In this Q&A, Inside Ageing spoke with Professor Henry Cutler, Director of the Macquarie University Centre for the Health Economy (MUCHE), ahead of the release of annual MUCHE Health Report on 15 May 2023, containing an analysis of the Federal Budget announcements for health and aged care.
The 2023 Federal Budget will reveal an estimated $29.6bn cost attached to aged care – up from $24.8bn – an increase of 23 per cent. This makes aged care the 5th largest area of Federal Government expenditure. Against this backdrop, aged care providers are closing their doors and 70% are operating at a loss.
IA: How sustainable is it for the Government to keep investing more in aged care in the long run?
Prof Cutler: Increased budget costs reflect Royal Commission recommendations being progressively implemented by the Australian Government, such as additional funding for better food, more nurse time and an increase in Home Care packages.
This shouldn’t come as a surprise. Last year’s budget estimated that the Government would spend more on aged care this financial year than on public hospitals for the first time in history. The Treasury’s most recent Intergenerational Report similarly predicted a substantial increase in aged care costs for 2023-24 resulting from reform announcements in 2021.
The Australian Government still needs to invest substantially more if the sector is to meet quality expectations expressed throughout the Royal Commission. The marginal cost of increasing quality is not currently funded through AN-ACC prices.
There will always be enough Government revenue to cover aged care costs, but competing demands from other portfolios, such as a growing healthcare demand, means the question of sustainability comes down to how the Government chooses to allocate its budget revenue.
Star Ratings allows consumers to better avoid poor care quality. But it also provides the Government a better opportunity to monitor whether additional funding for care reflects value. The Government will need assurances from providers that any additional Government funding will be spent on improving care, rather than lining pockets.
IA: We have the peak body ACCPA calling for a national conversation about consumer contributions and the big aged care providers are straight-out calling for the Government to uncap daily fees for wealthier residents ‘now’ in order to save the sector from collapse. Either way, it would seem there is an urgency for a greater contribution from the public. What’s your view on this approach and how likely is it for a Government to go down this road?
Prof Cutler: Uncapping daily fees for wealthier residents will not save the residential aged care sector. It would only help improve the financial performance of providers operating in wealthy areas. It will not help providers outside capital cities where there are few wealthy residents. The only long-term solution is for residents and the Government to contribute substantially more funding.
Price caps are primarily used to ensure providers do not price exploit consumers, given their frailty and unfamiliarity with residential aged care. Consumers are confronted by a complex aged care system and make decisions with limited time and under distress. They have limited opportunities to ‘shop around’. They cannot easily change facilities if they’re not happy with their choice.
As the use of Star Ratings matures, consumers may be able to better compare the quality to prices, but the opportunity to price exploit consumers could remain. Until bed licenses are removed there will still be substantial barriers to entry for new facilities. That means the pressure to keep care prices down if caps were removed could be muted, particularly in areas with high occupancy rates, unless there is a strong threat of entry.
Given the expected shift towards greater competition, the Government should explore uncapping daily fees because it could mean better services for some residents. This should only happen once Star Ratings are mature and bed licenses are removed. It still may need to implement market monitoring once daily fees are uncapped to ensure residents are not price exploited.
IA: We’re looking forward to reading your Macquarie University Centre for the Health Economy (MUCHE) report analysing the budget, including what has been missed. Any chance you can provide a preview as to what the aged care sector can expect?
Prof Cutler: I suspect there will be limited budget announcements related to aged care. The current Government is working its way through the reform agenda set by the prior Government. Surprisingly, there hasn’t been much deviation from this agenda given new Governments typically like to put their stamp on change.
We can expect some further attention to be placed on the expected increase in aged care expenses over the forward estimates. It seems the Government is already anticipating this, announcing that expenditure will be $36 billion by 2025-26. The real financial pressure will start after those forward estimates because that is when the baby boomers start to turn 85, the average age of entry into residential aged care. That important conversation will likely be missing from this Budget.
IA: Thank you