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What the Caring for Older Australians report means for the future of aged care

The Gillard government can expect resistance to implementing the report’s recommendations. AAP

What is the most remarkable aspect of this report?

The Productivity Commission is proposing an important set of reforms with its Caring for Older Australians Report.

These reforms chart a way to cut through a funding knot that has prevented us from moving ahead with effective and integrated aged care funding.

Since the mid-1990s, we’ve only been able to fund the capital cost of residential care for low-care units because there are political obstacles to requiring or even allowing older people to make a capital contribution to their residential accommodation.

The argument was that the public sector should pay for it – it should be like going into a public hospital.

So we’ve got an aged care industry that’s starved of capital for nursing home-type accommodation.

That’s the knot and it’s resulted in high-level residential care drying up because it’s difficult to fund the building of new units.

This means that people haven’t been able to get access to high-level care even if they could pay for it.

What this proposal does is make funding much more equitable, much more transparent and much more effective.

So how will financing of aged care accommodation change?

One of the options that people can take, if they have the means, is to pay an accommodation bond, which means they contribute their own money up to a certain amount.

This bond is returned to them or their heirs according to a formula that will take into account how long they’ve been in care and other factors. It means they are loaning the provider money to cover capital costs.

One of the ways people could do this is through the use of the equity in their home but they don’t have to sell their home.

What they will have to do is to accept that the size of their estate will be smaller when they die because some of it will go into paying for their care.

People can also choose to pay daily charges for the capital costs as an alternative to making an accommodation bond, and government can meet the costs on a means-tested basis for those who cannot pay themselves.

There will be lots of options and choices for mixing private money and public money in an equitable way and that will bring investment back into the industry that’s been very difficult to raise for more than a decade.

Accommodation costs and living costs are going to be means tested in the same way as the age pension is means tested.

Until recently, we haven’t been means testing the accommodation part of high-level residential care – it’s all been bundled into the nursing home or else paid for privately to hostels.

The Productivity Commission is proposing ways to separate out these kinds of support and equitably determine who is responsible for paying for what.

Means testing will not be carried out by the individual aged care providers; it’ll be done basically the same way as the means test on the aged-care pension.

One of the most important things in this report is that it separates accommodation costs, living costs and care costs. This will give people more choice about their care arrangements, including more flexible capacity to stay in their own homes.

How will this change the way older people access care?

Right now, the only way you can access highly subsidised aged care is by going into a nursing home but a lot of older people won’t go because they don’t want to live in an institution – for many, it means losing their identity.

But if you unbundle or separate the accommodation and the care part, then you can mix and match and fit it together to suit your own needs.

So, you could more easily stay at home and get a high level of care – that’s what this report makes provisions for.

So you could meet your private costs for accommodation, even pay more if you can (if you want higher levels of accommodation), and still get a large public subsidy for your care on the basis of your needs.

You could have mixed-care support from your caregivers and your own self-care can play a part too, which is also really important.

Or you could access care in the community or residential care with a public subsidy and your co-contribution would still be limited.

What sort of resistance can we expect to implementing the report’s recommendations?

Some consumer groups understandably don’t like the idea of older people potentially encumbering the value of their home to pay part of their care. They don’t even like it if it’s means tested or minimised.

The home is very emotively important and many older people understandably want to be able to leave all of their assets as an inheritance for their children, which of course is totally tax free.

The same issues came up when we started to asset test the aged pension back in the early 1980s and now, at a time of financial stringency, at a time when aged care needs more investment, we’re proposing to apply means testing to accommodation and care.

The objections are also partly because some of us have quite idealistic views of what government should do – why can’t we just pay for all of our aged care from taxes in the way that we pay for public hospital care, for instance by bulk-billing Medicare?

Well, because we don’t have the public money to pay for all of it and it’s quite inequitable to ask all taxpayers of all ages, even those on modest earnings, to pay for accommodation and care for people who could meet more of their own costs.

How much should taxes subsidise older people who have very large amounts of wealth in their homes and who are otherwise just going to leave it to their heirs?

And why should poor older people have less access to accommodation and aged care because governments must severely ration expenditure?

The point is to provide adequate care and provide it equitably and the report has put together quite a comprehensive and carefully thought through package that manages to address the hard finance questions.

These questions are tough but they need to be answered before many more baby boomers reach old age.

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