Royal commission proposes Medicare-style levy to fund aged care services

The Royal Commission into Aged Care Quality and Safety has released a new paper outlining possible future funding models for Australia’s aged care system.

The royal commission has identified “unacceptable and system-wide problems” within the aged care sector, and according to the paper, the industry requires reform that will need “a significant injection of additional funding”.

The ageing population is also putting pressure on Australia’s aged care system, and our expectations of the services provided is increasing.

Aged and Community Services Australia CEO, Patricia Sparrow, welcomed the royal commission’s report. “For too long the discussion about aged care has been swept under the carpet,” she said.

Currently, about 75 per cent of aged care funding comes from the government, with the remainder coming from co-contributions from users. The government’s aged care funding currently sits at around 1 per cent of GDP, which is significantly lower than other similar counties.

Leading Age Services Australia CEO, Sean Rooney, said, “It is unsustainable for Australia to aim for world-class performance while spending around one per cent of GDP on age services compared to the 1.5 per cent average in other advanced economies.”

The proposals put forward would not necessarily generate increased funds, the commission’s paper says. The magnitude and method used to raise the additional funds needed must also be addressed.

The key question is, who should pay for the rising costs of aged care in Australia, and how should aged care funding be managed?

The proposals

The first proposal, which requires minimal change, is an increase in the income tax rate, with experts saying a roughly 1 per cent increase would be needed initially to fund an additional 50 per cent increase in care costs. Further increases would be required in future as aged care costs rise faster than the income tax base. A certain portion of taxes could be ‘ear-marked’ for aged care only.

The royal commission also suggests a refining of the means testing for home care services so that wealthier people cover a greater proportion of the costs of the home care services they receive.

For residential aged care, the royal commission also suggests means testing could be altered so that wealthy individuals cover a greater proportion of the costs of their care, and they touched on the thorny issue of including the family home in means testing.

Social insurance is another scheme outlined, which involves compulsory contributions to a pooled fund that is used to finance aged care costs. Germany, Japan, the Republic of Korea, the Netherlands and Luxembourg all finance some of their aged system through social insurance schemes.

Funds could be made either by the government or individuals, or both.

Private insurance or financial products could also be used to finance aged care costs. These products could be used to cover ‘gap’ payments, much like we do in Australia with our private health insurance. France, the United States, Germany, Israel and Spain all have various forms of long-term aged care insurance in place.

Though this type of scheme is unlikely to cover a significant portion of aged care costs, it can be a good way to attract funds from wealthier people.

The report states that the “preferable” outcome would be for a range of these methods to be put in place.

Only justification for change is quality improvement 

Changing the funding model of aged care in Australia will be a costly and time-consuming process, and the costs of any changes must be weighed up against any expected improvements to the quality of care for older Australians. 

Royal Commissioners, the Honourable Tony Pagone QC and Ms Lynelle Briggs AO, said, “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.”

Mr Rooney said, “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.”

You can read the report on the royal commission’s website.

The royal commission is calling for submissions on funding models for aged care. Submissions should be emailed to FinanceOptions@royalcommission.gov.au and will be accepted until close of business Tuesday, 4 August 2020.