The Funding and Supply (1985-2000) of Residential Aged Care Beds

Current Issues

The Funding and Supply (1985–2000) of Residential Aged Care Beds

E-Brief: Online Only issued June 2001

Greg McIntosh, Analysis and Policy
Janet Phillips, Information/E-links
Social Policy Group


The Commonwealth Government is essentially responsible for funding and regulating the formal residential aged care sector in Australia. The framework under which this formal residential aged care sector operates comes via the Aged Care Act 1997 and the associated Aged Care Principles 1997. The three main strands of residential aged care are:

  • high care places (formerly nursing home beds)
  • low care places (formerly hostel beds), and
  • Community Aged Care Packages (CACPs) – these packages provide an alternative to residential aged care and allow elderly to stay in their home or like environment.

For detailed statistics on these three strands of residential aged care (including number and type of providers, number of places, residential characteristics, regional variations and various population data) see:

With respect to the funding of residential aged care, the Commonwealth provides approximately three-quarters of the total funds available (mainly via residential care subsidies and capital grants to providers) with the remaining funding coming from permanent residents in aged care facilities paying accommodation and daily living charges. Most of the funding comes via the Commonwealth Department of Health and Aged Care but there is also specific residential aged care funding via the Department of Veterans’ Affairs for aged veterans.

This electronic brief overviews data and background on Commonwealth funding for residential aged care and the supply of residential aged care beds. It is difficult to be absolutely precise in terms of Commonwealth funding for residential aged care because some elderly people are also accommodated in places other than nursing homes and hostels, for example, in hospital beds. In addition, whilst much of the funding for programs such as the Home and Community Care (HACC) program goes towards the care of older Australians, it also provides support and services to other segments of the population, for example, people with disabilities. Respite funding is also provided to allow carers of the elderly to have a 'break'. Thus, whilst funding for residential aged care is usually viewed in terms of high care places, low care places and CACPs, there are also other resources committed to accommodation for the elderly, but these areas are much more difficult to accurately quantify. The analysis below covers the three main strands of residential aged care and also the HACC Program because a high proportion of its services go to the elderly. One of the key aims of the HACC Program is to, where appropriate, keep frail elderly people in their own homes for as long as possible before entering institutional care. One benefit of this approach is to take pressure off the growing demand for residential aged care beds as the Australian population ages over time.

For a good general overview of aged care funding and services provided see Chapter 6 in Australia's Welfare 1999, Australian Institute of Health and Welfare. For full details of the responsibilities of aged care providers see the Residential Care Manual. For a discussion of general aged care policies and other matters see the Parliamentary Library publication, The 'Boomer Bulge': Ageing Policies for the 21st Century, Research Paper 4, 1998-99. A recent report, Two Year Review of Aged Care Reforms by Professor Len Gray (2001), commissioned by the Commonwealth Government, gives a comprehensive coverage of the residential aged care sector and recent government policies. The government response to this report is also available on this site.

The Funding of Residential Aged Care Beds


Total Commonwealth funding for residential and community aged care has been rising steadily as the aged population in Australia grows. For example, according to official government data (Budget 2001–2002 Aged Care, Fact Sheet 15: Growth in Funding for Aged Care) it is projected that the Commonwealth will outlay $5.4 billion on residential and community care in 2001–02, up from approximately $3 billion in 1995–96.

Expenditure Per Capita

A key source of data on residential and community care outlays per person is contained in the annual publication Report on Government Services which is published by the Productivity Commission. (The Report also contains a host of other useful data and information on aged care in general). The following figures are derived from data contained in the Report on Government Services 2001.

  • Figure 1 shows that total Commonwealth expenditure per person on residential aged care and CACPs has been steadily rising since 1993–94.
  • Figure 2 clearly highlights the growth in total HACC and national respite services expenditure over the period 1985–86 to 1999–00.
  • Figure 3 shows a 'plateauing out' of Department of Veterans' Affairs (DVA) residential aged care funding per person in 1999–00 following substantial growth between 1997–98 and 1998–99.

Figure 1: Commonwealth Government Expenditure on Residential Aged Care and CACPs (1999–2000 dollars per person aged 70 years and over) (a)

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Excludes the Department of Veterans' Affairs contribution

Figure 2: Commonwealth Expenditure on HACC and National Respite Services (1999–2000 dollars million) (a)

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Figure 3: DVA Residential Clients and Expenditure 1997–2000 (expenditure per DVA client) (a)

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  1. The above three graphs are derived from data published in the Report on Government Services 2001, Productivity Commission.

A Recent Report on Funding of Aged Care

A major study of funding for aged care released in October 2000 (Long Term Aged Care: Expenditure Trends and Projections, Alan Madge, Productivity Commission p. ix) found that:

Analysis of real government long-term expenditure for the period 1989–90 to 1999–00 reveals the following;

  • Real government expenditure on residential care (including Community Aged Care Packages or CACPs) and on all long-term care (residential care plus home and community services) increased.
  • Much of this increase reflects increases in these programs' target population of older Australians. This population grew steadily over the entire period.
  • Coverage (the proportion of the aged population receiving long-term aged care services) declined before recovering towards the end of the period.
  • Average real expenditure per person in long-term aged residential care (including CACPs) also increased.

While there are data limitations, it appears that real expenditure per person receiving home and community care services (HACC) has declined. However, government expenditure on HACC is a relatively small proportion of total long-term aged care expenditure. Consequently, it is likely that average real expenditure per aged person receiving all long-term aged care services has increased in recent years.

Within these broad changes, the relative importance of nursing home care has declined in favour of less costly hostel, CACP and home and community care. This change reflects Commonwealth policy. While there has been resource savings from this policy, any capacity for further gains from such a shift may be limited.

Capital Funding

Capital funding is used by the providers of residential aged care to build and upgrade their facilities. There are two main sources of capital funding (apart from their own private funds) for residential aged care providers; accommodation payments from residents and capital funding from the Commonwealth.

Accommodation Payments

A key feature of the 1997 Aged Care Structural Reform Package was an extension of the user pays principle for residential aged care. Accommodation payments (this link also gives details on the level of Commonwealth Residential Care Subsidies) were introduced for high care residents in aged care facilities and it is now expected that the funds derived from accommodation bonds (low care residents) and accommodation charges (high care residents) will be the main source of capital funding that is to be used by the providers to build and upgrade their facilities. According to the Government:

Accommodation payments are designed to be used to meet the cost of acquiring funds to improve and upgrade facilities with the aim of creating high quality amenable accommodation for older Australians in aged care services. (Report on the Operation of the Aged Care Act 1997, 1 July 1999 to 30 June 2000, p. 25).

It is estimated that the total amount of capital funding that will be available to aged care providers over the period 1998–1999 to 2007–2008 will be approximately $5.3 billion (made up of $3.5 billion in accommodation bonds and $1.8 billion in accommodation charges (Report on the Operation of the Aged Care Act 1997, p. 25–26.)

Commonwealth Capital Funding

The Commonwealth provides a capital component with its recurrent subsides to aged care facilities (estimated to be $254 million in 2000-01—for more details see Two Year Review of Aged Care Reforms, p. 188) and also provides a modest level of funding under the targeted capital program to residential aged care facilities, particularly those in remote areas where it may be difficult for some providers to generate enough money from accommodation payments to meet their capital needs. Some funds are also available for providers to restructure and thus be capable of operating in a viable environment. The capital funding is essentially distributed on the basis of demonstrated need. The modest nature of the Commonwealth targeted capital program is illustrated by the fact that $21 million was allocated to eligible residential aged care services in 1999 and a further $9 million was allocated to the Industry Restructuring Fund. For 2000 this level of capital funding has been increased by approximately $9 million. When announcing the 2000 Approvals Round (for the allocation of new residential aged care places) the Minister stated that $30 million was to be provided in capital grants and $9 million for industry restructuring (Minister for Aged Care, Press Release, 12 January 2001).

The Debate Over the Adequacy of Capital Funding

There has been an active debate for many years over the adequacy of capital funding for residential aged care. Some providers have publicly called on the government to increase its contribution to the capital pool to overcome what they perceive to be a significant shortfall of funding. The government has argued that the estimates of the amount of capital funding that is, and will be, raised from accommodation payments paid by aged care residents should be sufficient to meet the sector's needs. Indeed, if the government estimate of $5.3 billion (see above) is achieved over the period 1998–99 to 2007–08, then there would appear to enough capital funding, even according to a recent, detailed industry study on the capital funding issue by Tasman Asia Pacific (Economic, Management and Policy Consultants).

The report by Tasman Asia Pacific, HESTA Report into the Capital Funding Needs of the Residential Aged Care Industry 1998–2008 (May 1999), analyses the capital needs of the residential aged care sector over roughly the same period that the government has used in its estimates of the amount of capital that will be raised via accommodation payments. The HESTA Report estimated that the capital requirements of residential aged care providers over the period 1997–98 to 2007–08 (note: a one year longer period than that used in the government's estimation) was estimated to be $5.191 billion. Assuming that both the government and HESTA Report are accurate in their estimation of capital levels and requirements then the money derived from accommodation payments should cover the estimated need.

However, even though it would appear that there will be an adequate stream of capital funding to meet provider needs over the longer term, the degree of publicly expressed concern about current difficulties with respect to providing high care beds does suggest that there may not be enough funds at present to satisfy current demand. Over the whole period (i.e. 1998–2008) there may be enough funds, but in the early years of the new accommodation payment regime there may not be enough capital income, particularly to satisfy new certification and accreditation requirements. One way to overcome this problem, if indeed it is the case, would be for the government to provide loans on generous terms (interest free or subsidised) to providers to see them through the early years of the development of the accommodation payments system.

A particular problem raised by some providers is the fact that accommodation bonds (applying to low care beds) raise more funds that do accommodation charges (that apply to high beds). This leads to a situation where there is a definite incentive for providers to supply low care beds and not high care ones.

NSW's biggest aged care group says it is closing nursing home beds because of inadequate government funding…United Care NSW says it is converting high-cost nursing home beds into lower-cost hostel beds to access accommodation bonds to pay for the construction or reconstruction of facilities…Accommodation bonds are payable only on hostel beds, not nursing home beds used for the severely incapacitated and frail…Uniting Care NSW's executive director of aged and disability services, Mr Les MacDonald [said]…'We are approving the construction of "ageing in place" facilities, where the bulk, or all, of the people admitted will be low care. This will enable us to get access to accommodation bonds to pay for the construction…We are opposed to this for ethical and other reasons but we have no choice. The church in NSW has not taken a policy decision not to rebuild or build [high care] nursing homes but we have taken the decision that we will not approve clearly unviable capital works proposals. The net effect is exactly the same.' Mr MacDonald said that until the capital funding situation for high-care facilities was resolved, there would be a serious decline in the number of high-care beds available. The nursing home industry has argued for years that the Federal Government needed to inject funds into building high-care nursing home beds which are in short supply. They argue the cost of developing such a bed is about $100 000 in metropolitan areas, for which proprietors only receive a subsidy of $35,000 a year for running costs, and 'occasional' and 'inadequate capital grants'. (Laura Tingle, Sydney Morning Herald, 5 April 2001).

Supply of Residential Aged Care Beds

The Planning Process

The responsibility for planning and allocating new aged care places (with Ministerial direction and consent) rests with the Residential Program Management branch of the Commonwealth Department of Health and Aged Care. According to the legislation the Department is responsible for providing a framework for residential aged care that is not only equitable in terms of the distribution of places but also one that provides quality and cost effective aged care places.

A key part of the planning process involves the yearly exercise of determining how many new places are to be offered, how they are to be distributed and also making a choice as to who will provide these places. The number of new places is based on the number of people in each State and Territory that are aged over 70 years of age.

The mechanism used to apportion new places is the aged care target planning ratio, a long term goal that aims to balance the supply of aged care places. This ratio was determined in 1986 and has been modified several times since then. In 1986 the ratio was set at 40 nursing home beds and 60 hostel beds per 1000 of the population aged over 70 years of age. In 1993 the ratio was changed to 52.5 hostel places, 40 nursing home and 7.5 CACPs; in 1995 it was further changed to the current ratio of 50 hostel, 40 nursing home and 10 CACPs. The increasing emphasis on CACPs is in line with the general trend towards 'ageing in place' that has characterised aged care policies for the past twenty or so years. How well successive governments have done with respect to attaining the planning ratio is discussed in the section below.

Bed Supply 1985–2000

Figures 4 to 8 (see Notes at end of Figure 8) show data on aged care places (high, low and CACPs) over the period 1985 to 2000. The number of places in each Figure is expressed as the ratio of places per 1000 of the population aged over 70. The Figures are derived using data published in the Productivity Commission's Report on Government Services 2001, Aged Care Services, Attachment 12A, table 12A.8.

Figures 4 and 5 clearly show that the long term goal of reducing the proportion of high care beds (to 40 out of 100 places per 1000 of 70 years and over aged population) and increasing the proportion of low care beds (to 50 out 100 places) is slowly being achieved. However, it appears that the trend towards a higher proportion of low care beds has 'stalled' or levelled out for the years 1998 to 2000.

Figure 4: High Care (Nursing Home) Places

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Figure 5: Low Care (Hostel) Places

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Figure 6 combines high and low care places in terms of the aged care planning ratio which means that the 'target' figure for these two categories of places is 90 places per 1000 of the population aged 70 years and over—40 for high places and 50 for low care places. The Figure shows a consistent decline in bed numbers per 1000 of the 70 years plus population over the whole period. The 'target' of 90 beds was achieved in 1996 but since then the downward trend has continued such that the total number of high and low care beds per 1000 of the age 70 plus population by 2000 was 84 operational places, or 6 below the 'target' level. However, when CACPs are included in the equation (see Figure 7) it can be seen that there has been a rapid increase in the proportion of these packages since their introduction in 1994, such that by 2000 the planning target for these packages was in fact exceeded.

Figure 6: High Care Places and Low Care Places

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Figure 7: Community Aged Care Packages (CACPs) introduced in 1994

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Figure 8 shows total operational places over the period in relation to the aged care planning ratio. Thus, the relevant 'target' number for Figure 5 is 100. The Figure shows that the 'target' was only achieved in one year—1985. Since that time total places dropped consistently until 1991, levelled out for the years 1991 to 1994, slightly increased in 1995 and 1996, slightly decreased in 1997 and have been slowly rising since that time through to 2000. It is claimed however, that when recent new allocations of aged care places actually come on stream then the goal of 100 places per 1000 of the population aged over 70 will be achieved, and even exceeded. (For example, in the Report on Government Services 2001, Table 12A.8 Aged Care services, Attachment 12A, the Department of Health and Aged Care states that if places 'approved in principle' are included in the data—presumably referring to 2000—'then the overall ratio would be 101.5').

Figure 8: Total (High Care/Low Care and CACPs)

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Notes for Figures 4 to 8:

  1. Data for 1985 to 1988 are estimates only.
  2. Data only includes operational places.
  3. The straight black line in each figure is the 'target' as set out in the aged care planning target ratio. The ratio sets a target of 40 high care, 50 low care and 10 CACP places per 1000 of the population aged over 70 years of age. The 'target' is seen as a long term one to be achieved over time.

Residential Aged Care Links

The following sites provide further information on residential aged care. Links to overseas sites are also listed.


Commonwealth Government

Aged Care Standards and Accreditation Agency

Department of Health and Aged Care, Aged and Community Care, Information on residential care

Australian Institute of Health and Welfare

State Government

NSW Department of Ageing, Disability and Home Care

VIC Department of Human Services—Aged Care

QLD Department of Families Youth and Community Care

WA Office of Seniors Interests

SA Department of Human Services—Ageing and Community Care

TAS Department of Health and Human Services

ACT Health

Organisations and interest groups


Aged and Community Services Australia

Aged Care Network

Council on the Ageing

Older Women's Network


Eurolink Age

International Federation on Ageing

Older Women's Network Europe

UK Centre for Policy on the Ageing

US Administration on Ageing

US National Center for Health Statisitcs - Aging Activities


For copyright reasons some linked items are only available to Members of Parliament.

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