Pearls and Irritations

With a Medicare-style levy and changes to the treatment of family home both ruled out, the only choice left is more user-pays. But it will not be enough.

The long-awaited Aged Care Taskforce report has finally been released. It had been established in mid 2023 with the goal of making aged care “equitable and sustainable into the future”.

Older people contribute now to the cost of their care

In reviewing the recommendations of the Taskforce, the starting point is to recognise that older people with the means to do so already make a substantial contribution to the cost of their care. Aged care consists of three elements and the current approach is that there are different arrangements for each element:

• Accommodation: accommodation charges are means-tested. People moving to residential care with the means to do so are expected to fund their own accommodation either in the form of a one-off lump sum Refundable Accommodation Deposit (RAD) or a Daily Accommodation Payment (DAP). The RAD is refunded when you leave, the DAP is not.
• Daily living: a basic daily fee is charged (currently 85% of the pension) for everyday living expenses such as food, linen and cleaning. Homes can charge extra for extra services.
• Care: there is a means-tested care fee for all older people receiving care in either their own home or in a residential care facility. The current means-tested care fee is currently between $0 and $416.15 a day.

There are annual and lifetime caps on user charges. The maximum charges a consumer can be charged for care is capped at $33,000 a year or $80,000 in a lifetime. These caps do not apply to accommodation or daily living charges. All charges are means-tested based on both assets and income. The value of the family home is capped at $200,000 for the purposes of the assets test.

Options for raising more funding for aged care

There are several broad options for funding increases in a human service such as aged care and these options were available to the Aged Care Funding Taskforce. It was also open to the Aged Care Taskforce to make recommendations that included a mix of options.

One option for increasing funding for human services is to ask taxpayers to pay more, either in the form of a levy or by an increase in the tax rate. Medicare and the NDIS are both funded by way of a levy, with taxpayers contributing to the costs according to their means. The levies that taxpayers pay do not actually cover the full cost, with the rest of the costs being funded from general revenue.

Governments use levies and taxes to fund human services that taxpayers perceive to be a social good. Medicare is the best example. Public schools, disability support, public housing, child protection and justice services are also examples of human services that we as a society all fund as social goods.

Another option to increase funding is that consumers pay more for the services they receive. This can be in the form of higher user charges. But it can also be achieved by changing the means-testing threshold or other technical changes such as how the family home is treated for the purposes of the assets test.

Funding more services by increasing user charges is compatible with a competitive market model of human services. In the context of aged care, increasing user charges makes most sense when the starting point assumption is that aged care is a competitive private market with older people as ‘consumers’ buying the services they want/need. Increasing user charges will, at least in theory, allow older people to buy more or better services and to move their business elsewhere if they are not getting what they want. While that is the theory, it rarely works like this in practice.

The Aged Care Taskforce

The Taskforce was chaired by Anika Wells, Minister for Aged Care, and was composed of aged care sector representatives, most with vested interests. Its key recommendation is that older people should pay more. This should not surprise anyone.

The Taskforce and the government ruled out both a Medicare-style levy and changes to the treatment of family home. That meant there was no other option but to recommend more user charges.

It made 23 recommendations. In summary, older people with financial capacity will pay more whether at home or in a home. There are no proposals for a policy on profit and no requirement for providers to spend the extra money that people will have to pay on more or better services.

No wonder the aged care sector response to the Aged Care Taskforce is so positive. It is exactly what providers wanted.

The aged care industry is estimating that, if all recommendations are taken up by Government, older people using aged care services will be asked to pay an extra $3.4 billion a year. Residential aged care revenue will increase by around $2.3 billion per year and Home Care by a possible $965 million.

If the estimate for residential care is correct, that is the equivalent of more than $10,000 extra per resident per year. Based on estimates by Anna Howe, only about half of aged care recipients have a capacity to pay.

Taking this into account (which the Taskforce proposes) means that the remaining 50% would be required to contribute an average of more than $20,000 a year on top of what they are already paying.

While user charges currently represent only about 25% of funding for residential aged care home funding (including pension contributions) and 5% of home care funding, they represent a considerably higher proportion of the income of the older people who are paying the contributions.

Rich baby boomers

We baby boomers are the richest generation in history. But there is more to the story.

There are actually two groups of baby boomers and their old age is already very different. Those with good superannuation (largely men) live comfortably in old age, especially if they own their own home. Those without good superannuation (largely women) have little, especially non homeowners.

While many boomers aim to leave their superannuation to their children rather than spend it on their old age, there are many boomers who have never been able to buy a home and who are entering retirement with no superannuation, no secure housing and no inheritance for their children.

Superannuation is only a small part of the solution

While the idea that a major increase in aged care can be funded from superannuation savings is superficially appealing, it is not a realistic solution.

Anna Howe recently highlighted a 2021 report of the Association of Superannuation Funds of Australia stating that 80% of people who died over age 60 had no superannuation left four years before death. While many people have superannuation at retirement, those funds are rapidly depleted.

By age 85 (the average age that people enter residential care), only 20% of superannuants have balances of $50,000 or more. That will not be enough to pay for extra aged care for more than a year or two.

Recent wage rises increase the stakes

Large, and completely justified, aged care wage rises have been awarded by the Fair Work Commission, the first 15% on 2023 and the remainder in March 2024. Together, they increase the cost of aged care by about $14.6 billion over four years.

This is in addition to current expenditure. When consumer co-payments are your only source of funding for growth, those pay rises would require an average consumer increase of more than $7,000 a year. This would need to be paid each year by the half a million aged care consumers who are estimated to have the capacity to pay. This is on top of existing charges. That is simply not feasible. Government will have to continue to fund the majority of costs.

The Taskforce recommendations won’t fix the problem

At best the Taskforce solutions are only a temporary solution. And that is the best case scenario. The reality is that the Albanese government has been firmly wedged on aged care. With a Medicare-style levy and changes to the treatment of family home both ruled out, the only choice left for the Taskforce was to recommend more user-pays. But the reality is that, even with increased charges, it will not be enough. Taxpayers will have to fund the bulk of the increasing costs into the future.

What is not in the Aged Care Taskforce report

The unstated assumption of the Aged Care Taskforce is that aged care is a competitive private market. People ‘consuming’ aged care should pay more to buy the services they want or need.

There is no recognition in the Taskforce Report that aged care could be better framed as a social good, and not just a market. This would have been consistent with Labor values. But such an option is not even mentioned. Instead, the starting point is an implicit assumption that the Albanese Labor government is building on the reforms initiated by the previous Howard Coalition government.

Given this, there was no option but to rule out a levy or increases in general taxes to fund increases or improvements in aged care. The Taskforce knew it would not be politically palatable. Not only would a standard additional tax or levy create further intergenerational equity, it would raise bigger issues.

Even the Aged Care Taskforce (comprised of industry representatives) could not bring itself to recommend that taxpayers be asked to pay a levy or more taxes for a for-profit aged care system in which providers are free to take out any extra money as pure profit.

Real aged care reform

Instead of continuing to tinker, it is still possible for the Albanese government to genuinely reform aged care in its next term in government in a way that is consistent with traditional Labor values. Instead of aged care being framed as a competitive for-profit market, Labor would reposition aged care to sit alongside Medicare:

• A national universal access program in which older people are entitled to care based on their needs.
• A publicly funded and regulated aged care system that is agnostic about the legal status of providers. Providers may be government, not for profit or for-profit organisations.
• While consumer co-payments will continue to be paid, the significant majority of costs are, and will continue to be, met by taxpayers.
• A national social care program with public accountability.

Positioning aged care alongside Medicare is an essential step in making aged care sustainable into the future. Medicare is a national publicly funded and regulated program with mixed providers (government and non-government) and some co-payments. Medicare is understood and supported as a public program and enjoys overwhelming public support. This extends to support for paying a ‘Medicare levy’ and a willingness to pay more for better health care. While there are many private providers, no one would conceptualise Medicare as a private market. Aged care should be no different.

Time for a courageous aged care reform agenda and national leadership

There is no problem with wealthier older people paying more for their care in old age. However, increased user charges must come with big strings attached. It is also essential that aged care is aligned with a national social housing strategy and that there is improved integration between aged care and health care.

But these changes alone will not be enough to put aged care on a sustainable footing going forward. The reality is that aged care will never be a real competitive private market, the mere idea is simply an illusion. Aged care will always be substantially funded by taxpayers with consumer contributions representing only a small fraction of the total cost. A sustainable aged care system starts with recognising that reality.

A sustainable aged care system necessarily includes a bill of rights, a commitment to equity and a future aged care levy to sit alongside the Medicare levy. An aged care levy can be designed in a way that would not create further intergenerational inequity. For example, it would be possible to introduce an aged care levy or insurance scheme that does not kick in until a taxpayer turns 40.

But first things first. There is no point considering options such as a levy while aged care continues to be framed as a competitive private for-profit market. The electorate would not accept paying extra taxes to fund uncapped profits for providers. Yet taxpayers will continue to fund the majority of aged care costs regardless of the financing arrangements. Reframing aged care as a taxpayer funded social good is the essential first step in genuine and sustainable reform.

 

Article updated April 5, 2024.