Aged care reform: it needs careful monitoring (and adjustment, where necessary)

This is the second in a series of analyses that will be cross-posted from the Commonwealth Parliamentary Library analysing the health budget (the first looked at dental reform).

(The Library will be updating its briefs across portfolios here).

In the article below, Rebecca de Boer concludes that “careful monitoring, and re-adjustment where necessary” will be needed to ensure the financing framework of aged care reforms will enable the objectives to be met.

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Aged care reform agenda is a big ask for a relatively small spend

Rebecca de Boer writes:

The Government’s aged care package ‘Living Longer. Living Better’ was released prior to the Budget as it was not considered a ‘budget measure per se’.[1]

While there is some new funding, the majority of the $3.7 billion projected expenditure over five years ($2.2 billion over four years) will be off-set by redirected funding and means testing.[2] The net cost to Government is expected to be $576.9 million over five years ($284.6 million over four years).[3]

The 2012–13 Budget details the financing arrangements for the package and the funding associated with the agencies that will be established as part of the reforms.[4]

There will be some expenditure in 2012–13 ($55.2 million) and 2013–14 ($26.9 million) but the majority of expenditure for this package will occur in 2016–17, outside the forward estimates period.[5]

In the context of what is currently a $12 billion program (in 2010–11), this represents very little new expenditure. A detailed summary of the ‘Living Longer. Living Better’ package can be found on ‘FlagPost’, the Library’s blog.[6]

The changes to the Aged Care Funding Instrument (ACFI) and the introduction of means testing will generate savings of around $2 billion over five years.[7] Other sources of funds for the package are the transfer of places from residential care to home care ($454.0 million over five years), the transfer of funding from residential care to home care ($153.3 million over five years), the redirection of the Long Stay Older Patients Initiative ($187.5 million over five years) and the transfer of a number of smaller programs.[8]

These funds will be ‘redirected’ within the aged care budget and will be used to fund the initiatives announced as part of the package. In reality, the amount of expenditure by government will not change much overall (apart from a modest increase of $576.9 million over five years) but where it is spent will. The savings were calculated according to expenditure that would have been made by government if current policy settings were to continue.[9]

The introduction of means testing for recipients of aged care is expected to generate savings of $561.0 million over five years.[10] Annual caps ($25 000 for residential care and $5000 for home care) and lifetime caps ($60 000) will apply.[11]

Some concerns have been raised about the possible impact on low income earners receiving home care but there is broad consensus by the aged care sector for the underlying approach.[12] It is also reflective of the Government’s approach to other social programs which target assistance according to income.

The ACFI is the main source of funding for residential aged care providers to cover the costs associated with the provision of aged care.[13] According to the Minister, the $1.6 billion clawback of the ACFI is the result of ‘unusual claiming’ by residential aged care providers.[14]

The tightening of the assessment criteria has been described by some in the aged care industry as a reduction in the ACFI subsidy with likely flow-on effects to capital investment.[15] Others have suggested that the Government is unlikely to achieve the proposed increase in residential aged care places (announced as part of the package) as the subsidy is not sufficient to ensure the viability of the sector.[16]

The changes to the ACFI will be partially off-set by other measures announced in the package which will give aged care providers greater flexibility to generate income through changes to bond arrangements and the ability to charge for extra service.[17]

The Government also announced additional payments (from $32.58 to $50.00 per day, current prices) to residential aged care providers who significantly refurbish or build new facilities after 20 April 2012 ($486.9 million over five years). This has been criticised for not rewarding existing aged care providers who have made recent investments to improve their facilities and may meet the yet to be defined criteria.[18]

The new payments will not take effect until 2014 and concerns have been raised that, in high cost jurisdictions and in rural and regional Australia, this may not be reflective of the costs.[19]

Despite the offsets announced in the package there will still be implementation costs. Three agencies will be established to implement the package: the Aged Care Financing Authority, the Aged Care Quality Agency and the Aged Care Reform Implementation Council.

The Aged Care Quality Agency will be created from the existing Aged Care Standards and Accreditation Agency and no additional funding has been allocated. Funding has been allocated for the Aged Care Financing Authority ($20.9 million over four years) and the Aged Care Implementation Council ($14.6 million over four years). The total allocation for the Council is $15.2 million over five years, with $7.3 million for information and communications.[20] It is envisaged that the Council will report bi-annually to Government on implementation and further development of aged care reform and is resourced with $7.9 million to provide these reports.[21]

A major feature of the Government’s package is the establishment of an aged care gateway which will act as a single entry point to the aged care system at a cost of $198.2 million over five years from 2012–13.[22] This will replace the ‘One-Stop Shop’ and associated ‘new front-end’ of the aged care system that was previously announced as part of the Government’s health reform package.[23]

The initial focus of the gateway will be on the development of a new ‘My Aged Care’ website which will eventually publish ratings of aged care homes as well as provide information about aged care services. A national call centre will be established in 2013 but it is not clear if this will replace the recently consolidated aged care information line.[24]

The Australian Nursing Foundation has long campaigned for increased wages for nursing staff in aged care.[25] Improved wages for aged care workers and the creation of a Compact also featured in the ‘agewell’ campaign supported by an alliance of aged care organisations.[26] This recommendation was accepted by Government and $1.2 billion over five years (from 2012–13) has been allocated to a Workforce Compact. Additional funding will be given to aged care providers who sign the Compact (due to commence in July 2013).[27]

Other budget-related implementation measures include:[28]

• The total number of aged care places will increase from 113 to 120 places for every 1000 people aged 70 years or over by 2016 and to 125 places by 2021. The number of home care packages will increase by around 40 000 over the next five years[29]
• Improved funding arrangements for dementia ($268.4 million over five years), including additional funding for residential and community aged care providers who care for people with dementia[30]
• The consolidation of capital grants programs into a single Rural, Regional and other Special Needs Building Fund. Viability supplements to aged care providers who provide care in regional or rural areas or specialist aged services (for example to Indigenous Australians) will continue. The combined cost of these measures is $108.0 million over five years.[31]

Comment

It will take some time to determine the extent of these changes and subsequent effect on the aged care industry. There have long been claims that government funding arrangements for residential aged care are insufficient to meet the costs associated with the provision of aged care.[32]

The Productivity Commission recommended a public benchmarking study be undertaken to determine aged care costs but this was not adopted by Government.[33]

The aged care sector is largely united behind the proposed changes in the aged care package.[34] To date, the Opposition has not formally responded to the Government’s proposal although has previously indicated support for reform.[35] The Greens offered their support to the package but are yet to comment on the associated budget measures.[36]

The Government expects reform of the aged care system will take up to ten years but careful monitoring, and re-adjustment where necessary, will be required to ensure that the financial framework is adequate to achieve its reform objectives.

References

[1].       J Gillard (Prime Minister),Transcript of joint press conference, media release, 20 April 2012, viewed 10 May 2012.

[2].       Ibid.

[3].       Australian Government, Living Longer. Living Better., Commonwealth of Australia, Canberra, 2012, pp. 37–38, viewed 10 May 2012.

[4].       See, Australian Government, Budget measures: budget paper no. 2: 2012-13, Commonwealth of Australia, Canberra, 2012, pp. 181–191, viewed 10 May 2012.

[5].       R de Boer, ‘Reform of aged care—a small step’, FlagPost, Parliamentary Library, Canberra, 30 April 2012, viewed 10 May 2012.

[6].       Ibid;  and R de Boer, ‘Paying for aged care—should the family home be counted’ and ‘Changes to community care’, FlagPost, Parliamentary Library, Canberra, 2012, viewed 10 May 2012.

[7].       This consists of around $1.6 billion from changes to the Aged Care Funding Instrument (ACFI) and $561.0 million from means testing. See Australian Government, Budget measures: budget paper no. 2: 2012-13, op. cit., p. 184, viewed 10 May 2012

[8].       For a complete list, see Australian Government, Living Longer. Living Better., op. cit., pp. 37–38, viewed 10 May 2012

[9].       An example of such an approach is that the Government reported in the 2011–12 Mid-Year Economic and Fiscal Outlook that residential aged care subsidies were expected to increase by $444 million in 2011–12 ($1.9 billion over four years. See Australian Government, 2011-12 Mid-Year Economic and Fiscal Outlook, Commonwealth of Australia, Canberra, 2011 p. 44, viewed 10 May 2012.

[10].     Australian Government, Budget measures: budget paper no. 2: 2012-13, op. cit., pp. 184, viewed 10 May 2012

[11].     For home care, part pensioners will pay a maximum of $5000 per annum and self-funded retirees will pay up to $10 000. For residential care, an annual cap of $25 000 applies to care contributions but the individual amount will be determined by income and asset tests. Full pensioners are exempt. Thresholds will be indexed annually in line with the aged care pension.

[12].     The Productivity Commission’s Report, Caring for Older Australians and the agewell campaign both argued that individuals with the capacity to pay should do so. UnitingCare Ageing has raised concerns about the impact on low income earners, see M Metherell, ‘Charges set to rise in aged care reform’, The Sydney Morning Herald, 25 April 2012, viewed 10 May 2012.

[13].     Aged care providers also generate additional income through accommodation charges and aged care bonds.

[14].     J Gillard (Prime Minister),Transcript of joint press conference, op. cit.

[15].     Aged Care Association Australia, Aged care reform still requires clarification, media release, 9 May 2012, viewed 10 May 2012

[16].     Grant Thornton, Review of the Government’s Aged Care Reform Package – Living Longer, Living Better, Reform report #1, April 2012, , viewed 11 May 2012

[17].     Consumers are protected from high prices as pricing must be approved by the Aged Care Financing Authority.

[18].     R Glickman, ‘Pulling the right levers for reform‘, Australian Ageing Agenda, 10 May 2012, viewed 10 May 2012.

[19].     Ibid.

[20].     Australian Government, Budget measures: budget paper no. 2: 2012-13, op. cit., p. 182, viewed 10 May 2012.

[21].     Australian Government, Australian Government Response – Productivity Commission’s Caring for Older Australians Report, Commonwealth of Australia, Canberra, 2012, response to recommendation 17.1, viewed 10 May 2012.

[22].     Australian Government, Budget measures: budget paper no. 2: 2012-13, op. cit., pp. 182, viewed 10 May 2012

[23].     For further explanation of this see Australia, Parliamentary Library, Budget review 2011-12, Research paper, no.13, 2010-11, Parliamentary Library, Canberra, 2011, viewed 10 May 2012.

[24].     M Butler (Minister for Mental Health and Ageing), First step to aged care reform: new national information line, media release, 1 July 2011, viewed 10 May 2011.

[25].     Australian Nursing Foundation (ANF), ‘Because we care’ campaign, ANF website, viewed 10 May 2012

[26].     Agewell campaign, ‘Reform facts’, Agewell campaign website, viewed 10 May 2012

[27].     Australian Government, Australian Government Response – Productivity Commission’s Caring for Older Australians Report, op. cit., response to recommendation 14.1, viewed 10 May 2012.

[28].     This is not a comprehensive list. All measures are outlined in Australian Government, Budget measures: budget paper no. 2: 2012-13, op. cit, pp. 180-190, viewed 10 May 2012

[29].     Ibid., pp. 188, viewed 10 May 2012

[30].     Ibid., pp. 190–1, viewed 10 May 2012

[31].     Ibid., p. 187, viewed 10 May 2012

[32].     Senate Standing Committee on Finance and Public Administration, Report of the inquiry into residential and community care in Australia, Senate, Canberra, 29 April 2009, viewed 11 May 2012.

[33].     Productivity Commission, Caring for Older Australians, Productivity Commission, Canberra, 2011, p. 503

[34].     ‘Aged care overhaul wins support‘, The Australian, 20 April 2012, viewed 10 May 2012.

[35].     Y Noone, ‘We’re just not there yet‘, Australian Ageing Agenda, 10 May 2012, viewed 10 May 2012.

[36].     R Siewert, Aged care reform needs budget commitment this year, media release, 20 April 2012, viewed 10 May 2012.