Royal Commission calling for public to have their say on future financing of aged care system – why we will need to pay more

Major news this week with the Royal Commission into Aged Care Quality and Safety not only announcing it would resume its schedule of hearings in July, but also releasing a new consultation paper on how Australia’s aged care system could be financed in the future.

The paper – which runs to 54 pages – says the sector would need a “significant injection” of funding to achieve the need for “fundamental reform” outlined in the Royal Commission’s Interim Report last October.

It puts forward three different approaches:

• Keeping the current system taxpayer-funded aged care with co-contributions from older Australians, potentially through a Medicare-style levy.
• A social insurance or superannuation-style model where individuals would make mandatory contributions to a fund that would then pay for their care later in life.
• A private aged care insurance scheme and other products such as lump sum annuities to pay for aged care costs.

Importantly, the Commissioners say they are working off the basis that Federal funding for aged care services will likely to need to increase from its current level by 50% to 100% to meet the needs of our increasing older population and the demand for people to stay living at home as they age.

That’s up to $44 billion a year – which will be a considerable increase for taxpayers.

Aged care spending in Australia lower than other countries

Under the current funding system, around 75% of funding – $21.6 billion in 2019-20 – comes from the Federal Government with older Australians and their families paying the remainder.

However, aged care spending in Australia only adds up to around 1% of GDP – lower when compared to other countries with similar populations.

The fact is whichever system the Royal Commission recommends to the Government, we will need to pay more for aged care services in the future – especially if we want to have a system which ensures all older Australians have a good quality of life as we age.

Historically, we have paid as we used services, relying on the younger generations to fund our care – but with the numbers of Australians paying tax falling, the funding pool is shrinking.

A social insurance system would be more complicated – and require a changeover period in which people were both paying for their future costs and the older generation – but provide funding to meet the real costs of care unlike today where costs are capped.

Australians to contribute more to their care

The Commissioners say there is also scope to increase co-contributions by changing the existing means testing and assets testing arrangements for residential care, home care and the Commonwealth Home Support Programme (CHSP).

They add that their own research shows people will foot the bill – if they are provided with a higher level of service.

Currently, aged care residents contribute an average of $502 a week to their care – for home care recipients, the average is $30 a week.

That may sound like a lot, particularly in the case of residential care, but many of us can afford to contribute more.

If we want to make lasting change to the aged care system – and ensure every Australian has the level of aged care service that they are entitled to and deserve – we will all have to play our part.

You can have your say on the ideas in the paper – submissions are now open until close of business on Tuesday, 4 August 2020.

You can email submissions to FinanceOptions@royalcommission.gov.au.