Former consumer watchdog chair Allan Fels is worried the mentally ill may be excluded from Labor’s national disability insurance scheme (NDIS) as the federal government looks to keep costs under control.

Professor Fels, who now chairs the National Mental Health Commission, believes it’s “critical” the scheme covers people with serious psychiatric conditions as well as the physically disabled.

“It is a key need for the mental illness agenda,” he told the National Press Club in Canberra on Wednesday.

“We are conscious there will be pressure to reduce costs by restricting the scope of the program, (but) the commission will closely watch to ensure that current policy is maintained.”

The Productivity Commission’s final report on the NDIS recommended mental disabilities be covered if a severe psychiatric illness meant someone needed “significant long-term support”.

Federal Disability Reform Minister Jenny Macklin on Wednesday insisted people with mental illness would be included if they had “significant or profound disabilities”.

“Psychiatric disabilities are very serious,” Ms Macklin told reporters in Melbourne.

“I understand how important it is both to Professor Fels and his family but also the thousands of other families who are caring for people with mental illness.”

Prof Fels’ daughter Isabella has schizophrenia. The minister said people caring for the mentally ill were uppermost in her mind as the government finalised the detail of the NDIS.

The federal government has put aside $1 billion to trial the scheme at various sites across the country. But funding for a full national roll-out is yet to be negotiated.

Prof Fels on Wednesday wouldn’t buy into the debate about whether the commonwealth or states should pick up the bulk of the tab except to say: “The community will have to pay one way or the other.”

The former head of the Australian Competition and Consumer Commission was less reticent, however, when it came to criticising federal Labor’s health reform agenda.

He said a 2011 COAG deal that will see the federal government eventually pick up 50 per cent of state hospital expenditure growth provides a “major incentive to move mental health into hospitals”.

That threatened to undo decades of good work focused on treating people in the community, Prof Fels said.

He also took aim at the shift to activity-based funding which, he argued, would work well for standard procedures such as knee operations but not mental health care, which involved “huge variability” when it came to treatment.

There was a risk of “undesirable effects” such as rushing patients out of hospital to save money.

“Someone needs to pick up this question, (and) I would think it is COAG,” Prof Fels said.

“It’s now a year or more later (post-agreement) and they have to sort this out.”

As first appears in Herald Sun, 2 August 2012