No. 172

AGED CARE – THE EXPENSE THAT KEEPS EXPANDING

Stone the crows! If you think aged care is crook have a word with Jenny Macklin.

A couple of weeks back, Lateline reported on substandard aged care accommodation.[i]Linda Mottram picked up the issue on ABC Sydney radio the next morning with callers, texters and tweeters angry at the dodgy accommodation their mums and dads are in.

The general view is that crummy care and expensive beds are the government’s fault. Understandably so. We have socialised start of life assistance, with federal funding for childcare rising from $1.7bn in 2004-05 to $3.7bn in 2008-09.[ii] So cradle to grave consistency dictates the state provide for us on the way out as it now does on the way in.

The problem is paying for it. Last week, the Aged Care Financing Authority delivered its first report, (missed by just about everybody but Laura Tingle).[iii] It found that, at a macro level, times aren’t too bad. But this does not mean all is well at an operational level, where some operators focus on containing costs (when people are not being indifferent to the dignity and comfort of patients).

’Twas ever thus, as anybody old enough to recall the “kerosene bath” scandal of 2000 will remember (people in a Melbourne nursing home being roughly treated for skin disease). Back then, poor quality care led to warnings that the aged care accommodation system was “beyond crisis level.”[iv]

But it could be in better shape now, with a more sustainably supported aged care system, better resourced and more accountable to its customers, if only Jenny Macklin had not been such an effective opposition politician.

This is not a criticism of the Minister for Families, Community Services and Indigenous Affairs. In fact, Ms Macklin is one of the great successes of the Rudd-Gillard-Rudd government (I haven’t missed anybody have I?) She is a reforming minister who has defied her pals on the left to time-limit access to single parent pensions.[v] Ms Macklin also took on the rights industry, with a program to ensure welfare payments support children not addictions, in suburbs and bush both.[vi]

But, 16 years ago, she helped defeat aged care funding reform so severely that no minister has dared try comprehensive change since. Back then the Howard Government, still in first reforming blush, proposed including family homes in the setting of bonds posted when people entered a high care nursing home. Cue outrage among the elderly and those of their children who worried this might reduce their inheritance.

Outrage Ms Macklin amplified. As the Sydney Morning Herald explained, “The Opposition spokeswoman, Ms Jenny Macklin, made it clear Labor would continue its nursing homes campaign. People still faced the ‘unacceptable choice’ of selling their homes or agreeing to a ‘de facto death duty’ on their estate, she said.”[vii]

The pattern was repeated when the late Warren Hogan presented a report on funding aged care in 2004. The state paid nearly 70 per cent of aged accommodation costs, an unsustainable percentage as the population aged:

The Australian government will not be able to maintain its share of responsibility for the funding of aged care services for older people (that is, fund the shortfall identified as well as its currently projected contribution) without running up significant deficits.

Professor Hogan proposed a more rigorous asset test for state subsidies and higher income-based contributions, plus accommodation bonds for high-care residents, to match those paid by residents of hostel-style nursing homes.[viii]

The result was predictable; everybody thanked him for coming and ignored the report. By 2009, an ABC analysis of aged care funding did not even mention the professor’s plan. [ix]

The Productivity Commission’s 2011 report on ageing extended and (what a surprise) complicated Hogan’s ideas but made a similar stark suggestion – to fund aged care future users will need to contribute more, and their assets as well as income will need to be included in assessing capacity to pay.

The Productivity Commission, being the Productivity Commission, came up with a funding model which looked like something designed by Heath Robinson. It would allow people in care to borrow from a state funding agency against their home to fund accommodation bonds.

However, the PC’s principle is clear – the state should not subsidise care so that children can inherit their parents’ estate free and clear. Rather, the emphasis is on protecting the two most vulnerable groups – old people who need care and the taxpayers who are expected to fund a swag of it.

As the report put it:

These reforms, together with the lifting of supply constraints, would enable competing providers to offer a range of accommodation, from a basic standard to very high quality. Older people would be able to choose the standard of accommodation that they want and could afford, just as they have done when living in the community. Those with limited means would, however, be supported through an adequately funded supported residents subsidy.[x]

It is a plan as economically reasonable and socially responsible as it is politically ridiculous. As The Australian editorialised on the Commission’s draft proposal:

The idea that the family home is a tax-free asset to be passed down the generations is all but universally accepted by Australians and any attempt to require people to sell it to fund their own care will be opposed by owners – and their offspring. It will take political will to explain that this relatively painless reform could help reduce tax rises while helping ensure Australians at the end of their lives are not left to rot.[xi]

Quite. There was a great deal of sensible stuff with regard to service provision in aged care minister Mark Butler’s response to the report.[xii] But when it came to the PC’s proposal that people going into care should use capital locked up in property the government’s reply was, nothing (well at least not much) doing:

The threshold issue of how strong means-testing arrangements for aged care services should be, is a key factor in determining the affordability of responding to the broader suite of proposed reforms. While the proposed reform package moves in the same direction as that proposed by the Commission, it adopts a more graduated approach that seeks to significantly enhance the wellbeing of older Australians and their carers and better position the aged care sector for the possibility of further reforms in 
the future.[xiii]

When fed into the Crows’ patented political translator, this reads as, “bloody economists, of course we need people to pay more but let’s see the pointy heads hold a marginal electorate with plenty of pensioners”. And so, the state’s spending cost on aged accommodation will increase, from $7.8bn last financial year to $10bn in 2016-17. [xiv]

It can’t go on. Well it can, but it will cost a bucket of dosh. The industry needs $25bn worth of new capacity to house 74,000 extra residents over the next decade, which it will raise in the market but the feds will pay for most of the accommodation costs.[xv]

The problem is that the rate of return to investors will not be sufficient to meet demand, for what industry analysts Grant Thornton calls “the modern facilities most favoured by consumers”, [xvi]

Indeed, the feds are presently willing to fund more new residential aged care places (8300) than the industry will invest in (7775). This could be good news, demonstrating the government’s emphasis on home care is working and that the industry expects more people will now stay longer in their own homes.[xvii]

But not that good, because the sheer volume of old Australians means demand for nursing home places will boom. Economist Henry Ergas makes the point that many, many more of us will live longer and, towards the end, sicker lives – and there will be 2 million people over 80 in a bare 15 years. Where Hogan thought all taxes would have to rise by 1.5 per cent to fund all aged care costs, Ergas now estimates it is 2 per cent.[xviii]

So what is to be done? The PC wants people who can to fund their own care by sticking their assets in a government run agency, to pay for accommodation and living costs and which are exempt from the assets and means tests that apply to the pension and other benefits.[xix] Professor Ergas proposes mandatory insurance whereby people prepare for the possibility they may need to prepare for time in high care accommodation.[xx] And Labor MP and economist Andrew Leigh suggests that singles or couples moving into care could fund their places through a reverse mortgage on their home.

Good luck with all that. As Lateline showed, people now see the state as not just responsible for funding the welfare state but obligated to monitor and maintain the quality of individual care.

The problem is, in nursing homes as everywhere else, in life you get what you, or the government pays for. And self-interest will deliver more than public interest every time.

 

For speeches and strategy, articles and op eds, cases constructed and communicated call Stephen Matchett

stephen4@hotkey.net.au, 0417 469 093

 

ENDNOTES


[i] ABC TV , Lateline, Margot O’Neill, “Aged care crisis,” July 15 @http://goo.gl/FVpaBa recovered on July 27

[ii] Australian Government, Office of Early Childhood Education and Childcare, “State of child care in Australia,” 2010 @ http://goo.gl/Km9PyP recovered on July 27

[iii] Laura Tingle, Happy returns for aged care industry,” Australian Financial Review, July 22

[iv] ABC TV, 7.30 Report, “Outrage over nursing home treatment,” February 25 2000  @ http://goo.gl/xVH0wQ recovered on July 27

[v] Pia Akerman and Milanda Rout, “Find a job, Jenny Macklin tells single parents whose benefits are being slashed,” The Australian, January 1

[vi] ABC TV, 7.30, Bronwyn Herbert, “Income management expansion gets mixed response,” June 27 2012 @ http://goo.gl/u75cyM recovered on July 27

[vii] Jodie Brough, “Backdown on nursing home fees,” Sydney Morning Herald, October 28 1997

[viii] W P Hogan, “Review of Pricing Arrangements in Residential Aged Care”, Australian Government, Department of Health and Ageing, April 5 2004, 116, 128 @ http://goo.gl/a6o68r recovered on July 27

[ix] ABC Radio National, “Aged care: the budget debate we are yet to have,” May 22 2009 @ http://goo.gl/iK1Rz3 recovered on July 27

[x] Productivity Commission, “Caring for older Australians,” June 2011, xxxvi @ http://goo.gl/Z3MsFF recovered on July 27

[xi] “Time to tackle the high cost of caring for the aged,” The Australian, January 21 2011

[xii] David Penington, “Navigating Australia’s bumpy round to aged care reform,” The Conversation, May 16 2012 @ http://goo.gl/cDVqE7 recovered on July 27

[xiii] Department of Health and Ageing, “Australian Government response to the Productivity Commission’s Caring for older Australians report” May 2012, @ http://goo.gl/9uHbTl recovered on July 27

[xiv] Australian Government, “2013-2014 Health and Ageing Portfolio Budget Statements, Outcome Four, aged care and population ageing”, May 14 @ http://goo.gl/IpvXZR recovered on July 27

[xv] Aged Care Financing Authority, “Inaugural report on the funding and financing of the aged care sector,” July 19 @ http://goo.gl/v5DXtp recovered on July 27

[xvi] Cam Ansell, Eric Davey and Henry Vu, “Service costs in modern residential aged care facilities,” Grant Thornton January 2012, 8 @ http://goo.gl/2uEHDD recovered on July 27

[xvii] John G Kelly, “National Report,” Aged and community services Australia,” Aged and Community Services Australia National Report, July 11 2013 @ http://goo.gl/XfRMDB recovered on July 27

[xviii] Henry Ergas, “How can we fund future aged care costs,” University of Wollongong, @ http://ahsri.uow.edu.au/content/groups/public/@web/@chsd /documents/doc/uow100340.pdf recovered on July 27

[xix] PC ibid

[xx] Henry Ergas, “Funding and providing aged care: lessons from the last decade,” The Australian Economic Review, 45 (3) 362-7, recovered on July 27, Andrew Leigh, “Choosing life over money in our old age,” The Drum May 2 2012 @ http://goo.gl/IgkHTC recovered on July 27

'2012