The Albanese government won office with a promise to fix Australia’s aged care system. If it wishes to deliver, it will need to face squarely up to a harsh reality – the current system of funding is fundamentally broken and in need of major reform.
The aged care system had been under considerable financial stress for some time before the aged care royal commission. But the commission’s recommendations will add significantly to the structural costs for the Federal Budget. Add this to increasing demand for services by baby boomers and you have a combustible situation.
The financial performance of most, though not all, providers who deliver care has been and remains generally poor, especially in residential care. Even with the introduction of the Basic Daily Fee Supplement of $10 per resident per day in July last year, more than 60 per cent of aged care homes are operating at a loss, with an average deficit of $11.34 per resident per day, compounding the successive and unsustainable annual losses incurred by many homes in recent years.
The cost of trying to keep residents safe in the midst of COVID-19, coupled with an indexation formula that is unfit for purpose and has left care funding lagging far behind the movements of the wage price index over many years, have exacerbated the financial crises many providers are experiencing.
The Albanese government has promised residential aged care providers a parcel of additional funding over the next financial year, but this will primarily cover the cost of introducing minimum care staffing minutes. It does not address pre-existing financial pressures or answer questions we have about the future.
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In his well-received book, Advanced Australia – The Politics of Ageing, Mark Butler, now minister for health and aged care, suggests that in the past, the key to successful and affordable aged care reform was genuine consultation, careful management and sector wide support.
He is right to point out that if we’re to stand any chance of being able to afford the spiralling costs of aged care, we need to start seriously considering some alternative funding methods. While we would suggest that a well-defined user-pays model is worthy of discussion, Mr Butler believes more traditional options such as private savings schemes or different insurance products, as put forward by an earlier Productivity Commission report, might be worth exploring.
Or there’s Paul Keating’s more ambitious proposal, superannuation mark two – a ‘longevity levy’ to be run along the lines of the Medicare levy. It would require people to save 2 to 3 per cent of their pre-tax salary, which the government collects and uses to pay for aged care and would compensate for when someone’s original super savings run out – often around their 80s and beyond.
Blue sky thinking perhaps, but certainly something we should talk about.
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When the latest Intergenerational Report (IGR) was released last year, it projected that aged care costs based on policies flowing from the previous government’s response to the royal commission would nearly double as a share of the economy by 2060–61, from 1.2 per cent currently to 2.1 per cent of GDP.
We, along with many of our counterparts in the aged care sector, would argue the 2021 IGR projections are too conservative as they fail to factor in the full structural costs of aged care for future federal budgets. Nor do they account for the in-principle commitment made by the outgoing government to a human rights-driven universal entitlement to receive high quality and safe care.
The latest model is missing costings for the new independent and transparent pricing arrangements to replace current indexation arrangements and the development of new support programs to help people stay in their home.
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Any financial forecasting should also consider the additional and ongoing costs of a larger, better skilled and better remunerated aged care workforce (including the outcome of the current wages claim); a substantially more robust quality regulatory, compliance and reporting framework to improve transparency and accountability; stronger governance requirements to improve leadership and accountability as the sector transitions away from a cottage industry, and the cost of community expectations of higher quality care.
This week, a University of Technology Sydney discussion paper was released identifying three broad strategic approaches for addressing the sustainability of aged care services: reduce the growth of demand for subsidised aged care services through greater support of informal care and early intervention aimed at improving wellness and independence; improve the effectiveness of aged care services through better program design and a better skilled workforce, and provide more equitable funding for subsidised services.
In reality, all three approaches will likely need to work in unison if the government is to have any hope of getting a genuine handle on the challenge.
Pat Garcia is chief executive officer of Catholic Health Australia.
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