New Aged Care Reforms - More "user pays", but only if you are a self-funded retiree…
Australia, in common with almost all western developed countries, faces major issues associated with the provision of aged care services to rapidly ageing population. This is accepted as an unalloyed truth by almost all parties, but where it becomes difficult is how to fund those services.
During the course of this week the Labor government announced a broad set of reforms to Australia's aged care sector, reforms which were agreed in concert with a Liberal National party, aimed at improving the sector's long-term sustainability. We intend to summarise those reforms at a later stage when more details are available, but comment on some of the major changes later in this article.
Firstly, we need to indicate that while we accept the need for additional funding, we are not in support of the funding approach. Also, while we also support the principle of "user pays", we continue to believe that basic funding for aged care should take the form of a national insurance payment or levy, like Medicare - with individual contributing only when accommodation is chosen above the (high) basic standard. If ever there was a situation where an insurance approach was appropriate - since everyone ages - this is it. Such a mechanism should come however with protection for a younger age groups, who are already clearly disadvantaged in terms of their tax position versus older generations.
Alternatively, and this is where we have a concern that we have "the politicians we deserve", funding could come from a wholesale review of the taxation and superannuation system in Australia. Intrinsic to this could/should be an understanding that changes - in terms of capital gains tax, treatment of the family home, SAPTO and the taxation of superannuation - may more adversely impact the older age groups. It is not clear to us that the Australian tax system can still be described as "fair" on a generational basis. Unfortunately, in the absence of an existential crisis, our politicians appear unable to even contemplate any measure of substantive tax and super reform.
In terms of the new proposals, the government proposes that individuals receiving aged care support should pay more, but only on a means tested basis, with the result that it is only those on partial pensions and more particularly self-funded retirees who will bear the burden of significant cost increases. So, we again have a situation where that (narrow) part of society which calls on direct government support the least, and has often chosen saving versus consumption throughout their life, picks up the tab. This is particularly the case with residential aged accommodation compared to home care, which we examine below.
Residential Aged Care Changes
The government has summarised the main changes to residential aged care as follows:
- Larger means-tested contributions from new entrants.
- A higher maximum room price that is indexed over time.
- The retention of a small portion of refundable accommodation deposits by providers.
- The treatment of the family home won't change
- Half of new residents will not contribute more under the new consumer contributions:
- All “fully supported” residents will not contribute more.
- 7 in 10 full pensioners will not contribute more.
- 1 in 4 part pensioners will not contribute more.
In translation, what this means for self-funded retirees is basically:
- All new entrants - current entrants are grandfathered - will pay higher admission costs, and a portion of those costs will be retained by aged care providers
- We don't regard the fact that the treatment of the family home won't change is a benefit, unless you are a politician. There are a number of pensioners residing in large, expensive homes who will continue to have no incentive to downsize - and will pass on their homes to their children on a tax-free basis.
- While most full and part pensioners will not pay more under the new system, it seems that all self-funded retirees will.
Finally, two points:
- Part of the urgency surrounding the recent aged care changes has been a concern that the aged care accommodation system is failing - with a significant number of aged care homes making losses. We have some concern that this may not be the entire story - with some providers still making substantial surpluses. We wonder to what degree this is another case of the government being too far removed from the activity to make valid business decisions.
- The system simply continues to remains too complex and largely impenetrable to anyone who does not work within the system on a regular basis and these reforms have not improved the situation.