Charging for aged care at home – splitting hairs and shifting loads

Feb 12, 2024
House object and stick for seniors with calculator

A number of commentators have proposed that the Aged Care Funding Taskforce would, and indeed should, recommend increasing user charges. With particular reference to services delivered through Commonwealth Home Care Program (CHSP), this step would be achieved by splitting care services and ordinary daily living supports; the former would be subsidised and clients would pay for the latter if delivered through CHSP or turn to the market. Seems simple? A closer look at CHSP suggests any attempt to increase revenue from client contributions might not be worth the effort and give rise to several policy and practical contradictions.

The task

The Aged Care Funding Taskforce convened by Minister Anika Wells in May 2023 was charged with considering funding options guided by four principles:

1. contribution arrangements that will support a sustainable system;

2. equity for older people needing aged care now and into the future, and for all Australians contributing to aged care funding through their taxes;

3. making innovation the sector default; and

4. enhancing the elements of the system that Australians value, including putting people using aged care at the centre of the funding arrangements.

The Taskforce Report due in December 2023 will now be released in March. One of the problem areas appears to be resolving differences between the funding arrangements and charges for the Commonwealth Home Care Program (CHSP) and Home Care Packages as a step towards their integration into a single new Care at Home program. A number of commentators have proposed that the Taskforce would, and indeed should, recommend the increasing of user charges. With particular reference to services delivered through CHSP, this step would be achieved by splitting care services and ordinary daily living supports; the former would be subsidised and clients would pay for the latter if delivered through CHSP or turn to the market. Seems simple?

A closer look at CHSP suggests any attempt to increase revenue from client contributions might not be worth the effort and give rise to several policy and practical contradictions.

Small returns

If the purpose of increasing client contributions is to generate more revenue for aged care directly or by limiting demand, the margins are small. In 2020-21, the last annual report of the Aged Care Financing Authority (ACFA) recorded that just $251m or 9% of CHSP provider revenue of $2.6bn came from client contributions. ACFA was replaced by the Independent Health and Aged Care Pricing Authority in August 2022 but its annual reports do not give figures on client contributions for CHSP. The Annual Report of the Aged Care Act 1997 for 2022-23 gives scant details of CHSP as it is not formally covered by the Act.

Assuming client contributions made up the same share of revenue in 2022-23 when CHSP accounted for 12% of total provider revenue of $28bn across all aged care programs, they would have generated around 1.2% of total revenue. Doubling this revenue seems an unlikely prospect and even that scale of increase would have a minimal budget impact on projected expenditure, or the underlying drivers of government spending. These are the long overdue wage increases across the whole aged care sector, other spending to improve quality, cost increases of other inputs and growth in line with rapid growth of the old-age population over the decade 2027-37. This short-term timeframe cannot wait for the maturing of the superannuation system in 25 years time and the expectation that older Australians will be better able to pay for a larger part of their care.

Setting and collecting client contributions

CHSP is the foundation of the aged care system: the 818,228 CHSP clients in 2022-23 accounted for 57% of all those who received aged care services over the year. Among the 1,334 providers who deliver CHSP, the bulk of funding goes to large, long-established and often state-wide not-for-profits, but small flows trickle out to numerous small organisations delivering a single service to particular communities, from ethnic groups in metropolitan suburbs to remote Indigenous communities. Collection of client contributions involves these providers in a myriad of small transactions, each with a transaction cost.

The current Client Contribution Framework, set out in 2015, gives providers wide discretion in setting and implementing their own client contribution policy within broad principles of fairness and consistency. These principles are intended to ensure that those who can afford to contribute should do so, while protecting the vulnerable. In July 2022 indicative client contributions were provided for each service type to help older people understand the cost of their CHSP services. These loose arrangements leave scope for wide variations in both the amount of the contributions (prices) set by providers and the level of client contributions (cost to the user).

The process of integrating CHSP and Packages began in 2014 when the Home and Community Care Program became CHSP and the Commonwealth assumed full responsibility for funding community care. A decade on, the Minister recently announced that the date for commencement of the new program set for mid-2024 had been pushed back to 2027. Whatever the problems, solutions remain as elusive as over the three decades of the Home and Community Care Program’s operation. The pursuit might better be abandoned before going down another rabbit hole.

Splitting hairs

Practical questions arise from the spread of CHSP spending across 10 types of home and community support services and three types of respite services for carers. Among the former, nursing, personal care, and allied health and therapy are clearly care services. Domestic assistance is the main target for charging as these services are seen a providing ordinary living support. It is the major single component of CHSP, but accounts for just under 20% of spending and is used by a similar share of clients. It is followed closely by group and individual social support at 17%. Meals and other food services are another target, but a very small one at only 3% of CHSP spending.

Attempts to distinguish when any service provides care or only daily living support quickly becomes an exercise in hair-splitting. Keeping an older person’s house clean ensures a care environment that is safe for nurses, personal care workers and therapists as well as for the client. Individual and group social support counters social isolation and promotes mental health and well-being of vulnerable seniors. Many using meals services have particular dietary requirements due to diabetes and other chronic conditions, and maintaining nutrition for all is fundamental to overall health.

Transport is the service used by the largest share of clients and often in conjunction with social support, centre-based respite, getting to and from allied health and other appointments. User charges for CHSP transport flies in the face of free or low-cost public transport provided through state governments to all who hold a senior’s card, universally available without any means test.

The description of CHSP services as providing ‘entry level’ services is misleading as the program delivers the same types of services that make up Home Care Packages, with the exception of care management (coordination of services) and package management (administration). Nursing for clients with complex medical conditions, for example, is not an entry level service, and the elaboration of dementia care in CHSP has similarly addressed complex care needs.

The majority of packages are delivered by providers who also deliver CHSP. Many clients on the National Priority System who are waiting for a package or are receiving a package below their approved level use CHSP services. These overlaps obscure the distinction not only between CHSP and Home Care Packages but must make for unwarranted complexity in implementing charging practices currently, let alone splitting costs for care and support.

If this hair-splitting sounds trivial, it is because it is. It is not a matter that should occupy the mind of any Minister for Aged Care for the time it has. Distinguishing between the ‘social’ bath, paid for the Local Authority, from the ‘medical’ bath, paid for by the NHS, has long bedevilled community care in the UK. It is not a distinction to be adopted in a new Care at Home program.

Where does the split come from?

The idea of splitting these costs seems to originate with the Basic Daily Fee (BDF) charged in residential care. The BDF covers ordinary living costs of meals, laundry, cleaning and related hotel services that are provided to all residents in aged care homes. It has been set at 85% of the single rate Age Pension since a standard fee was introduced in nursing home funding in the late 1980s. Apart from minor adjustments to take account of Rent Assistance, it persists as what must be the most stable element of aged care funding. The Age Pension is already means tested and the fees for care and accommodation now subject to the Aged Care Means Test that combines income and assets are paid only by those who have above pension incomes as well as assets above the set threshold.

Setting the BDF for Home Care Packages appears to have been based on the view that the balance of the pension could be applied to care services as it was not required to meet basic daily living costs, a mistaken view. In residential care, residents must be allowed a minimum disposable income of 15% of their Age Pension income, or an equivalent amount from other income, for personal expenses, typically toiletries and clothing, and incidentals such as gifts for family and friends.

More generally, the Age Pension is intended to cover ordinary living costs, including costs associated with housing, whether rates and utilities or rent. It has never been intended to cover costs of care, yet providers can charge the BDF for full pensioners receiving a Package. At the same time, the Package BDF is not specified as being for ordinary living services but is more akin to a management charge that applies regardless of the services making up the package or whether or not they are received daily.

Shopping in the market

Although the term ‘consumers’ has disappeared from Minister Wells lexicon, markets are still advanced as a viable policy alternative to CHSP services. But this view of ready substitution confounds the general consumers of commercial services and CHSP clients.

Not only do many CHSP clients lack consumer sovereignty, but the ‘market’ for CHSP equivalent services exposes them to a variety of risks. It gives few if any protections to frail older people who may be overcharged for low quality services, they may experience pilfering from their home, or worse financial or physical abuse. There are many obstacles to participating in the market: the need for assistance with shopping cannot be replaced by going online for those with poor eyesight, arthritic fingers and impaired ability to make choices between hundreds of items, remember them and check the basket before paying.

Nor does the market give workers any protections in terms of wage levels, regular or even minimum hours of work, leave entitlements, workers compensation and superannuation. Fostering the ‘care gig’ economy stands at odds with the Commonwealth funding the wage increases for aged care workers recommended by the Fair Work Commission and other measures to improve quality of care.

At the same time, interest in expanding market offerings on the part of established aged care providers to enable clients to top up their CHSP services is constrained by workforce shortages. Platform providers may offer some clearer choices for clients and workers, but at a premium for the percentage paid to the operator. Although only a small part of the national economy, this largely cash market is not one that the ATO would want to see expand.

This kind of market is available in affluent suburbs, for those who choose and can afford to pay for tasks they could do themselves but prefer not to, but it is less likely to be found in much of the rest of the country. Instead, continuing calls are made for special funding measures to ensure viability of aged care services in regional, rural and remote areas identified as thin markets where private market services are non-existent. There are also ‘thick’ but underserved markets in metropolitan areas with large, growing and diverse older populations, with limited presence of established aged care providers and high levels of competition for all community and health services. Again, private markets are negligible if they exist at all.

Shifting the load

Finally, few CHSP clients rely wholly on formal services to meet their ordinary living needs or for care and support. Rather than turning clients to the market, imposing higher charges is as likely to shift more of the demands of care to family and other informal carers while those without carers are left high and dry.

Paradoxically, these roles are recognised through the Commonwealth Carer Recognition Act 2010 and supported through a variety of CHSP respite services. These services are used by only 5% of CHSP clients but account for some 10% of spending. This is because, to be useful, respite has to be delivered in blocks of several hours at a time. Much day respite is provided in the same centres as group social support. How is a distinction to be made between the benefits of care provided to those who attend to give their carer a break and those who benefit from being in company that gives respite from loneliness?

Many CHSP clients have themselves been unpaid carers over decades: for their children and grandchildren, for ageing parents and for their own spouses and partners. Don’t they deserve their turn when the time comes? Continuing cost of living pressures hardly make for the right time to increase charges even though a small number of very old Australians might be able to afford them. If policy is to accord with the calls of the Royal Commission into Quality and Safety in Aged Care expressed in the subtitle of its Final Report – Care, Dignity and Respect – there will never be a right time.

The major shortcoming of the Royal Commission was its failure to come up with a funding solution for a sustainable aged care system. It did not propose increased user charges, instead recommending free, universal access with funding to this end boosted through a social insurance levy. Neither of the levy schemes proposed by the two commissioners was however accepted by the government.

It can be hoped that the Funding Taskforce is not so bereft of ideas that it has fallen back on increasing user charges but has undertaken the further work required to come up with an aged care levy that could add substantial funding in a short time frame and that is sustainable over the longer term. The means to such an outcome lie in levying the earnings of superannuation balances. Options for such a scheme have been widely canvassed and gained support through submissions to the Taskforce, reports from the Aged and Community Care Providers Association, the Grattan Institute and the Institute of Actuaries of Australia among others.

Regard for the Taskforce’s principle of equity between taxpayers can be achieved by setting a threshold on balances to be levied that would generally exempt younger workers but include higher income retirees whose high super balances generate high earnings, and who have high but tax-free incomes. Rather than tinkering with user charges for community care for marginal returns, the Minister can put her principle of innovation being the sector default into practice by implementing an aged care levy as a new pillar of aged care funding that can make a large and lasting impact.

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