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For those who’ve been left wanting more detail about the Federal Government’s aged care package, below is a series of articles cross-posted from the Commonwealth Parliamentary Library’s FlagPost blog.

In the articles below, Rebecca de Boer gives:

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1. An overview of the reforms

2. An explanation of the changes to community care

3. Some background to questions about the family home and aged care financing.


1. An overview of the reforms (a small step)

Rebecca de Boer writes:

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.

This article 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.


2. Changes to community care

Rebecca de Boer writes:

The Government has announced a significant expansion in community aged care as part of its Living Longer Living Better aged care reform package.

All existing community aged care packages (Home and Community Care Program, Community Aged Care Packages, Extended Aged Care at Home, Extended Aged Care at Home – Dementia and some smaller programs) will be consolidated into a single program known as ‘Home Care’ packages. The overall number of these home care packages will increase from 59 876 to almost 100 000 by 2016–17.

Changes will also be made to the payment arrangements for community aged care. From 1 July 2014, older Australians may be asked to contribute to the costs of their care via a Care Fee (it appears that whether fees will be charged will be at the discretion of the provider). These fees will be means tested and will be paid in addition to the Basic Fee which is currently charged.

The arrangements will include:

  • annual caps on fees for part-pensioners ($5000) and self-funded retirees ($10 000)
  • full pensioners will not pay a Care Fee
  • self-funded retirees with an income greater than $43 186 will pay a care fee on a sliding scale up to a total of $10 000 per annum
  • people with a private income above $150 for a single person and $264 for a couple per fortnight will pay care fees
  • charges for the cost of care provided in the home determined by the Aged Care Financing Authority
  • these charges will contribute to an annual lifetime care cost limit of $60 000 (the lifetime limit takes into account care provided in both community and residential settings)
  • the Government will still pay a subsidy to aged care providers and this will be reduced by the Care Fee paid, and
  • subsidised care fees will be available for people receiving Home Care packages who experience severe financial hardships (as is the case for residential aged care)

Some changes have also been made to Home Care arrangements to enable older Australians to access increased levels of care (and associated subsidy) as their care needs change. There will be four levels of Home Care ranging in value from around $7500 to $45 000 (government subsidy per annum). These new arrangements are expected to better accommodate the needs of older Australians and facilitate them remaining in the community–and their home–for longer.

The means testing arrangements for community care have been described as ‘sensible and fair’. However, UnitingCare Ageing has undertaken some analysis of the community care package and estimates that older Australians living at home with low incomes will pay considerably more than they currently pay for care provided in the home. Couples with an income of $50 000 could pay up to 20 per cent of their income in care fees. This may well act as a disincentive for some to remain in their homes.

There have been calls by some aged care advocates for the family home to be used to pay for aged care. In this instance, the family home would be used to establish a line of credit to pay for aged care so that people could remain in their home for longer.

Although the Government has committed to additional community care packages, it has not withdrawn the restrictions on the number of aged care packages (both community and residential). This is likely to cause problems in the future as demand is likely to outstrip supply.

The 2011 aged care planning round received 24 336 applications for community care, yet only 1724 places were allocated, highlighting the significant demand for community aged care. It also is not clear if there will be a specific focus on the development and delivery of community aged care services in regional areas.

Another feature of the community care package is the shift towards consumer-directed aged care. The Government is currently conducting an evaluation of Consumer Directed Care but this has not yet been released.

The program currently in operation is perceived to be restrictive as the budget and delivery of services is controlled by the aged care provider. It remains to be seen whether consumers will have greater involvement in choosing (and purchasing) aged care services.

Previous criticisms of the Government’s community aged care program have suggested that the administrative costs are high, reducing the number of hours available for face-to-face care. There is (currently) insufficient detail to determine whether these concerns will be addressed as part of the new arrangements for community care.

Like the rest of the Living Longer Living Better aged care package, the community care measures have been cautiously welcomed by the aged care sector. Time will tell, as noted by one commentator, whether it will result in a ‘fundamental transformation from a funding-driven, provider-driven system to one that’s driven by what older people themselves need and want’.


3. Paying for aged care – should the family home be counted?

Rebecca de Boer writes:

The Government’s Living Longer. Living Better package represents a new way of paying for aged care in Australia. From 1 July 2014, means tested co-payments, annual and lifetime limits for care costs and accommodation bonds for all aged care residents will be introduced. For further detail of the package see here.

One of the long running debates in the financing of aged care in Australia is the treatment of the family home and whether is should be included in any asset or mean-testing calculations when individuals access publicly funded aged care.

In its recent report to the Government, the Productivity Commission (PC) put forward two recommendations (7.3 and 8.1) that would draw on the value of the family home to finance the costs associated with aged care.

These were not accepted by the Government in its response to the PC Report. When announcing the aged care reforms, the Prime Minister and the Minister for Mental Health and Ageing argued that the package would ensure that ‘more people get to keep their family home’ and prevent ‘emergency fire sales’.

The decision not to include the family home may reflect the Government’s commitment to improving the access to aged care services in the community through additional Home Care packages.

As part of the aged care reforms, aged care providers will be able to charge a bond to all residents and all aged care providers will be able to charge for ‘extra service’ (beyond what is subsidised by the Government). In both instances, the charges must be approved by the Aged Care Financing Authority to be established. These will serve as another source of income for residential aged care providers.

While the introduction of bonds has largely been welcomed by the aged care sector, concerns have been raised that the package will not improve the overall sustainability of the aged care system.

Changes to the financing arrangements for residential aged care

Accommodation bonds are effectively an interest free loan to the aged care provider and are negotiated as part of the entry into residential aged care facilities. They provide an income stream to aged care providers which, as stipulated by legislation, must be used for capital infrastructure and improving the quality and range of services. Aged care providers can also charge a monthly retention amount for five years. Under current arrangements, the bond amount is at the discretion of the provider but residents must be left with a minimum amount of $40 500 in their bank accounts. The average bond in 2010–11 was $248 850, with significant variation across the sector.

From 1 July 2014, all aged care residents will pay a bond. The amount will require approval from the Aged Care Financing Authority and must be publicly available to prospective residents. The monthly retention amount has been abolished.

After entering residential aged care older Australians will have a set period (defined in the legislation) in which they can decide how they will pay their bond. As is the case now, there will be three options: lump sum amount, periodic payment or a combination of both. This is likely to improve the transparency and accountability of aged care bonds.

Some advocates have been arguing for the introduction of bonds for all aged care residents for many years and this aspect of the announcement has been welcomed. However, support for bonds is not universal, and the Combined Pensioners and Superannuants Association (NSW) have commenced a campaign against bonds.

The Government will also raise the subsidy for residents who are unable to meet the costs of their accommodation. This will be increased from $32.58 to around $50 per day (in 2014). However, this supplement will only be paid to aged care facilities that built or significantly refurbished after the announcement of these reforms. Concerns have already been raised that the increased subsidy will be insufficient for new infrastructure or to address regional cost differences.

While the increase in aged care packages and additional funding has been welcomed by the sector, it remains to be seen whether this will be sufficient to meet the current shortfall in residential aged care.

In the last Aged Care Approval Round, there was a lack of applications for residential aged care. Industry reports suggest that under the current arrangements the subsidy is well short of the cost of providing aged care services (the additional payment will apply from1 July 2014) and it is not clear whether the new arrangements will address this. Some providers argue that they will be worse off as a result.

The Government’s residential aged care package has been described as a ‘band-aid’, partly because of the pressure that the aged care sector is currently under and partly because the proposed reforms do not change the underlying structure of aged care financing.

Like community care, limits remain on the number of residential aged care packages thus restricting future growth of the sector. In deciding not to pursue the family home as a source of finance for aged care, the Government has ignored a significant source of future funding.

With some arguing that the proposed reforms may compromise equity and lead to higher copayments, aged care lobby groups have (again) renewed their call for the family home to be used as a way for individuals to pay for aged care.


Further reading

• A recent article by Professor Hal Kendig, cross-posted from The Conversation: A positive step but many questions and concerns remain

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