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Apr 23, 2012

Aged care: treating the cause and consequences of bad price signals

The government has taken a significant step towards correcting the problems created by bad price signals in aged care.


It was a narrow escape, a damnably close run thing. It looked, briefly, like the press gallery was going to have to actually devote time to analysing a complex area of policy that resisted simplistic polarised reporting. Editors and producers were mortified that their journalists might concentrate on policy rather than personalities.

Luckily, the prospect of having to assess the government’s aged care package was averted by Peter Slipper, and we got to wallow in allegations of s-xual harassment and dissections of the implications of a Speaker standing aside for a minority government.

Which is a shame, because getting aged care right is one of the most difficult policy challenges facing us and Labor appears to have taken a significant step towards doing just that. Along with the Future of Financial Advice reforms, aged care is likely to be the most significant reform package Labor undertakes this year.

Aged care is one of Australia’s many hybrid industries: sectors with a significant or even dominant role for the private sector (in this case, both for-profit and not-for-profit), but which fundamentally depend on government regulation or funding, or both. Reform becomes a matter of translating government funding and regulation into market price signals.

But overlaid on its hybrid nature is the intense politics of aged care: there are few issues that generate stronger concern in the community than how we manage and finance the care of our elderly relatives who can no longer live independently. That’s one of the reasons the issue has been reviewed so often over the past decade, including last year by the Productivity Commission. And it’s an issue set to increase significantly as the population ages and baby boomers enter their twilight years.

The Commonwealth’s funding on residential aged care alone has increased by 46% since 2006, to $7 billion last year. And in that time, the health and caring sector of the workforce has become Australia’s biggest employer, and after mining its fastest-growing. Getting aged care right has major fiscal and economic implications.

Currently the price signals in aged care are wrong. There simply isn’t enough government funding available to make investment by private providers in new aged care facilities worthwhile, and there are limited options for extracting more funding from consumers. And the price signals in the workforce are wrong: aged care nursing pays less than nursing in other health sectors. The result is the sector struggles to attract staff and retain good ones.

The result is what happens when demand outstrips supply and pricing can’t adjust: queuing. That’s why it’s so hard to secure a nursing home spot and why families have to make rushed decisions about their circumstances for fear of missing out.

The government’s reforms treat the symptoms and the illness, if you like, of the undersupply: by massively increasing funding for home care packages, it hopes to reduce pressure on existing nursing home places, by keeping people in their own homes for longer. It is also providing (a little) more support for carers and quite a bit more support for people caring for dementia sufferers. Dementia will now become a national health priority, along with a range of chronic diseases and cancer, that inflict major costs on our health system.

And it is significantly increasing funding for nursing home places, to dramatically lift the incentive to build new aged care facilities. It is also investing over a billion dollars in trying to improve the attractiveness of aged care nursing remuneration, while the sector works out how to achieve a long-term solution to its workforce needs.

But to supplement public funding, the government will also tap the one other source of funding available: consumers. Means testing will be introduced for home care packages and residential care funding, albeit with expenditure caps, and with the family home exempted from the means test. As Tony Abbott rushed to point out on Friday, that means some people entering aged care facilities, or their families, will pay more than they would currently. In fact, that’s the entire point. There’s no magic pudding. Either the government pays for it or consumers do, and in particularly consumers who have a greater capacity to pay.

It’s also investing in a new one-stop information gateway to make it easier for people to obtain relevant information about local options available to them, with the intention that eventually you’ll be able to see performance information such as complaints data about each institution. It’s the extension of the MySchool approach to aged care — it is already being extended to hospitals via the government’s health reforms — with the intention that people should be able to obtain objective data about services they use before making a decision about them.

The aged care sector has been on an unsustainable footing for years — one of the reasons it had been reviewed so often. The crisis point was reached on Labor’s watch. To the government’s credit, it has taken a major step in the right direction, and consulted the sector widely before moving. It could have gone further — for example, by including the family home in the means test — but that would have entailed significant political risk. And in an environment where the media’s interest in good policy is at the lowest point ever, it’s understandable that it shied away from doing so.


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20 thoughts on “Aged care: treating the cause and consequences of bad price signals

  1. Mike Flanagan

    Thanks Bernard for this perceptive article. It is one of the more
    analytical and informative pieces that we have had from our press
    for sometime.
    It is sad that the MSM have diverted by their salacious focus on
    personality politics.
    I didn’t think Abbotts attention to explaining policy, that he displayed
    at a business dinner last week, would last long. The hollowness of his
    explanation exposed him to serious questions that couldn;’t be
    responded to by advertising aphorisms and pejoratives.
    His response to the above policy announcement was to run for cover until
    Peta Cruden could dig out some aphorism.
    Thanks again Bernard.

  2. Wobbly

    You can’t escape the fact that leaving the family home out of means testing is adding to middle-class welfare. It’s also another contributed to the housing bubble, depending upon locality ownership dynamics.

    Productivity commission… Pfff, how about an equity commission?

  3. John Bennetts

    One correction…

    “And in an environment where the [media’s] Opposition’s interest in good policy is at the lowest point ever, it’s understandable that it shied away from doing so.”

  4. swingingvoter

    More regulation, more red tabe, another regulatory body (Aged Care Finance Authority), $1.6 Billion ripped from care funding and $1.2 Billion promised to the Unions for aged care workers in a “workforce compact”. As usual the figures do not stack up and too much devil is left in the detail. All in all this smells like a desperate government trying to save its skin by achieving a fiscal surplus that became unreachable when they botched the original mining tax. This government couldn’t tie its shoe laces let alone find a way to improve aged care.

  5. Michael James

    The situation my parents are in highlights the exact single reason that the family home shouldn’t be means tested.

    My mother has Alzheimer’s, progressively getting worse. She now has to live in nursing home (she’s over 80) as my father (who is 87) could no longer fully care for her (and his health is failing).

    They own their home, pretty much their only asset, given they both worked and retired before compulsory superannuation kicked in. Mum is now rotting in a nursing home, while my dad frets and copes, barely, at home.

    Their pension allows Mum to be cared for, with enough left to keep Dad in groceries and pay the electricity, rates and such. If the house was means tested, then their pensions would both be cut, meaning they would have to sell the house, sending my Dad into either a nursing home or a small apartment somewhere, something that is a terrifying prospect for the elderly.
    Allowing them to hang onto their home means Mum can cling to the fantasy that she can come home when she gets better, and Dad to live surrounded by friends they have known for decades.

    Both don’t have many more years, but it’s longer than they would have if they had to deal with the stress of selling the home they have lived in for decades and the place they raised their family in.

    The Government got PAYE taxes out of each of them for 45 years, plus my father served the nation in three wars. I think they have both done enough without having to forego living their last few years with what little dignity they have left stripped from them.

  6. paddy

    Thank you Bernard.
    Such a nice moment of sanity and serious analysis, before we’re forced back into the world of MSM “Slipper hysteria”.

  7. Mike Flanagan

    Well bloody said Michael James!
    It is time we respected the accumulated experience and knowledge of
    the elderly and allowed them some dignity and security in their latter
    All of them have added value to our lives today, in their own ways.

  8. Le Hank

    “Either the government pays for it or consumers do, and in particularly consumers who have a greater capacity to pay.”

    This is the worm in the stew. Why should people who have worked hard all their lives, put away a bit for the future, then find that they have to pay more for the same service than someone who has done little?

    We could apply this to every aspect of life. Rates could be applied on the basis of higher rates for “greater capacity to pay”. Taxes could be applied for education on the principle of “greater capacity to pay”. Or even health care in general: have a tonsillectomy and pay more if you have a “greater capacity to pay”. Every service that is now provided for anyone could have the same principle applied.

    This is not “middle class welfare”. This is forcing people to pay more for services that others don’t have to pay for. People pay taxes and superannuation so that, when they are no longer earning, they can get something back. Not so that a new de facto tax regime can be applied to them.

  9. Andrew Clark


    You noted in your piece “It’s also investing in a new one-stop information gateway to make it easier for people to obtain relevant information about local options available to them” Given that the Government already has this service ‘CareLink’, what are they reinvesting in and why do need a new one stop shop / no wrong door. Has the existing model failed ?

    Part of problem is there has been very little if no research into effective information provision and aged / disability. As a consequence models keep changing every couple of years or just get rehashed. It would be nice to see some proper research into this area.

    Secondly given the vast amounts of money flowing into this area, it would be good to see that any funding provided to agencies must include acceptance of anti discrimination laws by these agencies. No exceptions as is the current case.

  10. puddleduck

    Bravo, Michael James.

    My parents are in a similar situation, but 10 years younger than yours. Their only asset is their modest home, which isn’t worth a fortune anyway.

    When my poor Mum occasionally goes into respite to give my Dad a much needed break, it’s horrible. Even at the supposedly ‘best’ place in the neighbourhood, the staff are run off their feet, and frankly, not top drawer. Registered nurses who don’t know what medications are for, and give them out whenever they can manage, rather than at the time prescribed by specialists (and dutifully filled out on the numerous forms the facility required us to fill out, but promptly paid no attention to).

    An agency nurse stripped my Mum and forced her into the shower, despite my Mum’s protestations, then brutally dried her. When I complained, one of the RNs said “oh, that’s agency staff, you give them instructions but they do what they want.” WTF? It too ktwo further complaints until this place took it seriously. Then their only concern was, rather ridiculously, would we be coming back? The head of ‘nursing’, and I use the term loosely, without my permission, asked my Mum if she’d like to live there permanently. Yep, that’s tactful to ask a person with severe, basically untreatable anxiety due to gradually progressing brain damage.

    And this is supposedly a top drawer place. At least they have aircon. The place down the road doesn’t.

    So, after my teary rant above, I’ve got two words for you: STAFF RATIOS. Oh, and Staff training. That would be nice too. Qualified staff.

    I despair.

    Don’t get old. It sucks.

  11. Tom McLoughlin

    I think I may take a bigger interest in this policy area, after all ‘demographics is destiny’.

    (Certainly I was wondering today what would happen if News Ltd held a scandal and no one turned up?

    Also I am wondering what war a new PM Abbott would start first – Indonesia for sending on boat people? After all Abbott is unapologetic about the Iraq war error on weapons of mass destruction, similarly the 100K to 600K deaths (depending on The Lancet methodology for the latter figure). Talk about destroy the village ….. It seems to me without the Iraq war mistake we might have avoided the GFC?

    Can Australia risk a repeat of that terrible judgment, let alone a blacklist by the western re-insurance multinationals over climate? Seems to me Abbott is just a Howard cipher anyway, and Howard lost his seat. Do Australians really want to go backwards?)

  12. eaton warwick

    The proposals are a solid step forward. The idea of means testing family homs was not pert of the process, rather a thought bubble from a reader so people should not get hung up on that. The means testing will be similar to the private medical insurance rebate means test, applied sparingly only to the very well off, and therefore essentially window dressing only. Having worked in disability care and with a wife in aged care, both areas are underfunded, underesourced and underpaid. We need to support the aged in their own homes as long as possible. It may even soak up some industrial unemployment in the declining south-east.
    Regards, Warwick

  13. Pamela

    Agree Puddleduck- more staff , more training and better pay.
    It is not all bad though – there are magic places to be found where the staff actually look like they are enjoying their work and joke and chuckle with the oldies, where the carers say our aim is to keep our residents happy.
    One such place is in Byron bay. My Mother with advanced Alzheimers lived there for 18 months pottering around very happily. Her initial anger and distress disappeared not with drugs but with loving care. She also died there in her own room with the carers who knew her looking after her and her family who camped around her bed for 3 weeks. Most aged care places ship the sick and dying off to hospitals but not the Byron Aged Care Home.
    When you are in a place at all hours of the day and night you see what really goes on. You see the individual care of individual people with all their different habits of a life time. The night owls, the wanderers, the old darlings looking for their children – all reassured and cared for in a respectful way with kind words and cups of tea.
    We saw creative care where an activities officer organised concerts and sing songs, where the residents could sit and read 1950’s newspapers and magazines and discuss the Queens visit and the fashions with memories set sharply in this era. A happy hour with drinks and canapes and then a sing along with residents initiating the songs of another time.
    This is a place where carers are assigned to the people with whom they had built trust so that the residents felt really safe.

  14. lorraine benham

    If the new aged care website provides good, easily understood information about how to access aged care services it won’t be a moment too soon. My mother has now passed on, but I will never forget the hideousness of trying to find out how to access all the services she needed at home and then to find a high care nursing home place for her. Gentle readers do you realise the system of nursing home placement is so complicated there is a whole industry out there of people who hire out their expertise in understanding and working the system for us poor ordinary citizens who suddenly have to find a place for an aged parent and who would have very little chance of doing that successfully without the expensive help of these ‘experts’. When you have to hire an expert to understand the complexity of a bureaucracy that’s a sure indication there is an awful lot of waste in the sytem due to administrative overload and this in a sector that needs every penny it can get.

  15. Gavin Moodie

    Means testing the family home doesn’t necessarily mean forcing a sale. I think 1 of the several reviews Keane noted recommended that the family home be means tested by taking a mortgage over the home, which would be enforced when both spouses die.

  16. AR

    Surely the point is that by the time the big bulge of boomers reach the nursing home stage, they will not want Vera Lynn and housey-housey, they’ll want R&R, porn and interesting medication.
    It’s only a matter of time before some sharpy realises that they’ll control the majority of assets, a significant chunk of income and, given that there’ll be bugger all else in the aay of employment, China having become the world’s workshop, the next gen. would be well advised to get into aged care, it’ll be the only growth industry.
    And NOT slave wagery as at present coz WE did the hard yards int he 50-70s and are unlikely to forget that when a comely aide gives us a spongebath and extras.

  17. LJG..............

    Nah sorry AR – by the time you Baby Boomers reach the nursing home age Gen-X , Gen-Y & Gen-Z after having to pay $30,000 for their degree to give you a sponge bath will be eyeing off those assets and will be quick to vote for any Government that can prise you out of your 5 bedroom inner city federation home that you seem to think you can take with you. Be afraid BB’s, I think the user pays ideas that you have inflicted on the younger generation might come back to bite you!

  18. jackp

    Gavin moodie is on the right tract. A reverse mortage to pay for decent care is a sensible approach

  19. Gavin Moodie

    @ Le Hank

    Income taxes are already raised according to capacity to pay. Those on higher incomes are taxed at a higher rate than those on lower incomes.

    Property taxes, being a capital item, are taxed not according to the owner’s income but according to the value of the property.

    The issue is whether government transfers or subsidies should be means tested. The strong socialist principle is that all government benefits and services should be universal. That is, taxes should be high enough to provide education, health, child care, unemployment benefits, old age pensions, etc, to all who need the service.

    Some continental European countries such as typically the Scandinavian countries adopt this position and accordingly their government taxes and services are about half of the country’s gross domestic product. Other countries such as France are not as strong as the Scandinavian countries buts still have strong government provisions of services and support.

    Australia has chosen to have a small government – only about 35% of gdp. So without raising taxes (which I support) Australia has to decide whether to provide a narrower range of services to everyone or a comprehensive range of services to a narrower range of people. Of these 2 options I prefer a comprehensive range of services to a narrower range of people, and means testing is a good way of choosing beneficiaries.

  20. Kim Bulwinkel

    Excellent balanced comment and analysis Bernard – thankyou.

    As a “Baby Boomer”, the oldest in the family and the only one with any financial independence, with 5 elderly parents to worry about, I can honestly claim some experience in area.

    This reform package is a really good start and should attract bipartisan support. As with all of these good ideas however, it is the implementation that will be the real test. I see that commenters have talked of French & Scandinavian government concepts of government and they make very relevant contributions & comments. I have just returned from Eastern Europe and can add that experience to the mix. 2 of the very elderly parents are in the Ukraine and are reliant [& are barely surviving] on the social / pension support of the failed socialist experiment that was the USSR [CCCP]. I, in fact, supplement their existence and they survive OK with very low expectations.

    Like all of our wonderful systems in this country, the ideas are great but they are structurally underfunded. Labor governments are hellbent on addressing the funding issues by going into debt and by the forceable redistribution of wealth by legislation – they cannot help themselves. To quote the PM, it is in their DNA. The end result of this redistribution concept is what has happened in Eastern Europe and what is happening in Greece, Portugal, Spain. ….. people are educated to believe that they have entitlement without contribution. This is a recipe for disaster +++.

    Proper equitable taxation arrangements without killing off the incentive to improve oneself, to look after oneself and to be a proportional [not disproportional] contributor to our society have to be sorted and this federal government has completely wasted the opportunity to structurally fix our system to achieve the right results before the disasters grow insurmountable.

    What happened to the Henry Tax review – flawed as it was with the exclusion of consideration of the GST? What happened to the Tax Summit ….. what a waste of time that was!!

    The only real structural funding reforms that will save us all are funding [taxation] reforms that are as broad as possible. Effective GST is greater than 17% just about everywhere else in the world other than here. Funding Aged as a “levy” on the GST would be a bit more sustainable and dynamic and would more transparently let us know as Australians how much our ageing population is costing us.


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