It was late on Monday night (11th March) when the Government released the much-anticipated report from the Aged Care Taskforce, discussing how to fund aged care services to ensure sustainability and what it is likely to cost us to access the care we need.
The Royal Commission into Aged Care found that improvements are needed for the aged care system to ensure higher standards and quality of care, but achieving this raises two significant challenges:
- How to support people’s desire to age at home
- Where the money comes from to ensure aged care providers can afford to meet people’s increasing demand and expectations, particularly with an expected increase in the number of older Australians.
Older Australians want greater choice and more control, but they are also worried about how much care costs and whether they can afford the care they need. Care providers are worried about the cost of delivering care and whether they can afford to meet people’s expectations. The Government is worried about the projected increases in aged care expenditure and how to ensure a system that works for us all.
The Taskforce’s report focusses on all of these challenges with some key principles that should form the basis for government policy. It tries to navigate a path that ensures a fair and equitable system that delivers quality care.
While the report gives us some clues on what changes we might expect, it is important to note that the Government has not yet commented on their policy position. So, we do not yet know what changes the Government might accept and put forward as legislative change. All eyes will now be on the May Federal Budget.
Aged care needs more money
The Federal Government is the major funder of aged care - both home care and residential care. However, there is a limit to their ability to support the increase in costs needed in the future. Government spending on aged care as a proportion of gross domestic product (GDP) is projected to grow from 1.1% in 2021–22 to 2.5% by 2062–63.
To make care sustainable we need to inject more money and the Government has ruled out imposing a specific levy or increasing taxes to fund aged care. Therefore, the additional money will need to come from either Government (using current taxpayer funding) or from the people who access care services (fees and co-contributions). Efficiencies and better business models for care providers may also help to direct more of the available money into better care services.
An overriding principle adopted throughout the report is that we should have one aged care system. At entry a person should have their needs assessed and then they can choose where they want to live and how to access this care. This will create greater alignment and equity across government subsidies for home care and residential care.
It is also clear that the portion of costs paid by people accessing care will be higher. Currently the people accessing care only pay (on average) 25% of the ongoing costs of residential care and 6% of home care costs.
What to expect for home care
Home care is a cashflow conversation. People accessing home care have sorted out their own accommodation and funded those costs. Home care is about what support you need and who pays the costs.
The Taskforce’s report divides these costs into three groups, with principles around what people should pay for:
- Clinical (medical) care – it is suggested that this should be fully or mostly paid by government.
- Support to facilitate independence and safety – this is where most of the money is currently spent and includes services such as allied health and social supports. It is suggested that this should have a compulsory contribution by people accessing the care but still be heavily subsidised by government.
- Everyday living expenses – these are the normal expenses associated with living in a home such as cleaning, laundry and maintenance and it is suggested that they should be mostly (or totally) funded by the person.
This model will require clear guidance from government on what services can be subsidised and which ones cannot and is likely to result in people needing to fund more costs on their own.
The suggestions also aim to address the problem with many people not spending all of their available package (unspent funds) and freeing up these amounts to fund care for a greater number of people.
If the changes are implemented, people will need a lot more support and guidance with managing cashflow and will need to focus on what services will help them to improve and maintain their quality of life, personal safety and healthcare management.
What to expect for residential care
A similar model to categorise services is suggested for residential care, but residential care has the added complexity of funding accommodation.
The cost of accommodation and daily care expenses (eg food, electricity, laundry etc) is suggested to be considered as personal expenses. The government should only subsidise these costs for a person who is determined to have low financial capacity.
The cost of accommodation is one of the biggest concerns for residents with costs that amount to hundreds of thousands of dollars. This may be made more affordable through the person’s choice to pay this cost as a daily fee (rent) or a lump sum – with each option having different financial outcomes. The report suggests moving away from the lump sum option to a rent only option, but this needs to be done slowly to give providers confidence to invest and increase the supply of aged care beds and ensure a rental only option is sustainable. It is proposed that lump sum refundable accommodation deposits (RADs) could be fully phased out by 2035.
In the interim, we need to ensure providers can have confidence to build more residential care homes and upgrade the existing rooms. Some of the suggestions in the report may see the cost of rooms increase, with changes to make it easier for providers to charge higher RADs and the ability for providers to keep a portion of any RAD paid (the suggestion is up to 15% over a 5-year period). A safety net for low-means residents is still a key measure under these suggestions.
The ongoing daily fees and split into two components: care and daily living needs. it is suggested that the care needs that are directly related to health and impairment should continue to be fully (or mostly) funded by government, potentially removing the currently costly and expensive system of means-testing these fees.
Some of the costs currently allocated as “care costs” may also be transferred into the category of daily living costs. The category of daily living needs is suggested to be a personal expense which would need to be fully funded by the person living in care. This includes the cost of food, electricity, laundry etc. Most of this cost is already paid by the person living in care, with some Government subsidy. However, providers are not recovering the cost of providing these services – they are making a loss on this area.
The report suggests increasing the fees for daily living to ensure providers are adequately reimbursed (with a margin). If this becomes a fully personal expense, it could see people paying an additional $15-20 per day. it is likely that pensioners and other vulnerable groups could still be partly subsidised for some of this increase.
Providers and residents would also be able to negotiate additional services for higher standards of living and additional services. Hopefully this moves us away from the current system of compulsory additional services packages that have no connection to resident choice or values.
Getting financial help
Overall, we hope to see changes working to ensure financial sustainability for providers, with a large and fair share of the costs continuing to be paid by Government but older people may need to fund more of the costs.
While we are still waiting to see the Government response and get a clear direction on what will change and what it means for us planning our future care needs, it is clear that advice is important, and a greater understanding of the care system is needed.
Good regulation will be important, but so is a better understanding by us all. This includes a better understanding of the costs and a better understanding of how we can arrange our own finances to meet our needs and expectations, including better using our homes and superannuation savings to meet all of our retirement needs, including care.
The report flags the need for people to start this financial planning journey early in their retirement, not just when the crisis hits. From our experience it is important to get this advice from a financial planner who is licensed by ASIC (you can check your planner’s details at https://moneysmart.gov.au/financial-advice/financial-advisers-register) and is also experienced in aged care advice.
Louise Biti is a Director of Aged Care Steps, supporting advice professionals to give advice on aged care. Support is provided to older people through Aged Care Personal Advice. The information in this article is general and does not take into account your particular circumstances. We recommend specific financial tax or legal advice be sought before any action is taken to apply the rules to your specific circumstances. Refer to the relevant Product Disclosure Statement before investing in any product. Aged Care Steps ABN 42 156 656 843 is holder of AFSL 486723. Current as at 13 March 2024.