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Review of pricing arrangements in residential aged care

Productivity Commission submission

This submission was released on 2 July 2003.

An erratum has been issued (March 2004). Please note Table 6.7 (page 69) and the associated paragraph of text have been deleted. The data on service use by HACC clients for 2001-02 were annual figures, and are not comparable with the data on the average numbers of clients serviced per month as originally reported for 1997-98. The Commission has been unable to access figures on a comparable basis for the relevant years shown in the table.

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  • Key points
  • Media release
  • Contents

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.

In September 2002, the Commonwealth Government announced a Review of Pricing Arrangements in Residential Aged Care. The Review, headed by Professor Warren Hogan, provides a timely opportunity to examine long-term financing options for the aged care sector.

The Productivity Commission's submission draws on experience and insights gained from its public inquiry into Nursing Home Subsidies, a major Conference on Ageing that it organised in 1999 and previous staff research.

The submission focuses on three areas.

  • First, an assessment of the current funding and delivery arrangements for aged care services, which reveals several problems that need to be addressed.
  • Second, an analysis of the implications of ageing, trends in disability rates and other key influences on the future demand for and cost of these services.
  • Finally, the Commission examines the merits of a number of reform options, including broader changes to secure the aged care system's effective performance in the longer term.

Background information

02 6240 3330

Cover, Copyright, Foreword, Acknowledgments, Contents, Abbreviations, Key Points

Key Points, Overview

1 Introduction
1.1 The review of pricing arrangements in residential aged care
1.2 The Commission's submission
1.3 Key terms and the interdependencies between aged care services

2 The aged care industry — a snapshot
2.1 Aged care — what does it cover?
2.2 The informal sector
2.3 The formal sector

3 Current funding and regulatory arrangements
3.1 A profile of aged care funding
3.2 Residential care services
3.3 Community care services
3.4 Flexible care services
3.5 Carer support services
3.6 Regulatory arrangements — a broad profile
3.7 Expenditure trends for aged care services

4 A framework for assessing funding and delivery arrangements
4.1 Criteria for assessing aged care funding and delivery

5 An assessment of the current system
5.1 Equity
5.2 Efficiency
5.3 Quality of care
5.4 Choice and flexibility
5.5 Sustainability

6 Demand, utilisation and costs
6.1 Factors influencing future demand
6.2 Future residential aged care use
6.3 Residential aged care costs
6.4 Concluding comments

7 Improving the aged care system
7.1 Making improvements within the current framework
7.2 Going beyond the current framework

A Demand for residential aged care
A.1 Possible demand offsets to an ageing population
A.2 Demand and utilisation

B Residential aged care projections
B.1 Population projections
B.2 Residential aged care use — assumed rates for key variables
B.3 Residential aged care use projections


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