Special taxes, social insurance schemes canvassed for aged care

A Medicare-style levy, a compulsory social insurance scheme and asset tested co-payments could all provide mechanisms to fund aged in the future, a discussion paper says.

The Royal Commission into Aged Care Quality and Safety says the cost of aged care will continue to grow as a consequence of the ageing population and expectations of better quality services, and the aged care system will need additional funding to meet community standards and increase the number of home care packages.

“The aged care system needs a secure and sustainable source of funding now and into the future,” the commission says in a consultation paper, Financing Aged Care, which it released last week for public consultation.

“It is already clear that significant reform is required to eliminate the lottery that exists as a result of variable waiting lists to provide additional certainty for Australians that their aged care needs will be met in a timely and affordable way,” it adds.

The consultation aims to inform a more detailed consideration of a smaller set of options and recommendations on the design of future funding arrangements in the commission’s final report.

Options from Australian and overseas

The paper examines how aged care is funded in Australia and overseas and considers a range of options that have the potential to transform the way aged care is funded and delivered.

These range from tweaking the current system of taxes and co-contributions, to fundamental changes such as the introduction of a compulsory social insurance program.

“Social insurance is one possible mechanism for financing social welfare programs,” the paper says.

“By social insurance, we are referring to compulsory contributions to a dedicated, pooled fund which is used to finance the aged care costs of a defined group of individuals.”

A number of countries, including Germany, Japan, the Republic of Korea, and the Netherlands and Luxembourg, finance some part of their aged system through social insurance.

It also says an earmarked aged care levy could be used to raise funds.

“Earmarked or hypothecated taxes have drawbacks but could be employed as sources for financing aged care into the future, either individually or in combination with other measures,” the commission says.

The paper also canvasses introducing asset testing for home care and providing for reverse morgage equity drawdowns, as well as a range of private models including superannuation, private insurance, gap cover and annuities.

It says there is scope for looking at the potential for care recipients to make greater contributions to the cost of their care where they can afford to do so, including via “refined” means testing.

“Initial studies suggest people are prepared to contribute to the cost of higher quality care,” the paper says.

It comes in response to the October 2019 Interim Report of the Royal Commission, which found the aged care system required fundamental reform and a significant injection of funding to achieve the quality and safety desired.

Seeking submissions

Royal Commissioners Tony Pagone and Lynelle Briggs are inviting submissions on the funding options to inform further investigations.

“This is an important debate, and we encourage the Australian community to engage in this conversation in the interests of improving the quality and safety of care for older Australians,” Commissioners Pagone and Briggs said.

Currently, about 75 per cent of aged care funding comes from the Australian Government with the remainder as co-contributions from the user.

This funding has grown substantially over the past 60 years to around 1 per cent of Gross Domestic Product.

However, as highlighted in the commission’s research paper released in January, the proportion of GDP Australia spends on aged care is less than many other comparable countries.

Submissions should be emailed to FinanceOptions@royalcommission.gov.au  by close of business Tuesday 4 August 2020.

Access the paper here.

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