Increasing user contributions fairly

There are better ways to boost co-contributions and provider viability than targeting the family home, writes Tim Hicks.

The prime minister’s statement that government won’t change the treatment of the family home in the aged care means test is the right call. There are better and fairer ways to increase private aged care contributions.

In effect, the home already fully counts for determining whether a person pays for their own accommodation. Lifting the home exemption cap basically means making most people co-pay for the care part.

Aged care should be consistent with our broader health and welfare system. Government should pay for care, letting people top up if they want. Individuals pay for and choose their lifestyle and living arrangements subject to a safety net.

There’s a chance that people already paying the means-tested care fee will end up paying more through the removal of the annual and/or lifetime caps on private contributions to care. But this is a small proportion of people. And the rate of additional contributions per dollar of income or assets is very low.

Tim Hicks

The other problem with increasing the means tested care fee is that it just reduces government spending; it doesn’t put more money into the system.

The real question is what government does about lifestyle and accommodation costs.

People already pay for most of their lifestyle costs through the basic daily fee, which is equivalent to 85 per cent of the single pension. However, this now falls short of the actual average cost of these services. Government also provides the $10.85 hotelling supplement, but this still isn’t enough.

The most popular idea seems to be the proposal from accounting firm StewartBrown to lift the supplement so that it covers the average cost. But only for supported residents. The other 60 per cent of residents would need to pay the extra cost themselves.

The tricky question for government will be how to deal with a possible increase in pay for non-care staff under Stage 3 of the aged care work value case underway at the Fair Work Commission.

It’s hard for government to ask individuals to fund this since paying for this pay increase is one of their election commitments. The simple and prudent thing is probably just to keep some sort of hotelling supplement for all residents and adjust this up to cover any cost increase related to the FWC case. It should be small dollars in the grand scheme of things.

This approach still leaves the awkward and complicated additional services regime as the only way providers can charge more for delivering better services. But that may be something the sector just has to live with.

On the accommodation side, the most obvious and hopefully uncontroversial change is lifting the soft cap requiring special approval for refundable accommodation deposits worth more than $550,000. This is long overdue given house price growth over the period that it has been in place.

There have also been lots of proposals to let providers retain some of the RADs they take, reinstating arrangements that were removed in 2014. This just means that providers will be able to get a sustainable payment for accommodation with smaller RAD. It’s not clear whether this will go through, but proposals to remove RADs altogether seem unlikely to be successful.

The best approach to accommodation funding would be to just remove all the complicated rules and let providers and individuals agree on a price and payment mechanism that suits them – like we do with retirement living. Government probably won’t go this far. But we should still see positive reform that improves significantly on current arrangements.

There is also the issue of private contributions for home care – which is something that tends to get overlooked. There is already a reasonable contributions framework for the Commonwealth Home Support Program and the most logical approach is to extend something similar for Home Care Packages. This would mean some level of co-payment for all levels of home care.

Government can then use money it saves from co-contributions to pay for the additional home care packages needed to stop the home care queue from growing.

Australia is at a point now where putting off funding reform for aged care isn’t an option.

Government can’t keep diverting funds away from people struggling with the cost of living to subside lifestyle and accommodation costs for older people who have the capacity to pay for this themselves.

Government also needs aged care providers in a sustainable financial position so that they can start investing in more beds to take pressure of the hospital system.

Faced with this dilemma, asking people who can afford it to cover the cost of their own accommodation and lifestyle services should be an easy call for politicians on all sides.

Tim Hicks is the Executive General Manager of Policy and Advocacy at national not-for-profit aged care provider Bolton Clarke. Views expressed here do not necessarily reflect the views of the author’s employer.

Tags: bolton clarke, consumer-contributions, financial viability, funding, funding reform, sustainability, Tim Hicks, user-pays,

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