Rethink funding to care for an ageing nation

Fresh thinking about how to structure and finance aged care could include viewing dementia care as an integral responsibility of the mental health system.

According to data collected by the Royal Commission into Aged Care Quality and Safety, 10 to 20 per cent of residents in aged-care facilities experience some form of physical assault. More than two-thirds are malnourished or at risk of being malnourished. And while 70 to 80 per cent suffer from incontinence, it is not uncommon for continence pads to be rationed, and in some facilities they are reused.

As for residents with dementia, most are sedated using psychotropic agents, often heavily, and reliance on physical restraint devices is widespread.

Overall, with only 11 per cent of aged-care homes delivering what could be regarded as high-quality service, at least 30 per cent of residents receive care that is clearly substandard.

Unfortunately, those shocking statistics are not news. Now, however, the sector’s deepening financial difficulties have focused attention on the need for reform.

The Morrison government made a start on implementing some of the royal commission’s recommendations but almost all of the toughest issues remain to be tackled.

In part, the sector’s problems reflect the clash between rapidly rising costs and revenues that have failed to keep pace.

With both members of couples increasingly surviving to very high ages, it has become easier for older Australians to age at home, even if their capacity to cope with the activities of daily living is seriously diminished. Growing – if still inadequate – access to government-funded home care packages has reinforced that trend, with the result that new residents are entering aged care at ever higher ages and with increasingly high levels of functional impairment.

Moreover, while frailty used to be the primary cause of entry into residential care, that has been overtaken by dementia, which accounts for over half of all entries and (because dementia does not reduce life expectancy as drastically as extreme frailty) for an even greater share of per person bed-days. Properly managing dementia patients is, however, very costly, compounding the pressure on providers’ financial resources.

To make things worse, the sector faces increasingly intense competition for care workers from hospitals and especially from the National Disability Insurance Scheme. Partly as a result of that competition, providers’ input costs have risen each year by some two percentage points more than the overall rate of inflation, with the gap widening over time.

Adding those factors together, the costs of providing high-quality care have certainly more than doubled, and may well have nearly tripled, since 1999-2000. However, the commonwealth’s aged-care subsidies have only increased by 70 per cent.

It is true that some of the shortfall has been covered by co-payments, and notably by accommodation bonds (or “refundable accommodation deposits”), which are an interest-free loan residents make to the providers of residential care. The average amount paid as a bond has been rising by 6 per cent a year; but as the increases have accumulated, new residents are increasingly exercising their right to instead pay a daily fee, whose regulated amount is worth significantly less to providers than the income they could secure from the bond.

There is therefore a growing gap between what the community expects and what providers can afford to deliver. With quality regulation largely ineffective, and competition stymied by the rationing of places and by the high costs residents would incur were they to switch from one facility to another, providers have responded by reducing service quality – for instance, employing fewer nurses and instead relying on psycho­tropic medication (which is heavily subsidised under the Pharmaceutical Benefits Scheme) to manage dementia wards.

Fully reversing those declines in service quality, and eliminating waiting lists for residential and non-residential services, would require devoting at least an additional 0.5 per cent of gross domestic product to aged care, which – together with the added spending needed merely to cope with population ageing – would raise aged-care spending from just over 1 per cent of GDP today to almost 2 per cent in the early 2030s.

It is tempting to argue, as many have, that increases in spending should be largely financed through higher co-payments. There is undoubtedly a strong case for reforming the current means tests which, as Professor David Cullen has compellingly shown, involve myriad anomalies, including implied tax rates that are very high at quite low income levels and then fall as incomes and assets rise. But great care is needed before swingeing overall increases are recommended.

To begin with, current co-payments are already high. Thus, taking into account the value to providers of accommodation bonds (which are excluded from the government’s calculation of consumer contributions), residents pay about 60c for every dollar in government outlays on residential care. Moreover, because wealthier residents typically pay much higher bonds than their poorer counterparts, the overall pattern of co-contributions is more progressive than the means test alone would suggest.

Additionally, it is important to realise that the higher co-payments would act primarily as a tax on people with dementia. But it seems extremely difficult to justify steeply taxing the victims of one illness while entirely exempting all those covered by the NDIS and Medicare. The fact that individuals cannot insure against suffering from dementia adds a serious element of inefficiency to the glaring inequity that would involve.

Higher co-payments would also likely lead to even later entry into residential care than is now occurring. As well as imposing hardship on families, the consequence would be an unnecessary deterioration in health, increasing the burden on the aged-care system when entry into residential care eventually occurred.

Rather, fresh thinking is needed about how to structure and finance aged care in the future.

It could, for example, make sense to view dementia care as an integral responsibility of the mental health system rather than of conventional aged care, which has struggled to deal with it. Equally, it is hard to understand why we should have the NDIS delivering care packages in residential settings to the under-65s and a completely different system delivering very similar services to older Australians. Those arrangements reflect history rather than contemporary realities.

Finally, funding. It is a great pity that the Morrison government rejected the recommendation made by Tony Pagone, who ably chaired the royal commission, for the Productivity Commission to review the options for a mandatory aged care insurance scheme – one that, unlike the current NDIS, would work, funding services on the basis of a predictable, well-defined revenue stream.

Quite sensibly, Pagone emphasised that properly designing such a scheme, and transitioning to it, could not be done overnight. As the review of the NDIS progresses, now is the time to start on that process, instead of just patching up a funding system that, having failed repeatedly before, is surely doomed to fail again.