Consumer Contributions: Unfair or Simply Unsustainable?

5 Jun

5 minute read

The Taskforce recommendations won’t fix the problem

As we all now know, the Aged Care Taskforce recommended that older people with financial capacity pay more whether at home or in a home. The recommendations included the establishment of a fee-for-service model where participants pay co‑contributions that vary based on the type of service accessed.

At best the Taskforce solutions are only a temporary solution. The reality is that the Albanese government has been firmly wedged on aged care. With a Medicare-style levy and changes to the treatment of family home both ruled out, the only choice left for the Taskforce was to recommend more user-pays. But the reality is that, even with increased charges, it will not be enough. Taxpayers will have to fund the bulk of the increasing costs into the future.

Older people contribute now to the cost of their care

In reviewing the recommendations of the Taskforce, the starting point is to recognise that older people with the means to do so already make a substantial contribution to the cost of their care. This is the case whether the person is receiving support in the community, care at home or care in a residential aged care home.

However, this starting point is barely recognised in the Taskforce report. Quite the reverse, the starting point for the Taskforce is that consumer charges are too low and most older people can afford to pay more.

It is true that consumer contributions represent only a small percentage of the overall cost of aged care. But it is not true that consumer contributions represent only a small percentage of the consumer’s own income. Consumer payments in many cases already represent a sizeable proportion of the discretionary income for a significant number of older people. Many (and maybe most) aged care recipients have little or no capacity to pay more.

Rich baby boomers

We baby boomers are the richest generation in history. But there is more to the story.

There are actually two groups of baby boomers and their old age is already very different. Those with good superannuation (largely men) live comfortably in old age, especially if they own their own home. Those without good superannuation (largely women) have little, especially non homeowners.

While many boomers aim to leave their superannuation to their children rather than spend it on their old age, there are many boomers who have never been able to buy a home and who are entering retirement with no superannuation, no secure housing and no inheritance for their children.

Superannuation is only a small part of the solution

While the idea that a major increase in aged care can be funded from superannuation savings is superficially appealing, it is not a realistic solution.

Anna Howe recently highlighted a 2021 report of the Association of Superannuation Funds of Australia stating that 80% of people who died over age 60 had no superannuation left four years before death. While many people have superannuation at retirement, those funds are rapidly depleted.

By age 85 only 20% of superannuants have balances of $50,000 or more. That will not be enough to pay for extra aged care for more than a year or two.

Recent wage rises increase the stakes

Large, and completely justified, aged care wage rises have been awarded by the Fair Work Commission, the first 15% on 2023 and the remainder in March 2024. Together, they increase the cost of aged care by about $14.6 billion over four years.

This is in addition to current expenditure. When consumer co-payments are your only source of funding for growth, those pay rises would require an average consumer increase of more than $7,000 a year. This would need to be paid each year by the half a million aged care consumers who are estimated to have the capacity to pay. This is on top of existing charges. That is simply not feasible. Government will have to continue to fund the majority of costs.

Real aged care reform

The Taskforce knew it would be politically unpalatable to recommend a levy or increases in general taxes to fund improvements in aged care. The unstated Taskforce assumption is that aged care is a competitive private market. People ‘consuming’ aged care should pay more to buy the services they want or need. There is no recognition in the Taskforce Report that aged care could be better framed as a social good, and not just a market.

Instead of continuing to tinker, it is still possible for the Albanese government to genuinely reform aged care in its next term in government in a way that is consistent with traditional Labor values. Instead of aged care being framed as a competitive for-profit market, Labor would reposition aged care to sit alongside Medicare:

A national universal access program in which older people are entitled to care based on their needs.
A publicly funded and regulated aged care system that is agnostic about the legal status of providers. Providers may be government, not for profit or for-profit organisations.
While consumer co-payments will continue to be paid, the significant majority of costs are, and will continue to be, met by taxpayers.
A national social care program with public accountability.

Positioning aged care alongside Medicare is an essential step in making aged care sustainable into the future. Medicare is a national publicly funded and regulated program with mixed providers (government and non-government) and some co-payments. Medicare is understood and supported as a public program and enjoys overwhelming public support. This extends to support for paying a 'Medicare levy' and a willingness to pay more for better health care. While there are many private providers, no one would conceptualise Medicare as a private market. Aged care should be no different.

Time for national leadership

There is no problem with wealthier older people paying more for their care in old age. However, increased user charges must come with big strings attached. It is also essential that aged care is aligned with a national social housing strategy and that there is improved integration between aged care and health care.

But these changes alone will not be enough to put aged care on a sustainable footing going forward. The reality is that aged care will never be a real competitive private market, the mere idea is simply an illusion. Aged care will always be substantially funded by taxpayers with consumer contributions representing only a small fraction of the total cost. A sustainable aged care system starts with recognising that reality.

A sustainable aged care system necessarily includes a bill of rights, a commitment to equity and a future aged care levy to sit alongside the Medicare levy. An aged care levy can be designed in a way that would not create further intergenerational inequity. For example, it would be possible to introduce an aged care levy that does not kick in until a taxpayer turns 40.

But first things first. There is no point considering options such as a levy while aged care continues to be framed as a competitive private for-profit market. The electorate will not accept paying extra taxes to fund uncapped profits for providers. Yet taxpayers will continue to fund the majority of aged care costs regardless of the financing arrangements. Reframing aged care as a social good that is substantially funded by taxpayers is the essential first step in genuine and sustainable reform.

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Kathy Eagar

Professor Eagar led the design of the new Australian National Aged Care Classification (AN-ACC) and funding model and was an adviser to the Aged Care Royal Commission. She was the Foundation Director of the Australian Health Services Research Institute and in recent years advocating for a transparent and equitable funding model for community aged care.