Challenges of an ageing population

Rebecca de Boer, Social Policy Section

Long-term calls for structural reform of aged care may need to be heeded as the population ages.

Population projections for Australia suggest that there will be four million people aged between 65–84 years by 2022 with rapid acceleration of some age groups (over 65, over 85) in the next ten years. Support and care for older Australians is currently either provided through the residential aged care sector or by community based service providers in the home.

The Productivity Commission (PC) has commenced an inquiry to investigate the options for structural reform of the aged care system to meet the challenges facing the coming decades.

Community based care

Many older people wish to remain in their homes and supported in the community for as long as they are able. There are some government programs in place (such as Community Aged Care Packages) to support this, but there are gaps in availability and service delivery. Also, there has been criticism that the administrative costs of some community aged care packages are too high, reducing the amount of the subsidy available to fund hours of care.

A trial of consumer directed aged care packages has commenced and it is too early to tell whether this has been successful. Both consumers and the community service sector will require significant additional support if these packages are to be implemented more widely. Countries such as Japan have made considerable investments in their community sector to support elderly people to remain in their homes for as long as possible. Although they have had to adjust their funding arrangements since the program’s introduction, this Japanese program has been credited with the successful development of the community care sector. It also has enabled older people to remain healthy and active members of their community and consequently has reduced the need for residential aged care.

Population projections 2007 to 2057 - Text version

Population progjects 2007-2057

Source: ABS, Population projections, Australia, 2006 to 2101, Cat. No. 3222.0, released 4 September 2008. Series B (mid-level assumptions for fertility, net overseas migration and life expectancy).

Financing models

The Government spends around $10 billion per annum on the aged care sector, with around two-thirds of this expenditure directed to residential aged care. Older Australians in residential care, who can afford to do so, also make a contribution to the cost of their care. There are regulations in place which limit how much aged care providers can charge.

Aged care providers have long argued that the subsidy provided by the Government is insufficient to meet the cost of providing care and that much of the aged care sector is operating at a loss. The absence of any benchmark for the costs associated with providing aged care makes it difficult to assess these claims. Arguments have been made that the current financing arrangements do not encourage investment in capital infrastructure and there is insufficient incentive to upgrade or extend existing facilities.

To address this issue, some stakeholders have advocated that the costs associated with aged care should be separated so that the aged care resident would pay for the cost of accommodation (like rent) and the Government would subsidise the cost of care. Another proposal to address the financial needs of the sector is for aged care bonds to be applied to all people entering residential aged care. Aged care bonds appear to have gained widespread support from aged care providers, if introduced equitably and fairly. They see them as a means of providing a revenue steam to support capital infrastructure and enhance the quality of care. However, they have attracted vigorous opposition in the past.

The residential aged care sector is more heavily subsidised than the community care sector. However, on average, care provided in the community is less costly to government. There have therefore been calls to redress this imbalance and provide greater financial support to those who wish to remain in their homes.

Regulation and planning

The aged care sector is one of the most highly regulated in Australia. There is little dispute over the need for regulations that protect residents. However, some regulations are considered by the aged care sector to be an unnecessary burden. The Commonwealth regulates all aspects of aged care: determining the planning ratio, setting the subsidy, allocating licenses and assessing older Australians for an aged care place. Many of these regulations were introduced as a means of controlling expenditure and managing supply. Numerous commentators and advocacy groups have proposed that this model be abandoned to allow greater consumer choice and more competition in the sector. Under such an approach the Commonwealth’s role would be limited to the assessment for aged care places, ensuring quality and safety of care, and financial protection for consumers.

Aged care workforce

The aged care workforce is ageing and there is considerable concern among policy makers and service providers about retaining existing staff and attracting new staff to the sector. Informal carers (mainly family members) also play a significant role in the provision of aged care. However, due to population ageing, demand is expected to outstrip supply in the next 30 years. Irrespective of where or by whom aged care is provided, Australia is facing a serious workforce shortage. Aged care workers are some of the lowest paid in Australia and there is often insufficient support for informal carers. The question of appropriate remuneration of the aged care workforce remains unresolved, despite various campaigns. Flexible models of care could also be explored to ensure that older Australians receive appropriate, high-level care in a variety of settings. This may well involve the examination of the skills and qualifications required by aged care workers and the breaking down of some traditional barriers between medical and community based care.

Future prospects

In December 2010, the PC is due to release a draft report, which is likely to generate considerable interest and debate. While the shift in the ageing of the population will not be seen for at least another ten years, reform is considered by many to be necessary to ensure that older Australians continue to receive high-level care in both community and residential aged care settings.

Library publications and key documents

Productivity Commission, Caring for older Australians: Productivity Commission issues paper, PC,
Canberra, 2010,

Productivity Commission, Trends in aged care services: some implications, PC, Canberra, 2008,