Home Care Package unspent fund balances are often raised in conferences and Department of Health and Aged Care communications as evidence of sub-optimal program outcomes.
The balances are then used to support the argument that reforming consumer budgets is necessary. This narrow view of unspent funds appears to be a driver behind moving from open-ended consumer budgets to a quarterly budget that is reset at the end of each cycle.
Are they really a problem though? Or should we be taking a broader approach to assessing their role in financial management of the Home Care Packages Program?
I would argue that far from being evidence of problems in the HCP program, they are, in fact, a sign of its success.
Total unspent funds are now likely to be more than $3.5 billion based on December balances, and the rate of increase in the prior calendar year. While this is a large number, it is important context that Treasury holds most of this cash presently and will hold the entire balance within a short period of time.
The related problem of underutilisation of funding is illustrated by the most recent quarters of StewartBrown data, which indicates that approximately 85 per cent of funding is being used by consumers at any given time. Averages, of course, hide the larger story of the flexibility that consumers have to spend more or less than this average as they need it.
I’m not sure whether any figures are available to indicate the total value of unspent funds that have been held or recycled since the HCP Program commenced. It is clearly in the billions of dollars.
These are funds that would have been paid to organisations for care services under the old CACP/EACH system and are being pushed by the department to be spent in the Support at Home program, whether they are adding value or not.
Under the HCP program, they have been recycled to Treasury to use as appropriate on other government services. There are several market incentives that drive these balances.
Firstly, the indefinite nature of balances means there is an incentive for consumers to keep them for a rainy day, thus increasing their sense of security around their future care needs. This encourages consumers to only spend what they need. Because of the unexpected nature of events that often see people leaving the home care system, the balances rarely get spent.
Secondly, the capacity to spend funds on larger purchases often means that consumers build balances in preparation. In some cases, consumers leave the system before these purchases are made.
Whether the unspent funds are a problem or not hinges on whether consumers are truly being under-serviced by their current arrangements when they choose to spend below the funding cap
Thirdly, the inflexible nature of the funding cap means that a natural risk buffer is needed by organisations against human error, or unexpected events that may create additional costs. In cases where organisations’ back-office systems do not create reliable information, we tend to see these buffers increased by care manager behaviour.
Fourthly, the change to having balances held by Services Australia has removed them from provider balance sheets. They are now out of sight, out of mind for finance departments, and less likely to be driving the behaviours that would put downward pressure on them.
If we move to a quarterly budget that is forfeited at the end of each cycle, the incentive for all participants to spend it will be much greater.
Organisations will become more effective at extracting full value from them in cooperation with consumers, whether the additional services add value or not. This is because everyone involved in the spending decision has a definite quarterly target, and the incentive regarding future security has been removed.
The question as to whether the unspent funds are a problem or not then hinges on whether consumers are truly being under-serviced by their current arrangements when they choose to spend below the funding cap.
This is not a complaint we’re hearing across the industry. In fact, all stakeholders other than consumers seem incentivised to maximise funding utilisation, so logically, we can conclude that it is largely consumer decision-making that is driving these balances higher.
It is fair to ask whether any stakeholder is likely to benefit from the proposed quarterly budgets
I’m yet to come across an organisation that doesn’t want to facilitate consumer expenditure as close to the funding cap as possible.
The response to this from the proposed Support at Home program structure is that service design will become more prescriptive. Where the HCP program provides a buffer for consumers to scale their services up and down as needed, Support at Home will require more regulation to achieve what the market does currently, and at greater administrative cost.
What is often overlooked in system design is that the cost per hour of service is a secondary consideration to the cost per consumer. While Support at Home is designed to put downward pressure on the cost per hour, this is another of several examples where I would expect to see the cost per consumer increase. This will be a result of incentivising increasing hours of care to be delivered for each consumer.
My belief is that the proposed quarterly budget is likely to push home care costs and provider revenue up by at least 10 per cent, simply through a change in incentives all else being equal. At the same time, it is likely to shrink margins for providers, and reduce security and choice for consumers.
It is fair to ask whether any stakeholder is likely to benefit from the proposed quarterly budgets.
Jason Howie is a partner at Pride Aged Living
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