It’s complicated: why aged-care funding is still a problem

Aged-care residents are among the most vulnerable in our society, with many reliant on pensions. Kariobinja/Flickr

Recent media reports have highlighted an anomaly in residential aged-care funding in Australia: that day-to-day operations of facilities are governed by both Commonwealth and state government policies. This makes the field ripe for blame shifting.

Consider what happened when New South Wales recently introduced new fire safety regulations for aged-care homes. It led to demands from owners of such facilities for the Commonwealth to pay for the renovations required to accommodate the new rules.

Unfortunately this is an example where everyone can claim to be right. New South Wales certainly has the right to impose fire safety regulations on any building in the state. And the state government is not required to subsidise industries to implement new regulations. Funding of residential aged care is a Commonwealth responsibility, as is regulation of residents’ rights and monitoring of service quality.

Complicated scene

Understanding residential aged-care policy and its implementation is difficult. There are many vested interests with incomes essentially determined by government policies. And this is complicated by the industry’s ability to game the system.

Aged-care residents are among the most vulnerable in our society, with many reliant on pensions for their income support. Staffing is often difficult, leading to instances of peculiar care practises.

Governments respond to periodic crisis talks by commissioning reviews, but the industry seems to only partially implement any recommendations, as the economic or political cost of rational reform proves too difficult.

Governments respond to crises in aged care with reviews. variationblogr/Flickr

In 2009, for instance, recommendations for reform were made by the National Health and Hospitals Reform Commission and the Productivity Commission. Both addressed key weaknesses in aged care. But whether recently announced policy shifts will fully address this litany of weaknesses is a moot point.

Changing funding sources

Residential aged-care funding comes from two main sources – government care subsidies and resident contributions. Until 1997, residential aged-care policy distinguished between hostels and nursing homes. Both had distinct policy parameters in terms of resident contribution structures. Hostel residents were, on average, less dependent in terms of daily living activities and were less sick than nursing home residents.

The main financial distinction related to whether residents had to make a significant capital contribution on entry. Hostel residents had to find capital sums personally, nursing home residents did not.

Since 1997, there’s been a slow harmonisation of these policies, starting with nomenclature (hostels and nursing homes are now called “low care” and “high care” facilities). More importantly, changes in philosophy started to support an “ageing in place” ideal, so people don’t have to move when their care needs change.

The next stage is funding harmonisation. Residents in both types of facilities are now assessed on a single scale with payments varying by resident dependency.

Resident contributions are subject to complex means-testing arrangements. Neither the care payment nor the resident contribution varies by state. This is the result of a policy introduced in 1998 for a “coalescence” of fees.

Queensland and Victoria already have similar regulations to those proposed in New South Wales. kaoticsnow/Flickr

One of the difficulties of developing an equitable (across provider) funding policy relates to the very different capital financing structures in the aged care industry. About two-thirds of residential aged-care services are run by not-for-profit organisations (39% run by private organisations, and the balance made up of mostly state government services).

Differences in ownership type mean different combinations of equity, borrowings and donations as part of facility capital financing. Different locations (remoteness vs inner city, for instance) can also lead to different capital cost structures. Together these factors mean different facilities face very different input costs. Some of these are within proprietor control, and some are not.

Fire safety anyone?

Going back to the fire safety issue I mentioned at the start of this piece, newer facilities may already be compliant with New South Wales’ requirements. But older facilities may find it more difficult to “retrofit” for the requirements. Certainly, there’s a possibility that some facilities, teetering on the edge of viability, may be pushed over the edge by measures like this.

But it’s important to put the New South Wales’ policy response in context. Other states have responded to institutional fires by requiring upgraded fire warning or protection systems. Queensland and Victoria already have similar regulations to those proposed in New South Wales, in response to the Childers backpacker hostel and Kew Cottages fires.

What’s more, facilities in those states were (and are) required to meet the higher regulatory standard without additional funding. At any rate, residential aged care in all states have benefited from a Commonwealth program designed to enhance quality, with one potential use of funds being fire safety upgrades.

Like other areas of social policy, the first response by proprietors facing financial problems is to blame the government for inadequate funding. Whether these claims are reasonable depends on the eye (and pocket) of the beholder.