NDIS eligibility will be based on ‘functional capacity’, not diagnostic labels. But what does that mean?

This week the government unveiled plans to reduce the number of people in the National Disability Insurance Scheme (NDIS) by 160,000 over the next four years, a decision NDIS Minister Mark Butler has called “hard” but “unavoidable and urgent”.

This reduction will rely on tightening the eligibility criteria.

A new assessment tool, likely based on an algorithm, will work out how much someone’s disability affects their daily life – known as their “functional capacity”.

Under the new rules, the threshold to access NDIS support will be higher. This means the day-to-day impact of disability will need to be more severe for someone to be eligible.

So what does functional capacity actually mean, and how will it be used to work out who’s eligible? Will diagnosis still play a role? Here’s what we know – and still don’t know – about the new system.

Functional capacity is not new

The concept emerged in the mid-20th century as a way of capturing what a person with disability can do in everyday life, rather than focusing only on impairment or diagnosis.

This approach – which moves away from narrow, medicalised definitions of disability, to understand how social and environmental factors shape a person’s level of functioning – is also endorsed by the World Health Organization.

Functional capacity is already central to determining eligibility for the NDIS. To meet the threshold, a person must demonstrate their disability is both permanent and substantially reduces their capacity to carry out everyday activities. This might include taking a shower, eating and drinking, moving about, and interacting with others.

The government says the reforms move the NDIS away from the “diagnosis gateway”, meaning functional need will determine who gets support and at what level, rather than a diagnosis.

However, establishing permanence and functional capacity is still required by the legislation. In practice, this is difficult without reference to a specific diagnosis, meaning it is likely to remain a key point of assessment.

But the threshold will be higher

Tightened eligibility will make it harder for some people, particularly those with low to moderate support needs, to access funded supports.

Let’s consider an example. Currently, a child with level one autism who experiences challenges with social interaction and independent self-care skills would have a reasonable chance of accessing NDIS supports, through the early intervention pathway.

Under the new system, that child may need to demonstrate needs consistent with level three autism to be eligible. For example, they may need to demonstrate difficulties with daily routines such as dressing or eating without assistance, engaging safely in social settings, or coping with changes in routine.

Without meeting that threshold, they might instead be expected to rely on mainstream supports, such as school-based supports, or the not-yet-operational Thriving Kids program.

Read more: No diagnoses and no gap fees for physios and speechies. What else do we know about Thriving Kids?

Some disabilities, such as deafblindness, tend to be more readily recognised as meeting the functional capacity threshold.

Other disabilities are likely to face greater scrutiny in assessment – in particular, those that are less visible, harder to quantify, or fluctuating or episodic, or such as many psychosocial disabilities. These are impairments caused by mental health conditions such as bipolar disorder, schizophrenia or post-traumatic stress disorder.

What’s coming next

The government has not detailed exactly how functional capacity will be assessed. Butler has indicated the new assessment tool will be developed over the coming months, ahead of its planned rollout from January 2028.

As part of this process, the government will establish a technical advisory group to advise on eligibility thresholds. It has promised to “engage with the community” – although when and what this will involve remains unclear.

While we have little detail on the design of the tool, one thing Butler has specified is that the new test will be “standardised”. Typically, this means a rules-based system in which a computer algorithm applies fixed criteria to determine outcomes.

A similar approach has been announced for NDIS planning supports, for people who have been deemed eligible. The controversial new tool for support plans, called I-CAN, will be introduced on April 1 2027. It has already stoked concerns that opaque algorithms are increasingly shaping decisions about who gets support and who is left out.

So while we don’t know exactly what kind of “standardised” tool will be used to assess a person’s functional capacity, we have a glimpse of what might come.

The challenge of standardising need

Such tools can be effective at containing costs. But when applied to something as complex and nuanced as disability, they often fail to give a full picture of individual needs.

When this happens, the consequences show up elsewhere in the system, for example, in rising, costly and time-consuming challenges at the Administrative Review Tribunal over poor-quality support plans. These challenges are happening even before I-CAN has been implemented. The current system has some elements of automation – and it looks as though this is only set to increase.

The shift to a more needs-based approach to assessment is a welcome one. But its effectiveness will ultimately depend on the integrity of the assessment tools and, crucially, the professionals using them.

Where computational systems are used to support decision-making, they must be carefully designed to augment professional expertise and be flexible enough to accommodate individual circumstances.

Aged care offers a cautionary example. In a system aged care workers describe as “cruel” and “inhumane”, experienced assessors have little scope to override algorithms with a proven track record of failing to capture need, leaving people without access to essential care.

There are legitimate concerns the NDIS may be heading in a similar direction.

If algorithms are going to determine who gets support and who goes without, then the entire apparatus – including the algorithm itself, its modelling, classification rules and training data – must be open to scrutiny.

And before the new system is rolled out, people with disability must be at the table shaping its design.