In 2007 the gap between a client’s daily living expenses and the income received from the basic daily care fee was $16.10 per day.

Some 10 years later that gap has doubled to $32.12 per day further highlighting that an increasing proportion of ACFI income is going towards meeting these costs rather than the “direct care” costs.

We often talk about the cost of care and compare that to the level of ACFI income being received as though all of that income should be spent on the direct care of residents – predominantly their health care.

However a significant proportion of that ACFI subsidy also contributes to the cost of everyday living expenses including administration and support services costs.

The gap between these costs and the other major source of income, the resident basic daily fee, has been growing for some time which means that an increasing proportion of ACFI income is going towards meeting these costs rather than the “direct care” costs”.

A basic daily fee is used to contribute towards the day-to-day living costs of an aged care resident such as meals, cleaning, laundry, heating and cooling.

The maximum basic daily fee is 85% of the single person rate of the basic Age Pension and is indexed twice a year in March and September. The current basic daily care fee is $48.44 per day.

We are entering an inflationary period where utility and living costs will be rising, and an example is the key aged care expenditure items such as gas and electricity.

In real terms – that is, taking into account the general increase in prices across all goods and services – prices for utilities increased on average by 72% for electricity and 54% for gas in the 10 years to June 2013 according to the Australian Bureau of Statistics.

As the sector struggles to find efficiencies, and in some cases invent new income streams such as the Asset Replacement Charge (ARC), it is likely that a more pragmatic view must be taken by the sector to float the daily care fee.

The concept of floating the basic daily care fee is one where the fee value is allowed to fluctuate in response to the client’s ability to pay and any market mechanisms that might create competition or price tension.

An important context for this approach would be to ensure a floor price remains at 85% of the single pension to ensure that those without means, undertaking respite or enduring hardship have a suitable safety net to fall back on.

The sector, particularly Government, has viewed a fixed fee as preferable for its greater stability and certainty. However, as basic living costs continue to rise floating the fee may dampen the impact of sector sovereign income shocks (such as ACFI changes) and business cycles (such as deregulation).

Floating the fee may also create unpredictability as a result of the speed and price at which providers take it up, but carefully managed this risk would be minimal and limit the invention of fees such as the ARC.

The StewartBrown September 2017 Aged Care Financial Performance Survey (ACFPS) collected data from over 800 facilities with the final data set representing a total of 778 facilities across Australia. It provides a detailed report on the performance of an RACF against similar organisations and the market generally. This data will be increasingly important for executives and boards to understand their own business and the emerging trends across the sector.