A suggested new tax could secure future aged care funding

The aging profile in Australia is set to spike by 2030 and the aged care system will require a large increase in funding to meet the future aged care service demands.

For Australia’s aged care system to be safe and secure, the Commission believes there needs to be a sustainable source of funding for the sector now and into the future.

The consultation paper, Financing Aged Care, has examined the current funding in Australia and overseas, and provides a variety of options that could potentially change how aged care is funded and delivered in the country.

Commissioners, Tony Pagone QC and Lynelle Briggs AO, are asking for submissions around the funding options noted in the paper.

“Subject to the responses we receive, it is our intention to consider a smaller set of options in more detail and undertake further modelling to inform the recommendations we make in our Final Report,” the Commissioners say.

“A number of options for alternative approaches to financing aged care are examined in this paper, many of which are employed in other countries. Some of them would be familiar to Australians, while others would be less familiar, such as the purchase of annuities to cover aged care costs or the use of private insurance companies to collect, manage and disburse payment to aged care providers.

“There will be a range of views on the questions we pose in this paper, and there will not always be simple solutions. This is, however, an important debate, and we encourage the Australian community to engage in this conversation in the interests of improving the quality and safety of care for older Australians.”

This consultation paper follows the Interim Report released by the Commission in October 2019, which found a system-wide problem with Australian aged care that not only requires significant system reform but would also need a considerable injection of funding into the sector to achieve reform.

Currently, 75 percent of aged care funding comes from the Australian Government. The remainder of funding is from co-contributions from users of aged care services. 

This funding has grown to around one percent of Australian GDP (Gross Domestic Product) over the last 60 years.

In the consultation paper, the Commission has considered options under three broad approaches:

• Minimal change, based on continued current taxpayer-funded aged care with co-contributions from users

• Social insurance models, involving mandatory personal contributions to pooled funds managed by an Aged Care Insurance Commission or by private providers

• Private insurance and other voluntary arrangements

Examples in the paper include a new funding arrangement that adapts the current funding methods and possibly a pledge fund for future aged care needs, or a compulsory social insurance scheme like accident compensation schemes.

Other highlighted options include private financing mechanisms to fund the sector, including superannuation, private insurance, gap cover and other financial products, like annuities and reverse mortgages. Some of these options are already used in retirement incomes and health insurance.

The Commissioners want to emphasise that these options are not mutually exclusive, and could be a mix of the options in the paper. 

Aged care peak bodies support the funding reform from the Commission, which they believe has been long overdue.

Industry peak body, Leading Age Services Australia (LASA), welcomes the call for submissions in regards to the consultation paper on aged care funding.

LASA Chief Executive Officer (CEO), Sean Rooney, says, “It is critical to establish an agreed funding system that ensures high-quality services and support for older Australians. We need fundamental changes including increasing overall financial support for care.

“It is unsustainable for Australia to aim for world-class performance while spending around one percent of GDP on age services compared to the 1.5 percent average in other advanced economies.

“Aged care funding reform and transparency will translate into better outcomes for the 1.3 million recipients of care and the growing numbers of older Australians, through more staff, better training and even greater responsiveness to their needs.

“This will contribute to sustaining overall quality of life and also the protection of the fundamental rights for all individuals receiving care, now and into the future.

LASA will be consulting with its Members for feedback to contribute a submission to the Commission. 

Peak body for non-profit aged care providers, Aged and Community Services Australia (ACSA), has also welcomed the important consultation and discussion around financing aged care.

CEO of ACSA, Patricia Sparrow, says, “This is an important acknowledgement that there is no escaping the need to substantially reform and increase funding to deliver the care older Australians need and want.

“A serious conversation about how to fund the aged care system we deserve is overdue and welcome.

“For too long the discussion about aged care has been swept under the carpet. It’s high time we look to the future and have a serious discussion about how we are actually going to fund the system that older Australians need.

“There are many possible financing options we can explore to set the aged care system up for success and the Royal Commission highlights a range of different approaches.

“It’s time to have a serious community conversation about how to pay for the aged care older Australians deserve and then reform the system so it can be delivered to them now and for the generations to come.”

Both peak bodies encourage the community to make a submission to the Royal Commission about this consultation paper.

To read the consultation paper, head to the Royal Commission website, or to make a submission about the issue, email FinanceOptions@royalcommission.gov.au, submissions close on Tuesday, 4 August, 2020.