Wealthy boomers should pay up for better aged care
The extra out of pocket costs won’t break the bank for retirees – but the policy game has changed forever.
It is a truth universally acknowledged that an opposition light on policy must be in want of a fight. The Coalition this week jilted Jim Chalmers on a proposal for a new interest-rate setting board that came out of the independent review into the Reserve Bank. The Treasurer is furious with his opposite number Angus Taylor for denying him a win.
What always seemed like a loveless union has dissolved into acrimony. But, after a courtship away from the spotlight, another policy marriage of convenience appears to have a good chance of avoiding the rocks.
Just before question time on Thursday, Anthony Albanese announced a deal with the Coalition for “the greatest improvement in aged care in 30 years”. “We will deliver historic aged care reforms to ensure the viability and quality of our aged care system and support the growing number of older Australians choosing to retain their independence and remain in their homes as they age,” the Prime Minister said
By all accounts it’s been “good faith” at 20 paces for months between Aged Care Minister Anika Wells and opposition health and aged care spokeswoman Anne Ruston. Peter Dutton, too, had been on board from the start. But as the process dragged on, the Coalition seemed to lose its ardour, in the partyroom and at the negotiating table.
The intellectual and policy framework was set by the Aged Care Taskforce, which reported in March. The 16-member group, which Wells chaired, was blunt in its conclusion: “It is appropriate older people make a fair co-contribution to the cost of their aged care based on their means.”
From July next year, residential aged care residents with “sufficient means” would pay more for non-clinical services, such as showering, haircuts and lifestyle activities, with the lifetime contribution cap lifting from around $76,000 to $130,000. It’s not a massive impost given, as the taskforce found, “the increasing wealth of many older people and the declining working age (that is tax paying) population”.
According to case studies circulated by the government, a self-refunded retiree with an income of $70,000 and $500,000 in assets, excluding the family home, would see their contributions rise from $49,400 to $62,800 a year. A part-pensioner with $500,000 in assets would see their fees rise from $34,300 a year to $47,700. A full pensioner who owns their own home and has other assets worth $150,000 would pay $28,800, or an extra $3000 a year.
The bill, introduced on Thursday, is off to a Senate committee. It is a remarkable moment of bipartisan policy making. Not so much because the bill ticks all the boxes and is the last word on aged care quality and viability – and let’s not forget, budget sustainability – but that it was concluded at all amid the capital’s febrile fight club as an election looms.
In this instance, like reforms to the National Disability Insurance Scheme, the electoral politics decree it could only be introduced by Labor. The NDIS is their signature policy, which the previous government could not rein in; in the latter case, any aged care reforms requiring a co-contribution will naturally stir up part of the Coalition base.
“To be clear, this is Labor’s package of reforms,” an opposition statement said of the tortuous process that frustrated bureaucrats and caused high anxiety among providers that the legislation would not make it into parliament this year. The Coalition was adamant that this “has not been a co-designed process” but within the government’s reform framework it “fought for dignity and clarity for older Australians and future generations”.
According to JWS Research’s latest True Issues report, 38 per cent of those surveyed see Labor’s performance on aged care as poor. But this rises to 46 per cent among those aged over 55. Only 15 per cent overall rate the government’s performance in this area as good.
Just after the May budget, the research firm found 55 per cent of those surveyed agreed with the proposition government spending is placing pressure on future generations. Given the choice between paying down national debt or extra cost-of-living relief, the split was 41 per cent for the former, 27 per cent for the latter.
“The research shows that if we’re going to do aged care reform, Australians want it done in a manner that’s genuinely fiscally responsible,” says JWS’s Tom Cameron. “They are worried about debt, even in the face of high prices across the economy.”
According to last year’s Intergenerational Report, in the next 40 years, the number of people aged over 65 is expected to more than double, with those aged over 85 to more than triple. Canberra spends $36bn a year on aged care services, double the amount it spends on family assistance.
Federal spending on aged care as a share of the economy has doubled over the past 20 years; it’s expected to double again over the coming four decades, from 1.2 per cent to 2.5 per cent. Yet only 18 per cent of Australians aged 65 and above pay income tax.
Committee for Economic Development of Australia chief executive Melinda Cilento raises the issues of intergenerational fairness and fiscal sustainability. “Neither side of politics will be able to escape the looming budget pressures of our ageing population,” she says. “Older Australians will need to contribute more to the costs of their care or providers will not be able to meet the growing needs and expectations of our ageing population.”
In any case, Labor insists the reforms will have an immediate effect on limiting cost growth. Chalmers says the net impact of the changes is expected to raise spending by less than $1bn over four years, but may save the budget $12.6bn over a decade. “Aged care spending will continue to grow, but at an average of 5.2 per cent, not 5.7 per cent, over the next decade,” the Treasurer said.
That may sound like he’s flattering himself with fractions, but remember aged care is the fourth-largest federal program, after assistance to the states, the aged pension and NDIS.
A new Aged Care Act, however it looks after its upper house colonoscopy, will be the denouement of the process set off after the Royal Commission into Aged Care Quality and Safety; its final report was delivered in March 2021. The royal commission identified the need to improve aged care quality, increase workforce availability and capacity, and ensure the sector meets community expectations. It called for a levy to fund reforms – a step too far for the taskforce as well as the major parties.
Standing next to Albanese and Chalmers in the prime minister’s courtyard, Wells explained the key principles of the package. First, mutual obligation: Australians will get the support they need and make a reasonable contribution based on their means. Second, a “no worse off” principle, meaning those already in care won’t pay more.
Third, taxpayers will pay all clinical care costs, but individuals would contribute to living and personal care costs. Fourth, the government will continue to pay the majority of aged care costs. “Without structural change, we will not be able to sustain the level of care older Australians deserve,” Wells said. “It is that simple.”
But the big move was the reorientation of aged care to support people at home, the clear preference for ageing boomers, the first of whom will turn 80 when the new era begins. Over the next decade, 300,000 more people will receive aged care services in their home; average wait times from assessment to support will fall.
There will also be more bespoke support via eight ongoing classifications, with the most needy receiving almost $78,000 a year, for home services such as help with nursing care, occupational therapy, getting dressed and taking medications. Staff would also help with everyday living such as cleaning, gardening, shopping and meal preparation.
The new approach includes giving terminally ill people up to $25,000 to receive palliative care support to spend the final months of their lives at home, as well as $15,000 for people to modify their homes so they are safe to live in.
Wells said everyone with a home care package on the national priority system, or assessed as eligible for a package as of today, will make the same contributions or lower as they would have under home care arrangements. At present, taxpayers fund 76 per cent of residential care costs and 95 per cent of homecare costs; those proportions will ease to 73 per cent and 89 per cent, respectively.
On a whole range of measures, the sector is in trouble. Not least its complexity, a “Byzantine system” as Wells called its intricacies. Most private providers are losing money. The needs of participants are complex and evolving. Community expectations about care quality are high. Population ageing means higher demand at a time when the tax base is already under immense pressure.
Wells said by 2050, residential aged care will need a $56bn investment to upgrade existing facilities and build new rooms. Aged and Community Care Providers Association chief executive Tom Symondson said at least 10,000 new beds need to be opened per year for the next two decades to keep up with demand. “We need investment to turn the situation around, and this legislation will enable that,” he said.
From next July, providers will retain 2 per cent of each new refundable accommodation deposit (RAD) each year for up to five years. The government will review settings over the next two years and consider phasing out RADs from 2035.
Labor made concessions by excising from the bill criminal penalties on directors and executives; the industry feared such liabilities would cripple providers with compensation claims and expose volunteers to prosecution. It also removed a “worker voice” measure. “We have squashed Labor’s outrageous attempt to force unionism into every aged care home,” Ruston said.
To date, the Albanese government has delivered a substantial pay rise for aged care workers, increased the “care minutes” given to each resident each day, raised food quality standards and mandated the presence of Registered Nurses at facilities. Workforce shortages, however, remain a major concern.
Many wanted the politicians to go further. While the government has ruled out increasing the means-test threshold for the family home, CEDA’s Cilento says it “should consider lifting the threshold to around $500,000, reflecting the significant rise in home values over the past decade”.
Cilento said lifting the lifetime contributions cap for means-tested residential care fees from around $76,000 to $130,000 is an important move. “We should continue to review the cap over time to ensure it is adequate,” she said. “The system will need to be more flexible and adaptive to ensure we can continue to meet demand.”
A government insider laments that higher taper rates and lifetime caps would have delivered a better outcome for taxpayers. “Sadly, the Coalition negotiated down its ambition,” another senior government source told Inquirer of the final deal. “But (we’re) glad it got through.”
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