Productivity Commission Submission to the Review of Pricing Arrangements in Residential Aged Care

Most aged Australians requiring care services obtain them from informal carers, often with support from publicly-funded community care programs.

Only around 6 per cent of Australians aged 65 and over live and receive care in residential aged care facilities. However, 26 per cent of those aged 85 and over receive residential care, accounting for over 50 per cent of residential places. Residential care accounts for nearly 70 per cent of public spending on all aged care services.

An examination of Australia’s aged care system reveals several problems:

• unduly limited access, particularly to high level residential care, dementia-specific care, community care services, and in particular parts of rural and remote Australia;
• inequities in charges/fees between low and high level residential care and between residential and other forms of aged care services;
• inconsistencies and inappropriate incentives in funding and delivery;
• regulatory provisions which constrain service choices; and
• concerns about financial sustainability.

Increases in demand due to an ageing population are likely to be manageable over the next two decades. Anticipated increases in costs, compounded by ageing, are likely to present more significant funding challenges, under current policy settings, in the third and fourth decades of this century.

In the short term, four areas in which the existing aged care system could be modified to improve equity, efficiency and sustainability are: pricing arrangements covering accommodation payments; mechanisms for adjusting the basic subsidy for residential care and special needs funding for smaller remote residential facilities; coordination and planning across programs, including the possibility of regional pooling; and choice in relation to extra service places.

Broader systemic changes will be needed to secure the system’s effective performance. Some of these changes would also enhance the system’s longer term sustainability. These changes include:

• Unbundling residential care costs (that is accommodation, living and personal care costs) and providing targeted public subsidies for the personal care component;
• Adopting an entitlement, rather than provider-based, funding model in association with a move to unbundle residential care costs; and
• removing the current regulatory impediment to private health insurance funds offering voluntary private residential care insurance.