Reform of aged care - a small step

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Reform of aged care - a small step

Posted 30/04/2012 by Rebecca de Boer

On 20 April 2012, after much anticipation, the Government released its response to the Productivity Commission’s (PC) Inquiry into Caring for Older Australians and put forward its reform plan, Living Longer. Living Better, for aged care. The initial response from stakeholders was largely positive. But as aged care providers and stakeholder groups have had the chance to reflect on the package, there have been claims that the cost of care provided in the home will increase for elderly Australians. Discussions about whether the family home should be included in the arrangements for paying for aged care also persist.


The Government has adopted, in part, many of the PC’s recommendations. Its response, however, falls short of the significant overhaul for the financing of aged care recommended by the PC. Instead, the Government has opted to maintain current restrictions on the supply and allocation of aged care places. However, some of the anomalies within the system have been addressed; for example, the distinction between high and low care has been removed; bonds will be levied on all aged care residents; and all aged care homes will be able to charge for extra services (previously aged care facilities needed to apply for extra service status). The Government will also increase the number of residential and community care places and the subsidy for the accommodation costs for aged care (for residents who cannot meet their costs). Despite the PC recommendation, the family home remains exempt from any means test and asset calculations.

The increase in government spending has been countered by the introduction of fees for both residential and community care which are determined by means testing arrangements. This is consistent with principles articulated by the PC Report and the age well campaign (representing the majority of aged care providers in Australia), that individuals with the capacity to pay should do so.

The Living Longer. Living Better package has nine measures and provides $3.7 billion over five years for the aged care system (see box below). There are two main features to the package: greater support for older Australians who want to remain in their homes and the introduction of means testing for the costs associated with the provision of residential and community aged care. Many of the measures (such as means testing and increases in government subsidies) commence 1 July 2014. The rationale for this approach is to give providers and older Australians sufficient time to adjust to the new arrangements.

The majority of expenditure for this package will occur in 2016–17, outside the forward estimates period. There will be some expenditure in 2012–13 ($55.2 million) and 2013–14 ($26.9 million). The net cost to the Government will be $576.9 million over five years. In the context of what is currently a $12 billion program (in 2010–11), this represents very little new expenditure.

Living Longer. Living Better – key measures
•Staying at home
$385.4 million (over 4 years)
$955.4 million (over 5 years)
•Better health care connections
$61.6 million (over 4 years)
$80.2 million (over 5 years)
•Supporting carers
$42.8 million (over 4 years)
$54.8 million (over 5 years)
•Tackling dementia
$194.6 million (over 4 years)
$268.4 million (over 5 years)
•Residential care
$369.9 million (over 4 years)
$660.3 million (over 5 years)
•Older Australians from Diverse Backgrounds
$136.8 million (over 4 years)
$192.0 million (over 5 years)
•Workforce
$717.1 million (over 4 years)
$1188.9 million (over 5 years)
•Building a system for the future
$219.6 million (over 4 years)
$256.5 million (over 5 years)
•Consumer support and research
$29.1 million (over 4 years)
$39.8 million (over 5 years)

This FlagPost does not attempt to analyse all of the measures in the Government’s package. Of note:

  • To improve access to aged care services, a ‘Gateway’ will be created. The scope of the Gateway is unclear although it appears that the initial focus will be on the My Aged Care website and call centre. It is not known whether this will replace the new front end of the aged care system announced as part of last year’s Budget and the recently consolidated aged care information line.
  • Three agencies will be established as part of the reforms: the Aged Care Financing Authority, the Aged Care Quality Agency and the Aged Care Reform Implementation Council.
  • The Aged Care Financing Authority will be responsible for setting charges, including accommodation payments and bonds. It is important to note that the Authority will set the price of the provision of care and that the price will not necessarily reflect the cost of care. Claims that the aged care subsidy paid by the Government is inadequate are therefore likely to persist. To date, a benchmarking study of the costs of providing aged care in Australia has not been conducted.
  • While there was in-principle support for the PC’s recommendation to improve access to rural and remote and Indigenous aged care services (recommendation 11.4), there is little in the package that specifically targets this. Around $20 million per annum has been allocated to improving the sustainability of these services, but it not clear what this funding is expected to deliver. Improving access to community care in regional and rural areas will likely remain a challenge.
  • Older Australians who can afford to do so will contribute to the costs of their care. These costs will be capped on an annual ($25 000) and lifetime ($60 000) basis. Full pensioners will be exempt from these costs. Thresholds will be indexed annually in line with the aged care pension.
  • No changes have been made to the Aged Care Approval Round (ACAR) process or to the Aged Care Planning Ratio, meaning that growth in the aged care sector will continue to be limited to the additional places prescribed by the Government and not necessarily according to the number of older Australians wanting to access an aged care package.
  • A workforce compact between providers and unions will be developed by an independently chaired Advisory Group. Providers who are signatories to the compact will be paid additional funding through the Conditional Adjustment Payment (CAP) for having enterprise agreements in place which deliver higher wages. This is likely to result in inequity among aged care workers and exacerbate the difference in wages between aged care and hospital nurses. 
The Government’s aged care reforms have largely been welcomed as a first step in the reform process of the aged care system. And, as noted by Catholic Health Australia, the Government has left open the possibility of adopting an ‘entitlement’ based system in the future, as recommended by the PC.

Previous reform efforts in aged care have taken at least ten years to implement and the government has indicated that implementation of this package will take around the same time. While this package has injected some additional funding into the aged care sector, the structural issues (and subsequent challenges) of the aged care system, such as the rationing of supply, as highlighted by the PC and previously the Hogan Review (Review of Pricing Arrangements for Residential Aged Care, 2004), will continue. It remains to be seen whether the long-term plan articulated by the PC for an entitlement based approach—and supported by many in the aged care industry—will be realised.

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