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Long-term aged care: Expenditure trends and projections

Staff research paper

This paper by Alan Madge was released on 31 October 2000. The paper examines how expenditure on long term aged care in Australia, currently over 1 percent ($6 billion) of GDP per year, will change as a result of demographic changes and other factors.

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A Staff Research Paper, Long-Term Aged Care: Expenditure Trends and Projections, discusses the factors that influence long-term aged care demand and provides projections of future expenditure. Long-term aged care in this context comprises mainly residential care (nursing homes and hostels) and community care services for the infirm aged.

Among the study's findings are the following:

  • Underlying demand for long-term aged care services will increase because of the increasing numbers of the aged in our population. For example, the population of people aged 80 or more years will increase by over 200 per cent over the next three decades, compared to around 30 per cent for the population as a whole.
  • Usage of care services may not increase by as much as the raw population numbers suggest, because of offsetting factors such as the possibility of declining disability rates and supply-side influences.
  • There is likely to be upwards pressure on the unit costs of providing long-term aged care, which will add to the demographic pressure on long,term aged care expenditure.
  • Long term aged care expenditures are projected to increase in real terms by about $8.5 billion (or 145 per cent) between 1997 and 203 1. However, Australia's capacity to meet these rising costs will also increase. Thus, the share of long,term aged care expenditure to GDP is projected to rise from about 1.1 per cent to 1.38 per cent from 1997 to 2031 - an increase of only about 25 per cent.

These projections are based on relatively conservative GDP projections. Australia's capacity to deal with increased demand for long,term care services by the aged will be considerably enhanced if GDP growth - and its underlying determinant, productivity growth - are of a similar magnitude to recent years.

Background information

Ralph Lattimore (Assistant Commissioner) 02 6240 3242

02 6240 3330

Cover, Copyright, Contents, Acknowledgments, Overview

1 Introduction
1.1 What is meant by 'the aged' and 'long-term aged care'?
1.2 Structure of the industry
1.3 Report outline

2 Demand for long-term aged care
2.1 Introduction
2.2 Institutional constraints on demand
2.3 The ageing of Australia's population
2.4 Disability amongst the aged
2.5 The use of subsidised services
2.6 Choices in care modes
2.7 Income and wealth of the aged
2.8 Concluding comments

3 Costs of long-term aged care
3.1 Drivers of residential long-term aged care unit costs
3.2 Estimates of residential care unit costs
3.3 Estimates of home and community care unit costs: the HACC program and CACPs
3.4 How are long-term aged care unit costs likely to change in the future?

4 Trends in long-term aged care expenditure
4.1 Methodology
4.2 A snapshot of long-term aged care expenditure
4.3 Trends in government funding of nursing homes
4.4 Trends in government funding of hostels
4.5 Trends in government funding of the Home and Community Care (HACC) program
4.6 Aggregate government long-term aged care expenditure

5 Long-term aged care projections
5.1 Projection methodology
5.2 Demographic and GDP projections
5.3 Nursing home projections
5.4 Hostel and Community Aged Care Package projections
5.5 Other long-term aged care projections: the HACC program, carers' pensions and informal care
5.6 Total long-term aged care projections
5.7 The impact of different projection scenarios
5.8 Comparison with other long-term aged care expenditure projections
5.9 Concluding comments

Appendix A Other aged care expenditures

Appendix B Data for base case projections and variations

Appendix C The Development of long-term aged care policy

Appendix D Time series data for chapter 4