Cost of Australia’s aged care system to soar to $36bn a year if cheapest royal commission reforms adopted
Australia’s aged care system will require at least $36bn each year if the Morrison government adopts the royal commission’s cheapest recommendations to address neglect and abuse and realise a right of care for older Australians, economists have calculated.
The roughly $9bn per year additional cash will be required to fund tens of thousands of extra home care packages, and the cost of increasing staff qualifications, ratios and pay across home and residential aged care.
The additional funding will be needed on top of the current annual spend on the system – which was $27bn in 2018-19, when $20bn came from the government and the rest from state and territory governments and recipient contributions – that the royal commission’s interim report found “diminishes Australia as a nation”.
Economists from Deloitte and the Grattan Institute have made conservative estimates that between $7.6bn$8.7bn more will need to be spent on aged care each year, but told the Guardian if the government instead opts for the most ambitious and costly reforms recommended by the royal commission, additional yearly costs could soar to $15.5bn.
The royal commission, in noting that 1.2% of Australia’s GDP was spent on aged care compared to 2.5% with comparable countries, laid bare the massive funding boosts the sector needs to deliver safe, quality and timely care to older Australians.
However no specific costings were provided, in part because the commissioners, Tony Pagone and Lynelle Briggs, were not unanimous in their 148 recommendations regarding governance and how best to raise the billions of extra dollars needed.
On Monday, when announcing an initial injection of $452m, Scott Morrison was coy about whether he would implement an aged-care levy recommended by both commissioners, noting his government’s opposition to tax increases.
The Morrison government will respond to the recommendations, and outline its plan for how the required additional costs will be shared between taxpayers, recipients and providers, in the 11 May budget.
Kristian Kolding, a partner at Deloitte Access Economics who was lead author of a research paper about aged care funding that was provided to the royal commission, predicts that by 2025 – by which point the recommendations for key reforms will have been implemented – the sector will need slightly more than $8.7bn extra each year to meet new standards.
By 2030, when all reforms are in place, this additional cost would grow to $11.1bn per year. If the government adopts the most ambitious reforms, additional yearly costs could reach $15.5bn, Kolding said.
Kolding provided three separate funding models to the royal commission – for mild reform, medium reform, and very strong reform – and said the most modest recommendations made in the final report would cost slightly more than the medium reform he proposed.
“Describing $8.7bn per year as modest is crazy, but the commission’s recommendations are massive.”
Kolding’s estimates do not include the initial costs of establishing a new body to govern aged care suggested by Pagone, and a potential abolishment of the Aged Care Quality and Safety Commission and establishment of a new regulator suggested by Briggs.
Kolding said these costs will be “dwarfed” by the increased cost of carer wages required long term, across home care services and residential facilities – where the commission recommended at least 200 minutes of care per resident per day with staff of a minimum Certificate III training, plus a registered nurse on shift at all times.
However Kolding said raising the funds is possible, noting that the 1% levy proposed by Briggs would generate about $10bn a year. Royal commission research found that a majority of taxpayers are willing to pay increased taxes to fix the sector.
One of the commission’s key recommendations was clearing the waiting list for home care packages – which has consistently remained at about 100,000 people – by December this year.
Kolding also said if the government agrees to the home care package recommendations, his estimate of $8.7bn “would be on the low side” given the comparative expense of this service.
“It’s pretty simple stuff. It’s just more time spent with recipients, from higher qualified staff who will be paid more,” Kolding said.
Stephen Duckett, health program director at the Grattan Institute and former secretary of what is now the department of health, said the “dramatic” increases in staff will be the main trigger behind additional costs.
Duckett believes the cheapest path forward recommended by the royal commission will cost more than the $7.6bn per year reform the Grattan Institute proposed last year, because while it was overwhelmingly similar, their model didn’t cost the pay rises recommended in the final report.
Duckett said home care packages would account for about half of the projected $7.6bn spend.
Regarding residential providers, Duckett said: “The providers, especially for profit providers, have extracted profits by understaffing and underfeeding. With the increasing accountability recommendations, they’ll be able to do less of that, as with the minimum staffing standards and new higher pay requirements for staff.”
“You’ve got to take what the providers say with a grain of salt,” Duckett said, noting how the sector had previously pointed to doubling the GDP – a roughly $20bn per year increase – ahead of the final report being released.
However providers have resisted demanding a specific figure for desired funding boosts since Monday.
Patricia Sparrow, chief executive of Aged and Community Services Australia and part of the newly launched Australian Aged Care Collaboration – an alliance of providers responsible for about 70% of services in Australia – is pinning her hopes on the recommendation for an independent pricing authority to determine the cost of care.