Government’s aged care report proposes older Australians pay more but eschews a levy

A government-instituted taskforce has proposed older Australians should pay more of the cost of their aged care, while steering clear of politically fraught options such as a levy or touching the family home to help finance the sector.

Under the recommendations from the Aged Care Taskforce, refundable accommodation deposits (RADs) would eventually be phased out, replaced by a rental-only model. A co-contribution-for-service model for home care would be established.

The taskforce, chaired by Aged Care Minister Anika Wells and with representation from the sector, was charged with examining how funding can be put on a more sustainable basis.

The report says with an ageing population more funding will be needed from both government and participants in the home and residential care sectors.

It contains no costings and the government has not provided its response.

A Royal Commission into the sector under the Morrison government favoured a levy to assist with aged care funding but the commissioners were split over the model. The Albanese government does not want to stir that hornet’s nest.

The report says that over the next 40 years, the number of people over 80 is set to triple to more than 3.5 million.

Government spending on aged care as a proportion of GDP is projected to grow from 1.1% in 2021-22 to 2.5% in 2062-63.

It is estimated that $37 billion investment (in today’s dollars) would be needed to build the extra aged care rooms required in 2050.

Over the decade to 2030 additional investment of about $5.5 billion would be needed to refurbish and upgrade existing aged care rooms, increasing to $19 billion by 2050.

“Current funding arrangements will not deliver the required amount of capital funding,” the report says.

The demand for home care has been increasing strongly: over the next 20 years an average annual increase of 44,000 participants is forecast, totalling nearly two million older people using home care by 2042, compared with about one million now.

“To meet this demand, the home care sector will need to be financially stable and administratively efficient,” the report says.

There are three components in relation to residential care funding: for the care itself, for living costs (food, cleaning, laundry, etc), and for accommodation.

In residential care, the government should continue to focus on care costs, “with a significant role for resident co-contributions in non-care components,” the report says.

At present the government pays for most of the care component (some 94%) and the report suggests taking this to 100%. It wants the daily living component that residents pay boosted, subject to a safety net.

Backing its case for more user-pays, the taskforce says older people are wealthier than in earlier generations, while the tax burden “is being shared among an increasingly smaller group of people as the proportion of the working age population declines”.

“It is appropriate older people make a fair co-contribution to the cost of their aged care based on their means,” the report says.

The report says aged care providers are on average losing $4 per resident a day on daily living costs. They have little flexibility to get more revenue for this.

“There is therefore a critical need for increased funding towards everyday living expenses. The Taskforce believes this should be largely paid for through greater resident co-contributions to ensure sustainability, but with a strong means tested safety net for those who cannot pay a higher rate, such as full-rate pensioners with no other income or assets.”

For residents to meet their daily living costs the taskforce recommends a Basic Daily Fee and a supplement.

The Basic Daily Fee already exists – the taskforce is recommending this continues but with the supplement increased to meet the full cost of everyday living expenses and also means tested so that wealthier residents contribute more towards everyday living.

The taskforce is critical of Refundable Accommodation Deposits, under which people pay an amount which is refundable when they die or leave.

“Phasing out RADs would improve simplicity and equity for residents and reduce liquidity risks for providers.

"RADs create inequity between residents based on how they pay for their accommodation. Wealthier residents who can afford a RAD receive their deposit back in full when they leave care and make no direct contribution to their accommodation costs, while DAP [Daily Accommodation Payment] payers make a significant annual contribution.

"Phasing out RADs will mean all incoming residents will pay using a rental model, making outcomes for residents more consistent, and fees easier for older people to understand.”

The taskforce says that after an independent review in 2030, by 2035 the sector should no longer accept RADs, moving to a rental model. That would be subject to the review finding there was appropriate financial sustainability for the sector and care was affordable for consumers.

In the near term, providers should retain a portion of the RAD to make an immediate improvement in the sector’s financial sustainability, the report recommends.