rules relating to compensation

From inception, the NDIS anticipated the need for special rules relating to those receiving compensation.

The NDIS Act deals with the ‘recovery’ of past NDIS funding at (and to) the time of settlement.^[8] This recovery is not the focus of this article.

The National Disability Insurance Scheme (Supports for Participants—Accounting for Compensation) Rules 2013 (Compensation Rules)^[9] were written to ensure that where individuals receive compensation payments, the NDIS does not duplicate the funding for supports already provided for by these payments.

The Compensation Rules require the application of a CRA to ‘reduce’ future NDIS funding. Rule 3.5 makes it mandatory for the NDIA to calculate a CRA.

Theory behind the Compensation Reduction Amount calculation

The aim of doing the CRA calculation and then applying it to the NDIS plan is to prevent ‘double-dipping’: a situation where a plaintiff receives a lump sum settlement to pay for future care, therapy, or equipment, and then the NDIS pays for those same supports.

The calculation seeks to estimate how much of the compensation was for the sorts of things that the NDIS would otherwise provide. It is intended to be fair to both the injured person and the taxpayer.

The theory is that compensation recipients are expected, at least broadly, to spend their settlement funds roughly in line with the relevant heads of damages.

Compensation for future care is supposed to be spent on just that, and not, for example, on a house. The CRA makes it important for plaintiffs to realise that if they spend the funds intended to be used for future care on a house, or business, or something else, then the NDIS will not step in and fund that care. The NDIS is designed to ‘complement, not replace, existing compensation arrangements for personal injury’.^[10]

The CRA calculation methodology specified in the Compensation Rules and Guideline^[11] seeks to come up with an estimate of how much of a settlement was for the types of supports that the NDIS might otherwise fund.

Given that most settlements are an ‘undifferentiated lump sum’, this is not an easy task. How can a bureaucrat at the NDIA ascertain exactly what was recovered for which future needs, and what are the sorts of things that the NDIS might otherwise fund into this plaintiff’s future?

Distinguishing relevant compensation

A CRA will not be imposed in all cases. It will apply only when some of the compensation was for NDIS-type supports.

Compensation is referred to in, among others, rr 1.1, 3.5 and 4.4 of the Compensation Rules, and defined in the NDIS Act as a payment in respect of compensation or damages in respect of personal injury:

‘that is wholly or partly in respect of the cost of supports that may be provided to a participant (whether or not specifically identified as such) [emphasis added].’^[12]

Sections 9 and 13(2) of the NDIS Act make it clear that ‘support’ includes a ‘general support’, which is defined as:

that is in the nature of a coordination, strategic or referral service or activity, including a locally provided coordination, strategic or referral service or activity.’^[13]

A CRA will therefore be imposed only if compensation includes funds for NDIS type supports such as future commercial care, therapy, equipment, modifications to a home or vehicle, and skills training.

This means that if your client is recovering damages for economic and non-economic loss only, they will not have their NDIS funding reduced by a CRA.

This might occur in NSW, for example, when a plaintiff is recovering damages under s4.3 of the Motor Accident Injuries Act 2017 (NSW). In that example, the plaintiff cannot recover lump sum compensation for future care as they will instead be expected to receive that future care over time as a participant of the NSW Lifetime Care and Support Scheme.

Note that you or your client cannot simply decide not to pursue damages for future care in order to avoid a CRA. The NDIS Act has provisions essentially requiring a participant or prospective participant to take action to claim or obtain compensation.^[14]

When does the NDIA calculate and apply the CRA?

It has taken more than eight years – since 2013 – for the NDIA to build a team of people to take on and ramp up the task of CRA calculations.

This team is now up and running, but it still seems like early days in terms of them finding their feet and developing some consistency of approach.

In relation to matters that settled long ago, CRAs are gradually being calculated and applied. It remains to be seen how far back the NDIA will try to go in seeking information about these settlements.

The NDIA knows about past payments of compensation because all NDIS applicants are obliged to disclose any such payment in their Access Request Form.^[15] This triggers a request to complete a Compensation Information Form.^[16]

As lawyers nominated by your clients, many of you may have received communications from the NDIA asking for details of past claims. Presumably this requires you to recover archived documents to assist in the process.

Your current clients whose matters have not yet resolved will also need to disclose their claims in their NDIS paperwork. Participants are encouraged to complete an updated Compensation Information Form when they are about to receive compensation.^[17]

Of course, in anticipation of the need for an NDIS recovery, you will no doubt also be communicating with the NDIA, seeking details of the necessary repayment.

The CRA can only ever be calculated post-settlement. The NDIS’s CRA fact sheet provided to participants notes:

‘A Compensation Reduction Amount will usually be applied to your plan at your next plan review. If you have a current plan, the funding will not be affected until a plan review is completed. This means that you can continue spending the funding in your current plan as normal.’^[18]

HOW THE COMPENSATION REDUCTION AMOUNT IS GENERATED

The process begins some time post-settlement, with the NDIA sending a letter of introduction to the participant directly or care of their nominated contact person.

In this letter, the NDIA states what a CRA is and seeks information about compensation received. It requests documents, noting the settlement amount, breakdown of the settlement, and any amounts taken from the settlement prior to the client receiving the payment. It also requests documents showing the amount claimed, such as the Statement of Claim or Particulars of Special Damage.

The NDIA also seeks information about supports paid for by the plaintiff before becoming an NDIS participant. It seeks evidence in the form of receipts, invoices, and bank statements. I am advised by my clients that the NDIA will also accept statutory declarations if no such evidence is available.

The NDIA gives the participant around two weeks to respond and then sends an ‘estimate’ letter, setting out its calculation in table format and advising of the ‘total CRA’ and the period over which it will be divided, as determined by the NDIA’s Office of Scheme Actuary (OSA).

The NDIA states in this letter that an amount up to this annual CRA amount may be reduced from the next plan, and that if the plan is less than that amount the plan funding may be reduced to nil. A list is included of (some of) the sources of information on which the calculation was based, usually ‘Centrelink preclusion information provided by Services Australia’, on a certain date. Unfortunately, the details of this information are not shared with (or available to) the participant.

The NDIA gives the participant around two weeks to provide input and then sends an outcome letter, setting out the calculation. This is very similar to the estimate letter, though it will also reference any new inputs and associated adjustments.

The NDIA indicates in this letter that the annual CRA will be applied to the next plan and will be reassessed at each future plan review, and that future plans will be reduced until the total CRA is nil.

Calculation rules and Guideline

Part 3 of the Compensation Rules is titled ‘Compensation’. Rule 3.1 requires a CRA if the participant’s impairment was caused ‘to any extent’ by personal injury.

Rule 3.11 relates to personal injury compensation where the NDIS support component can be ‘objectively identified’. It is likely this would arise only in the context of a very detailed court judgment.

This was recently considered by the Administrative Appeals Tribunal in the matter of Whittaker and the NDIA.^[19] The applicant was not happy with their CRA calculation and argued that it was possible to objectively identify the NDIS component of their sanctioned settlement sum by looking at the elements of the total claim, noting the final settlement sum and reducing the elements on a pro-rata basis. This argument was rejected on the basis that:

‘The amounts claimed for various heads of damage come entirely from the minds, or beliefs, of the Applicant and those advising him, and could have been requested in any amounts depending on the subjective views of those people’.^[20]

Rule 3.13 sets out how the CRA is to be calculated in ‘other circumstances’ (that is, where the NDIS support component cannot be objectively identified).

Details of the CRA are set out in s8 of the Guideline. The compensation provisions in the Guideline were significantly updated in 2019.

Calculation of ‘total’ compensation reduction amount for a settlement

Rule 3.13 sets out the calculation method, which is interpreted and applied by the NDIA.

The NDIA, in its letters to participants, sets out its calculations in table format: see the calculation table below.

NDIS Rule 3.13	Figure
Compensation settlement.	A
Medicare repayment (subtract).	B
Centrelink repayment (subtract).	C
Other (subtract).	D
Value of any period of preclusion from a statutory scheme of entitlements, for example Centrelink (or 50 per cent if a preclusion period has not been applied and economic loss has been awarded) – subtract.	E
SUBTOTAL	F
Use the lesser of the subtotal and the amount determined by the NDIA OSA. The amount determined by the NDIA’s OSA is based on the expected lifetime cost of reasonable and necessary supports if the person had been a participant of the NDIS since the date of injury.	G
SUBTOTAL	H
NDIS type supports paid for on behalf of the participant from the date of the accident to the date they joined the NDIS (subtract).	I
Any amount recovered by the NDIA from the compensation settlement (subtract).	J
Any CRAs that have been applied to earlier NDIS plans (subtract).	K
Total estimated CRA calculated under r 3.13.	L
Special Circumstances under r 3.10 – subtract.	M
Total CRA	N

Calculation table 1 explained
Figure A: The settlement sum

The starting point is the settlement sum. The Compensation Rules give instructions to ‘calculate the amount of compensation fixed under the judgement or settlement’.^[21]

If the settlement is described in legal documents as ‘$x plus costs’ and the costs are unspecified, then A is $x.

If the settlement is described as ‘$z inclusive of costs’, then A is $z. In such cases the NDIA will allow a deduction for legal fees later in the calculation with reference to r 3.10 (see the explanation for figure M below).

In a recent CRA letter to a client I noted that the orders approving settlement gave the settlement sum as ‘$850,000 plus costs agreed in the sum of $150,000’. In this case the NDIA in its CRA calculation recorded the settlement figure as $1 million. It did allow a deduction under r 3.10 (see figure M below).

Figures B and C: The Medicare and Centrelink repayments

The Medicare and Centrelink repayments can be subtracted from the settlement sum.

‘(b) subtract the sum of the amounts (if any) payable in respect of the amount of compensation under the following:

Figure D: Other repayments

The Compensation Rules also allow the subtraction of any repayment pursuant to ‘a law of the Commonwealth, a State or a Territory, prescribed by the National Disability Insurance Scheme rules’.^[23]

This row is rarely seen in calculations. You can subtract some state government repayments, such as repayments to Legal Aid and the Medical Aids Subsidy Scheme in Queensland.

Figure E: The preclusion period

In relation to the preclusion period, the Compensation Rules instruct as follows:

‘(c) subtract an amount that the CEO [of the NDIA] considers reflects the value of any period of preclusion:

Figure E is usually A divided by 2. Occasionally we see a specific and rather small figure, apparently provided by Centrelink. This figure does not align with any number you might get to by working backwards. Thankfully, this now seems rare, and E is usually half of A.

Figure F: The first subtotal

Figure G: The estimated lifetime cost of NDIS funding

‘if the amount after applying paragraphs [3.13] (a) to (d) is greater than the value of the reasonable and necessary supports that the CEO considers would have been provided to the participant and funded under the Act over the participant’s expected lifetime, had the participant been a participant from the time of the compensable event – replace the amount by that value’.^[25]

‘the calculation must be in accordance with any applicable actuarial model published by the Agency on its website at the time the calculation is undertaken’.^[26]

This figure is the net present value of future costs, taking into account age and gender, disability type and functional capacity, injury date and award date, mortality rates, historic trends, etc.

Sometimes the figure is roughly equivalent to the participant’s current plan times years of remaining life expectancy, but often it is not.

Note that sometimes, and increasingly, this row is missing. When we have queried this the NDIA has said it is because the figure must be higher than figure F (and is therefore not relevant).

Figure H: The second subtotal – the lower of F and G

This number will be the lower of figure F or G. In most calculations we see G is lower than F, so this is the number that is carried forward in the calculation. If you are seeking to help your client by estimating a CRA, you can use F, as G is unpredictable.

Figure I: Supports paid for before joining the NDIS

‘the CEO considers equivalent to the total of the amounts that were paid by the participant for supports, being supports of a kind funded under the Act, after the compensable event and before becoming a participant’.^[27]

You may be able to help your client with this task, which involves providing evidence of the amount of money spent on NDIS-type supports by the participant before or after settlement up until they joined the NDIS. Receipts and bank statements are ideal, but in their absence the NDIA will accept evidence in the form of a photo (for example, of equipment purchased pre-NDIS) or a statutory declaration (for example, in relation to consumables which were being paid for and are clearly still required).

For clients without capacity, their trustee or other substitute financial decision-maker will be able to help with identifying such expenditure post-settlement.

Figure J: The NDIS repayment at settlement

Any recoverable amount that is payable by the participant in relation to the compensation amount ‘pursuant to section 106 or section 107 of the Act’ should be subtracted.^[28]

Usually this reflects all NDIS funding from the date of joining the NDIS to the settlement date. It might be a lesser amount if some of the funding related to a pre-existing impairment,^[29] or if the compensation was reduced for contributory negligence.^[30]

Note that r 3.13(h) extends this provision (subtraction of the NDIS repayment at settlement) to those cases under the NDIS Act, s105, where the CEO has taken over the running of a personal injury claim. I am not aware of s105 ever being used.

Figure K: CRAs applied to earlier plans

The NDIA keeps track of annual CRAs applied to earlier plans, as it is seeking to ensure that the total CRA figure is reduced to nil over time.

Under this figure, you are required to ‘subtract the amount of any reduction in funding under paragraph 3.5 that occurred in relation to a previous plan of the participant’.^[31] So in the participant’s first plan after the CRA has been calculated the figure here will be nil, but in future plans the figure will grow.

Figure L: Total estimated compensation reduction calculated under rule 3.13

Figure M: Special circumstances

After the calculation has been estimated in line with r 3.13, further deductions can be made with reference to r 3.10, as follows:

‘For the purposes of paragraph 3.5, the CEO may ignore the whole or part of a compensation reduction amount that would otherwise arise under this Part if the CEO thinks it appropriate to do so in the special circumstances of the case (which may include financial hardship suffered by the participant).’^[32]

Usually, each such deduction is given its own row in the table. These are some examples of wording I have seen in some client tables provided in letters from the NDIA:

1. ‘Subtract the CRA amounts that would have been applied to earlier NDIS plans but have been ignored by applying special circ's under r 3.10.’ (This one is fairly common. Perhaps this is to make up for the fact that the NDIA has been slow in calculating the CRA.)

2. ‘For compensation awards inclusive of costs, subtract amount of 50% of legal costs under r 3.10.’ (The Compensation Rules do not address legal fees. A deduction here is possible only when the settlement amount noted in A is a figure inclusive of legal costs.)

In my example above, when the settlement was described as $850,000 plus costs agreed in the sum of $150,000 (so A was $1m), the NDIA in row M allowed a deduction of $75,000.

3. ‘Subtract NDIS type supports paid for on behalf of participant after access to the NDIS and prior to the first NDIS plan under r 3.10’; alternatively, the sentence might end after ‘access’. (This will help if there was a long delay between being made a participant and funding commencing.)

4. ‘Subtract out of pocket expenses and past care payment listed in the court order under r 3.10’. (This is not usual. This example referenced the specific Queensland court order approving settlement.)

In the Guideline, the NDIA states that it will consider the whole of the plaintiff’s circumstances in determining what qualifies as ‘special circumstances’.^[33]

Figure N: The total CRA amount

This is L minus M. Over the lifetime of the participant, their NDIS funding will be reduced to the extent of this total figure.

Calculation of the ‘annual’ CRA

As noted above, the NDIA’s outcome CRA letter provides the calculation of the ‘total’ CRA and then states the number of years over which it will be applied.

This divisor has a big impact on the size of the annual reduction. The larger the number of years, the smaller the annual reduction.

In the early days, it seemed the OSA was using life expectancy for this number, and often it seemed it was using a normal life expectancy. The OSA did not seek out the medical evidence used in the personal injury claim but rather prepared its own estimate.

In recent times, we seem to be seeing smaller numbers as divisors. Sometimes they seem to be exactly the number of years to age 65, which does not seem right given that participants are entitled to remain in the NDIS (once in) for life.

According to the Compensation Rules, the calculation provides the total CRA, which may then:

‘be amortised over a period no longer than the remainder of the participant’s expected lifetime in accordance with accepted actuarial standards, in consultation with the scheme actuary.’ ^[34]

The Guideline provides that the divisor must not exceed the remainder of the participant’s expected lifetime (Compensation Rules, r 3.7). It is also not fixed and so will change over time.^[35]

So if you attempt to estimate an annual CRA for your client, you could divide the estimated total CRA by remaining life expectancy. You could use normal life expectancy as a best-case scenario, bearing in mind that the reduction will likely be at least 10 per cent of the client’s annual plan funding.

NEW CRA ONLINE ESTIMATOR
The NDIS website has recently been updated to provide a very basic online estimator. It aims to give current or future participants ‘an idea of how much your existing or future NDIS plan might be adjusted by when we take into account compensation payments’.^[36]

It is a simplified version of the calculation detailed above, and can be summarised as follows:

No divisor or annual figure is given, further limiting the usefulness of this already largely unhelpful estimator.
FINAL COMMENTS

Pre-settlement, it is likely your client will want to know what impact the settlement will have on their future NDIS funding. It is hoped this article will help you in explaining that this is not an easy question to answer. That said, you can have a go at a rough calculation and explain the inputs to your client to improve their understanding and peace of mind.

You will also be better placed to assist if your client seeks your assistance after the CRA has been estimated or calculated by the NDIA.

Jane Campbell is the Principal of Aeran, an independent financial advice practice that specialises in personal injury financial advice. Jane is a Certified Financial Planner with a legal background. She is a long-time member of the Australian Lawyers Alliance, and a member of its NSW Committee. EMAIL jane.campbell@aeran.com WEBSITE www.aeran.com.

^[1] The NDIS Act enables a range of NDIS Rules. See <https://www.legislation.gov.au/Series/C2013A00020/Enables>.

^[2] NDIS, Compensation Operational Guideline (Guideline) <https://www.ndis.gov.au/about-us/operational-guidelines/compensation-operational-guideline>.

^[3] National Disability Insurance Scheme Act 2013 (Cth) (NDIS Act), s34; NDIS, ‘Reasonable and necessary supports’ (13 September 2021) <https://ourguidelines.ndis.gov.au/how-ndis-supports-work-menu/reasonable-and-necessary-supports>.

^[4] NDIS Act, ss24, 25; Guideline, ‘Do you meet the disability requirements?’ (2 May 2022) <https://ourguidelines.ndis.gov.au/home/becoming-participant/applying-ndis/do-you-meet-disability-requirements>.

^[5] NDIS Act, s34; NDIS, ‘Supports funded by the NDIS’ (24 November 2021) <https://www.ndis.gov.au/understanding/supports-funded-ndis>.

^[6] For plan duration guidelines, see NDIS, ‘How long will your plan go for?’ (20 April 2021) <https://ourguidelines.ndis.gov.au/your-plan-menu/creating-your-plan/how-long-will-your-plan-go>.

^[7] For an explanation of the categories of support, see NDIS, ‘Plan budget and rules’ (24 November 2021) <https://www.ndis.gov.au/participants/creating-your-plan/plan-budget-and-rules>.

^[9] National Disability Insurance Scheme (Supports for Participants – Accounting for Compensation) Rules 2013 [Cth] (Compensation Rules) <https://www.legislation.gov.au/Details/F2013L01414>.

^[11] Rule 3.1 differentiates compensation where the ‘NDIS component’ is not objectively identifiable. As most settlements do not enable this identification they are classified as at r3.1(b), and the relevant calculation rules are as per r3.13. See <https://www.ndis.gov.au/about-us/operational-guidelines/compensation-operational-guideline/compensation-operational-guideline-calculating-compensation-reduction-amount-cra-when-compensation-fixed-non-consent-judgment-consent-judgement-or-settlement-and-ndis-component-not>. This is re-stated in the Guideline at 8.4.2, and the details are in Guideline 10.

^[14] Ibid, ss104, 105; see also Guideline, above note 2, ‘Requiring a participant, or prospective participant, to take action to claim or obtain compensation’ (26 August 2019) <https://www.ndis.gov.au/about-us/operational-guidelines/compensation-operational-guideline/compensation-operational-guideline-requiring-participant-or-prospective-participant-take-action-claim-or-obtain-compensation>.

^[16] NDIS, Compensation Information Form <https://www.ndis.gov.au/media/1642/download?attachment>.

^[17] NDIS, ‘What you need to know about compensation’ (5 June 2020) <https://www.ndis.gov.au/participants/compensation-and-your-plan/what-you-need-know-about-compensation>.

^[18] The CRA fact sheet is not provided on the NDIS website; it is supplied to NDIS participants only.

^[36] NDIS, ‘Compensation reduction amount online estimator’ (6 October 2021) <https://www.ndis.gov.au/participants/compensation-and-your-plan/recovery-compensation-reduction-amounts-and-special-circumstances/compensation-reduction-amount-online-estimator>.

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