IGR: In aged care, funding delivers quality, safety and economic impact

Over the coming month, Public Accountant is taking a deep dive into the sixth Intergenerational Report.

Released twice each decade since their production was legislated in the late ’90s, Australia’s Intergenerational Reports are 40-year fiscal projections. IGR6 forecasts the demands on Australia’s budgets to 2063.

This first instalment in the series looks at projected demand for aged care, as well as funding to match that demand over the coming decades. Over the rest of this series, we will examine:

• Labour force participation
• Productivity and its impact on living standards
• Commonwealth budgets and taxation

Support and care for older Australians is subsidised by the Australian government, including funding for residential aged care and a range of community care services that increasingly take into account home care.

Total federal funding for aged care was $30 billion in 2022–23, up from $24.8 billion in 2021-22. A Department of Health and Aged Care representative told us this is expected to increase to $36 billion in 2023-24 and $42 billion by 2026-27.

Over the next several decades, though, according to the Intergenerational Report 2023, aged care costs as a proportion of GDP are projected to more than double, from 1.1% in 2023 to 2.5% in 2062/63.

The key driver of this dramatic rise is the ageing population.

“The number of people aged 80 and over is expected to triple over the next 40 years, to more than 3.5 million people,” the report says. “This will exert considerable pressure on aged care spending.”

It’s not just the ageing population, though.

“We do have a very big shift with the ageing population and the numbers of people who will be requiring aged care,” Dr Fiona Macdonald, Policy Director at the Centre for Future Work at the Australia Institute, says.

“But also, there are pressures that are meaning we have to pay more for aged care. It has been made very apparent through the Royal Commission into Aged Care Quality and Safety that aged care has been neglected in a number of ways, and particularly in relation to staffing.”

Macdonald cites recommendations over the past decade, at least, for changes in both numbers and composition of staffing.

“Around 2010, regulation of the composition of aged care staff was removed. We saw a drop in skilled nursing staff to lower-skilled staff. We lost registered nursing staff, and they were replaced by personal care workers,” she says.

Macdonald says that needs to be fixed, and the task has already begun.

The current government has implemented ratios of registered nurses per person in residential aged care.

Pay increases of 15% for aged care workers have also been agreed, leading to an extra $30 billion Budget cost over the forward estimates, with contingency reserves set aside in anticipation of further wage increases, Macdonald explains.

Regulation and registration add cost

Other financial pressures come from increases in the cost of the provision of care, particularly medical procedures.

As the population ages and the number of people over the age of 80 triples, there’s an increase in incidences of “frailty, disease and disability within the population of care recipients”, the Intergenerational Report says.

“When we’ve got a lot more older people, we’ll also have high rates of dementia, for example, which requires the kind of support that can’t be provided at home,” Macdonald says.

This increases the number of people requiring aged care places, as well as the expertise and capabilities needed within aged care facilities. Macdonald says that the registration of aged care workers, to ensure a good level of governance over who is supplying care, will add to the cost of the system.

“There’s a strengthening of the requirements for their employers too, to ensure all of their people are appropriately skilled and trained,” Macdonald says.

“So, all of those much needed reforms are costing money. But still, the main factor driving the increased cost of care is demographic.”

It would be a mistake to consider the aged care sector in Australia as purely a cost, though.

“Aged care contributes quite a lot to the economy. Health care and social assistance is now the largest industry and the fastest-growing industry. There are a quarter of a million aged care workers and there’s likely to be that many again in the period we’re talking about,” Macdonald says.

“If we’re not funding aged care properly, we're not going to be paying those workers properly.”

Half a million underpaid workers would do no favours to the economy, at the same time as performing what Macdonald calls “a downgrade in terms of quality and safety”.

Aged care is a challenge for all of society

The aged care challenge is complex and has personal, professional and policy implications at all levels of society.

Consider that as we live longer, we will also have to work for longer. We likely won’t have time to look after elderly family members, who may be healthy enough to age at home or may require the services of an aged care facility.

In the past, a typical household model involved a male breadwinner who went out to work and a female partner who looked after the domestic duties – this included care of elderly family members.

But with women’s increased labour force participation, and with recent increases in living costs, house values and mortgages, that model is long gone.

And so, it’s vital that organisations pull their weight in terms of providing carer-friendly processes and policies for all employees in their workforces.

“We’ve had recognition in recent [...] industrial relations reforms, with some strengthening of rights to request flexible work,” Macdonald says.

And that ongoing flexibility – as opposed to additional leave for specific circumstances – is key to keeping people in the workforce while they balance caring responsibilities.

“We don’t especially need more carers’ leave. The Productivity Commission just released a report recommending it wouldn’t help many people – if you’re living with an elderly relative in your apartment, having two weeks off is not all that helpful,” Macdonald explains.

“What we need is more flexible working arrangements that enable people to care while they work.”

Home care is the future

Flexibility at work is particularly important as ageing at home will become a significant part of the solution, with spaces at care facilities saved for those who need them most.

Macdonald points out that this shift would align with many older people’s preferences to be cared for in their homes rather than in residential aged care.

“Home care is cheaper because it provides for people who don’t require intensive, daily oversight – those people who do require intensive, round-the-clock care will be in residential care,” Macdonald says.

Of course, what looks on paper like cost-effective aged care is, on closer examination, simply a shift of the costs of care away from the formal aged care system. When home care provides assistance with specific tasks and the remainder of the older person’s needs are met by family and other community members, this has an impact on those unpaid carers’ workforce participation.

Macdonald says this balance of paid and unpaid care – between skilled care available to those ageing in their homes and the involvement of family – must be closely considered.

“If we want good-quality aged care, and we’re talking about the aged care workforce, you can have in place all sorts of policy levers and regulation to have a good quality, skilled workforce paid for by the government,” she says.

“But you've got to have service providers providing good supervision and training, and you’ve got to have family and community members who have the flexibility to play their role, or it’s just not going to work.”